Pardalis & Nohavicka Insurance Law Update: “Arguable Basis” For Disclaimer Defeats Claim of Bad Faith (1st Dep’t)

Insured commenced a declaratory action one month after asking the insurer to reconsider its disclaimer of coverage in connection with the underlying action. A month later, insurer rescinded its disclaimer of coverage and agreed to provide insured with a defense in that action and to reimburse it for the reasonable legal fees it had already incurred.

But the insured insisted that insurer's initial refusal to defend it was an act of bad faith. The court disagreed noting that there was no conscious campaign calculated to delay and avoid payment on the claim, and that insurer had an arguable basis (“knowing release of private medical information to an unauthorized third party, could fall within the policy's exclusion”) for disclaiming coverage.

S Bros. Inc. v Leading Ins. Servs., Inc.
http://www.courts.state.ny.us/reporter/3dseries/2015/2015_00603.htm