Disclaimer of Coverage Not in Bad Faith When No Intent to Delay and Arguable Basis for Denial Existed

On January 22, 2015, the First Department issued a decision in S Bros. Inc. v. Leading Insurance Services, Inc., 2015 NY Slip Op. 00603, discussing the standard for bad faith refusal to defend under an insurance policy.

In S Bros. Inc., the "[p]laintiff commenced [a] declaratory action approximately one month after asking defendant to reconsider its disclaimer of coverage in connection with the underlying action. Just over a month later, defendant rescinded its disclaimer of coverage and agreed to provide plaintiff with a defense in that action and to reimburse it for the reasonable legal fees it had already incurred therein." The First Department agreed with the trial court that the "defendant's initial refusal to defend" was not "an act of bad faith," explaining:

The record does not evince a conscious campaign calculated to delay and avoid payment on plaintiff's claims. Moreover, defendant had an arguable basis for disclaiming coverage. Although the plaintiff in the underlying action asserted a claim styled "breach of fiduciary duty and negligence," her factual allegations of the knowing release of private medical information to an unauthorized third party, could fall within the policy's exclusion for injury caused by the insured with the knowledge that the act would cause the injury.

(Internal quotations and citations omitted) (emphasis added).