A New York federal court has broken new ground and laid a foundation for insureds to pursue damages flowing from bad faith claim handling practices. In a significant decision for policyholders, the Southern District of New York has clarified that bad faith claims (and the consequential damages that accompany them) are not limited to first-party insurance disputes. In Renergy, Inc. v. Mt. Hawley Ins. Co., No. 25-CV-5073, 2026 WL 1192415 (S.D.N.Y. May 1, 2026), the court rejected an insurer’s argument that New York law categorically bars bad faith claims stemming from third-party insurance.

The decision confirms that bad faith conduct may occur equally under property and liability policies and provides important guidance nearly two decades after Bi-Economy and Panasia, where the New York Court of Appeals held, in a first-party insurance dispute, that an insured may recover consequential damages for an insurer’s breach of the duty of good faith and fair dealing when those damages were reasonably within the parties’ contemplation at the time of contracting. The decision also underscores the availability of consequential damages for claims arising under either line of coverage.

Reprinted courtesy of Michael S. Levine, Hunton Andrews Kurth LLP, Cary D. Steklof, Hunton Andrews Kurth LLP and Torrye Zullo, Hunton Andrews Kurth LLP

Mr. Levine may be contacted at mlevine@hunton.com
Mr. Steklof may be contacted at csteklof@hunton.com
Ms. Zullo may be contacted at tzullo@hunton.com