Insurance Bad Faith Demand Letter - New York

INSURANCE BAD FAITH DEMAND LETTER

State of New York

[LAW FIRM LETTERHEAD]

SETTLEMENT COMMUNICATION — FOR RESOLUTION PURPOSES ONLY
ADMISSIBILITY GOVERNED BY N.Y. CPLR § 4547 AND, IF APPLICABLE, FED. R. EVID. 408

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED — ARTICLE NO. [________________________________]
AND VIA EMAIL TO: [________________________________]

Date: [__/__/____]

[INSURANCE COMPANY FULL LEGAL NAME]
Claims Department — [Property / Liability / Life / Disability] Claims
[________________________________]
[________________________________]
[City], [State] [Zip]

Attention: [________________________________], [Title]
AND TO: [________________________________], General Counsel

Re: FORMAL BAD FAITH DEMAND — NEW YORK LAW
Insured: [________________________________]
Claimant: [________________________________]
Policy Number: [________________________________]
Claim Number: [________________________________]
Date of Loss: [__/__/____]
Policy Limits / Benefits at Issue: $[________________________________]
Amount Currently Owed: $[________________________________]
Total Demand Including Consequential Damages: $[________________________________]
Demand Expiration: [__/__/____] at 5:00 p.m. Eastern Time

Dear [________________________________]:

I. INTRODUCTION — NATURE OF DEMAND AND CRITICAL NOTICE

This firm represents [________________________________] ("our client" or "the insured") in connection with the insurance claim identified above. This letter constitutes a formal pre-litigation demand for payment of all amounts owed under the policy and for consequential damages arising from [________________________________]'s (the "Company" or "[short carrier name]") breach of the implied covenant of good faith and fair dealing under New York law.

This demand is directed simultaneously to the Claims Department and to General Counsel because the conduct described herein raises litigation exposure that transcends routine claims handling and requires senior legal review.

Critical New York Law Disclosure

Before proceeding, we note the following features of New York bad faith law that distinguish this jurisdiction from most other states and that our client fully understands:

Notwithstanding New York's narrower bad faith framework, [short carrier name]'s conduct in this matter exposes it to substantial consequential damages, regulatory penalties, and — if the facts warrant — punitive damages under the standards established by the New York Court of Appeals.

II. NEW YORK BAD FAITH LAW — DETAILED FRAMEWORK

A. No Independent Tort — Breach of Covenant of Good Faith

In New York, bad faith is not a separate tort. Rocanova v. Equitable Life Assur. Socy., 83 N.Y.2d 603 (1994). The New York Court of Appeals has firmly held that an insurer's failure to pay a claim in good faith gives rise to a cause of action for breach of the implied covenant of good faith and fair dealing — which is a contract claim, not a tort claim. Consequential and punitive damages may be added to the contract remedy if the applicable standards are met.

This framework means:

• The insured may recover all foreseeable consequential damages flowing from the breach, not merely the policy benefits owed
• The insured may not, however, simply label a contract claim as "bad faith" to obtain tort damages — the conduct must be specifically egregious

B. Consequential Damages — The Bi-Economy Standard

The landmark decision in Bi-Economy Market, Inc. v. Harleysville Ins. Co., 10 N.Y.3d 187, 886 N.E.2d 127 (2008) (and companion case Panasia Estates, Inc. v. Hudson Ins. Co., 10 N.Y.3d 200 (2008)) fundamentally expanded available damages for insurer bad faith in New York.

The Bi-Economy Rule: An insurer who breaches the implied covenant of good faith and fair dealing is liable for consequential damages that are the foreseeable result of the breach, provided those damages were within the contemplation of the parties at the time the insurance contract was formed.

Key applications:

• A business that loses revenue or goes out of business because its insurer wrongfully refused to pay business interruption coverage → the insurer is liable for the lost business income and the destruction of the business itself
• A homeowner who suffers further property damage, additional living expenses, or financial devastation because the insurer wrongfully delayed or denied a homeowners claim → foreseeable consequential damages are recoverable
• An insured under a disability policy who loses income for years beyond policy benefits because the insurer's conduct destroyed the insured's ability to work → recoverable under Acquista v. New York Life, 285 A.D.2d 73 (1st Dep't 2001)

Consequential damages must be specifically pleaded and proven — they are not automatic. See Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400 (2d Cir. 2006).

C. Punitive Damages — The Rocanova / Caruso Standard

New York permits punitive damages against insurers only upon a showing of:

1. Egregious tortious conduct — conduct rising to the level of "wanton dishonesty as to imply a criminal indifference to civil obligations" (New England Mut. Life Ins. Co. v. Caruso, 73 N.Y.2d 74, 83 (1989)); AND
2. Public wrong — the conduct must be part of a pattern of similar misconduct directed at the general public, not merely at this individual insured (Rocanova, 83 N.Y.2d at 613)

A pattern of bad faith conduct alone, without egregious tortious conduct, does not support punitive damages in New York. Rocanova, 83 N.Y.2d at 616.

The standard is high and deliberately so. However, where the facts satisfy both prongs — as they may here — courts have upheld substantial punitive awards. See New England Mut. Life v. Caruso (insurer who concealed fraud and delayed death benefits for years met standard).

D. Regulation 64 — Specific Enforceable Timelines

Violations of 11 NYCRR Part 216 (NYDFS Regulation 64) are evidence of bad faith in a breach of contract action, even though § 2601 itself creates no private cause of action. The specific timing standards include:

E. Timely Disclaimer — Bodily Injury/Death Claims (N.Y. Ins. Law § 3420(d)(2))

If this demand involves a bodily injury or death claim subject to a liability policy, N.Y. Ins. Law § 3420(d)(2) imposes a strict timeliness requirement: the insurer must disclaim or deny coverage "as soon as is reasonably possible" — approximately within 30 days of learning of the grounds to disclaim. An untimely disclaimer constitutes a complete waiver of the coverage defense, regardless of the merits of the exclusion.

The disclaimer must also be made with specificity — identifying the precise exclusion and factual basis relied upon. A vague or boilerplate disclaimer is legally ineffective. Two Pesos, Inc. v. Taco Cabana, Inc. (analogous); White v. City of New York, 81 N.Y.2d 955 (1993).

☐ This claim involves a liability policy and bodily injury/death — § 3420(d)(2) disclaimer obligations apply.

III. POLICY INFORMATION AND COVERAGE

A. Policy Details

B. Coverage Is Not in Dispute / Insurer's Position

☐ Coverage has been acknowledged — [short carrier name] accepted coverage by [________________________________]. Having accepted coverage, the Company undertook a duty to investigate, evaluate, and pay the claim in good faith. Pavia v. State Farm Mut. Auto. Ins. Co., 82 N.Y.2d 445 (1993).

☐ Coverage is disputed — [short carrier name] has [denied coverage / partially denied coverage] based on [________________________________]. That denial is [untimely / legally unsound / factually unsupported] for the following reasons: [________________________________].

IV. FACTUAL BACKGROUND AND CLAIM HISTORY

A. The Underlying Loss / Claim

On [__/__/____], [DESCRIBE LOSS EVENT OR CLAIM IN DETAIL — include all relevant facts, nature of injury or damage, amounts at issue, and why coverage is clearly owed].

[CONTINUE DETAILED NARRATIVE]

B. Chronological Timeline of Events and Bad Faith Conduct

The following timeline documents [short carrier name]'s handling of this claim and identifies each instance of conduct that violates New York law:

V. SPECIFIC BAD FAITH CONDUCT

[short carrier name]'s handling of this claim violates the implied covenant of good faith and fair dealing and constitutes a pattern of improper claims handling in violation of New York law:

A. Unreasonable Delay in Investigation and Payment

[short carrier name] has unreasonably delayed this claim beyond any defensible basis:

☐ Failed to acknowledge the claim within 15 business days (11 NYCRR § 216.4(a))
☐ Failed to complete investigation within a reasonable time despite receiving complete documentation
☐ Failed to provide 90-day follow-up notices during an extended investigation as required by § 216.6(c)
☐ Created artificial delays by requesting documents already in its possession
☐ Assigned and reassigned adjusters without substantive progress

Specific delays:

• [DESCRIBE WITH SPECIFICITY: date, action/inaction, regulatory deadline violated, actual vs. required timeline]
• [________________________________]
• [________________________________]

B. Inadequate and Biased Investigation

[short carrier name] failed to conduct the fair, thorough, and objective investigation required by New York law:

☐ Relied on a company-retained expert whose methodology was unreliable and whose conclusion was pre-determined
☐ Failed to interview key witnesses identified by the insured
☐ Ignored or discounted expert reports submitted by the insured without adequate explanation
☐ Conducted an inspection that was cursory, incomplete, or limited to predetermined areas
☐ Applied inapplicable policy exclusions without factual basis
☐ Evaluated the claim using criteria inconsistent with the policy language and New York law

Specific failures:

• [DESCRIBE WITH SPECIFICITY]
• [________________________________]
• [________________________________]

C. Grossly Inadequate Settlement Offers

An offer of [____]% of the documented value of this claim, without any legitimate basis, constitutes a violation of N.Y. Ins. Law § 2601(a)(6) (compelling insured to litigate by offering substantially less than clearly owed) and is evidence of bad faith under Bi-Economy Market.

D. Misrepresentation of Policy Provisions and Coverage

[short carrier name] has misrepresented the policy and its obligations:

☐ Misrepresented the scope of coverage under the policy to discourage the insured from pursuing full claim
☐ Cited exclusions that do not apply to the facts of this loss
☐ Failed to inform the insured of applicable coverages under the policy
☐ Issued a disclaimer [late / without specificity] in violation of N.Y. Ins. Law § 3420(d)(2) (if bodily injury claim)
☐ Provided shifting and inconsistent explanations for denial or underpayment

Specific misrepresentations:

• "[QUOTE SPECIFIC MISREPRESENTATION FROM CLAIM FILE OR CORRESPONDENCE]"
• "[________________________________]"

E. Failure to Communicate

☐ Failed to respond to communications from counsel for [____] days / [____] weeks
☐ Failed to identify the adjuster with authority to make settlement decisions
☐ Failed to provide itemized explanation for underpayment with specific policy and factual basis
☐ Failed to acknowledge receipt of documentation submitted on [__/__/____]
☐ [________________________________]

F. Conduct Meeting Punitive Damages Threshold (if applicable)

The following conduct, taken together, rises to the level of wanton dishonesty implying criminal indifference to civil obligations and constitutes a public wrong under Rocanova and New England Mut. Life v. Caruso:

☐ [short carrier name] has a documented pattern of similar misconduct in claims of this type — see [regulatory actions / prior litigation / NYDFS complaints] at [________________________________]
☐ [short carrier name] employed a systematic policy of [denying / delaying / underpaying] claims in this category to generate profit at policyholders' expense
☐ [short carrier name]'s own claim handling guidelines reveal that [________________________________]
☐ [short carrier name]'s internal communications reveal that [________________________________] (to be confirmed through discovery)
☐ [________________________________]

VI. STATUTORY VIOLATIONS

A. N.Y. Ins. Law § 2601(a) — Unfair Claims Settlement Practices

[short carrier name]'s conduct violates the following provisions of N.Y. Ins. Law § 2601(a):

☐ (1) Misrepresenting pertinent facts or policy provisions relating to coverage at issue
☐ (2) Failing to acknowledge and act reasonably promptly upon communications with respect to claims
☐ (3) Failing to adopt and implement reasonable standards for the prompt investigation of claims
☐ (4) Refusing to pay claims without conducting a reasonable investigation based upon all available information
☐ (5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear
☐ (6) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered
☐ (7) Attempting to settle a claim for less than the amount to which a reasonable person would have believed he or she was entitled
☐ (8) Failing to promptly provide a reasonable explanation of the basis in the policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement

Regulatory enforcement: These violations will be reported to the NYDFS. While § 2601 creates no private right of action, the NYDFS may levy substantial fines and penalties, issue orders to pay claims, suspend or revoke licenses, and impose supervisory agreements.

B. 11 NYCRR Part 216 (Regulation 64) — Specific Timing Violations

VII. DAMAGES

A. Contract Damages — Policy Benefits Wrongfully Withheld

B. Prejudgment Interest (CPLR § 5004)

New York pre-judgment interest accrues at 9% per annum from the date the cause of action accrued.

Total Prejudgment Interest to Date: $[________________________________]

C. Consequential Damages (Bi-Economy Market Standard)

The following consequential damages are the foreseeable result of [short carrier name]'s breach of the covenant of good faith — damages that were within the contemplation of the parties when this insurance contract was formed:

Supporting authority: Bi-Economy Market, Inc. v. Harleysville Ins. Co., 10 N.Y.3d 187 (2008); Panasia Estates, Inc. v. Hudson Ins. Co., 10 N.Y.3d 200 (2008); Acquista v. New York Life Ins. Co., 285 A.D.2d 73 (1st Dep't 2001).

D. Punitive Damages (Rocanova / Caruso Standard — if applicable)

Punitive damages are warranted in this case because [short carrier name]'s conduct satisfies both prongs of the Rocanova test:

Prong 1 — Egregious Tortious Conduct:
[short carrier name]'s conduct constitutes wanton dishonesty implying criminal indifference to civil obligations:

• [DESCRIBE SPECIFIC EGREGIOUS CONDUCT]
• [________________________________]

Prong 2 — Public Wrong:
[short carrier name]'s conduct is not isolated to our client but is part of a broader pattern directed at the public generally:

• [DESCRIBE EVIDENCE OF PATTERN — NYDFS complaints, regulatory history, prior litigation, internal documents, news reports, etc.]
• [________________________________]

Estimated Punitive Damages: $[________________________________] (subject to discovery and evidence at trial)

Supporting authority: Rocanova v. Equitable Life, 83 N.Y.2d 603 (1994); New England Mut. Life Ins. Co. v. Caruso, 73 N.Y.2d 74 (1989).

E. Damages Summary

VIII. FORMAL DEMAND

Based on the foregoing, we hereby demand that [short carrier name]:

A. Pay the Following Amounts

Total payment demanded: $[________________________________]

(Punitive damages, if applicable, will be sought at trial — not demanded pre-suit.)

B. Provide Written Commitments

In addition to monetary payment:

☐ Written acknowledgment that coverage applies and benefits are owed
☐ Commitment to process any remaining open claim components within [____] days
☐ Written confirmation that [short carrier name] will cease and desist from all improper claims conduct described herein
☐ Correction of any adverse reporting to industry databases (ISO ClaimSearch, CLUE, etc.)
☐ Designation of a senior claims representative with authority to resolve this claim

IX. REGULATORY COMPLAINT — NYDFS NOTICE

[short carrier name] is hereby placed on notice that, if this demand is not resolved by the deadline, we will file a formal complaint with the New York Department of Financial Services (NYDFS) against [short carrier name] alleging violations of:

• N.Y. Ins. Law § 2601 (unfair claims settlement practices)
• 11 NYCRR Part 216, including §§ 216.4, 216.6, 216.7
• N.Y. Ins. Law § 3420(d)(2) (if applicable — untimely/deficient disclaimer)
• Any other applicable provisions identified through discovery

NYDFS complaint route: dfs.ny.gov/complaint | Consumer Assistance: (800) 342-3736

The NYDFS has authority to:

• Levy civil penalties up to $1,000 per violation and $5,000 per willful violation (N.Y. Ins. Law § 2601(b))
• Require payment of unpaid claims
• Impose conditions on the insurer's license to do business in New York
• Conduct market conduct examinations
• Refer patterns of violation to the Attorney General

X. TIME-LIMITED NATURE OF THIS DEMAND AND DEADLINE

THIS DEMAND EXPIRES AT 5:00 P.M. EASTERN TIME ON [__/__/____].

After this deadline, this offer of settlement will be withdrawn and our client will seek all available remedies without limitation. The monetary demand above does not include punitive damages, which are not subject to pre-litigation cap and will be sought in their full measure at trial.

Consequences of Non-Response

If [short carrier name] fails to accept this demand by the deadline:

1. Litigation will be filed immediately in New York Supreme Court, [________________________________] County, seeking:
   - All policy benefits owed (contract damages)
   - Prejudgment interest at 9% per annum (CPLR § 5004)
   - Consequential damages under Bi-Economy Market (10 N.Y.3d 187)
   - Punitive damages under Rocanova and New England Mut. Life v. Caruso (where facts support)
   - All costs of litigation

2. Regulatory complaint will be filed with the NYDFS as described above

3. This demand will be withdrawn in its entirety — subsequent offers may not replicate the current settlement terms

4. Discovery will be pursued including deposition of claim personnel, production of the complete claims file, reserve history, internal guidelines, claim handling manuals, training materials, quality assurance reviews, and all internal communications concerning this claim

5. Third-party expert analysis will be retained to quantify consequential damages and demonstrate the foreseeability of harm at the time of contracting under Bi-Economy Market

XI. DOCUMENT PRESERVATION NOTICE

This letter constitutes formal litigation hold notice requiring [short carrier name] to immediately preserve all documents and electronically stored information (ESI) related to this claim, including:

☐ Complete claims file in all versions — do NOT purge or overwrite
☐ All internal and external correspondence (email, text, written) regarding this claim
☐ All adjuster notes, diaries, activity logs, and supervisor approvals
☐ Reserve documentation and all reserve changes with explanations
☐ All expert reports, estimates, engineering analyses, and evaluations
☐ Claim handling guidelines, procedures, and training materials applicable to this claim type
☐ Quality assurance and audit reports touching this claim or claims of this type
☐ Litigation reports and coverage analysis memoranda
☐ All communications with reinsurers, excess carriers, or pools regarding this claim
☐ Electronic copies of Colossus, Xactimate, or other claims valuation software inputs/outputs
☐ Any information [short carrier name] possesses about its historical handling of similar claims

Failure to preserve relevant ESI will be raised as spoliation in subsequent litigation and may result in adverse inference instructions or other sanctions.

XII. CONCLUSION

New York's bad faith framework differs from many states, but it is not toothless. Bi-Economy Market makes clear that an insurer who breaches its duty of good faith and fair dealing faces consequential damages that can dwarf policy limits. Rocanova and Caruso make clear that truly egregious, publicly directed misconduct can generate punitive awards. [short carrier name]'s conduct in this matter has exposed it to both.

We urge [short carrier name] to use this opportunity to resolve this matter fairly under New York law, to honor its contractual obligations to its insured, and to avoid the substantial and growing exposure that continued delay and denial will generate.

All rights are expressly reserved.

Respectfully submitted,

[________________________________]

By: _______________________________
[________________________________], Esq.
NY Bar Registration No.: [________________________________]
[________________________________]
[________________________________], NY [____]
Tel: [________________________________]
Fax: [________________________________]
Email: [________________________________]

Counsel for [________________________________]

ENCLOSURES:

• Policy declarations page and all endorsements
• Complete correspondence chronology (with Regulation 64 timeline analysis)
• All expert reports, estimates, and evaluations submitted by the insured
• Documentation supporting consequential damages claims
• NYDFS complaint records / regulatory history (if available)
• Supporting documentation for all damage categories

CC:

• [________________________________] (client)
• NYDFS complaint filing (concurrent with expiration of deadline, if applicable)

NEW YORK BAD FAITH LAW — QUICK REFERENCE CHART

SOURCES AND REFERENCES

• Bi-Economy Market, Inc. v. Harleysville Ins. Co., 10 N.Y.3d 187 (2008): caselaw.findlaw.com/court/ny-court-of-appeals/1014104.html
• Rocanova v. Equitable Life Assur. Socy., 83 N.Y.2d 603 (1994): law.justia.com/cases/new-york/court-of-appeals/1994/83-n-y-2d-603-0.html
• New England Mut. Life Ins. Co. v. Caruso, 73 N.Y.2d 74 (1989): case-law.vlex.com/vid/new-england-mut-life-886797398
• N.Y. Ins. Law § 2601 (unfair claims practices): nysenate.gov/legislation/laws/ISC/2601
• 11 NYCRR Part 216 (Regulation 64): law.cornell.edu/regulations/new-york/title-11/chapter-IX/part-216
• N.Y. Ins. Law § 3420(d)(2) (timely disclaimer): nysenate.gov/legislation/laws/ISC/3420
• Anderson Kill, "High Bar of Specificity — § 3420(d)(2)": andersonkill.com/article/the-high-bar-of-specificity-navigating-new-york-insurance-law-3420d2-disclaimer-requirements/
• CPLR § 213(2) (six-year limitation): law.justia.com/codes/new-york/cvp/article-2/213/
• CPLR § 5004 (prejudgment interest at 9%): nycourts.gov
• NYDFS — consumer complaints: dfs.ny.gov/complaint
• NYDFS Regulation 64/101 overview: legalclarity.org/nydfs-regulation-64-101-unfair-claims-settlement/

This template reflects New York law as of April 2026. New York bad faith law is technical and evolving. The absence of an independent bad faith tort, the lack of a private right of action under § 2601, and the specific standards for consequential and punitive damages under Bi-Economy and Rocanova require careful application to individual facts. This template must be reviewed and adapted by a licensed New York attorney before use in any actual matter.