Opinion ID: 160878
Heading Depth: 3
Heading Rank: 1

Heading: Conflict of Laws Between New York and Kansas

Text: As the district court noted, both New York and Kansas recognize a bad faith cause of action against an insurer for failure to settle a claim against its insured within the policy limits. See supra Part II. Both states define “bad faith” as a failure by the insurer to take the insured’s interests into equal consideration with its own. See Pavia, 626 N.E.2d at 27 (“[I]n order to establish a prima facie case of bad faith, the plaintiff must establish that the insurer’s conduct constituted a ‘gross disregard’ of the insured’s interests – that is, a deliberate or reckless failure to place on equal footing the interests of its insured with its own interests when considering a settlement offer”); Bollinger, 449 P.2d at 511 (“[W]e are inclined to the view that the insurer may properly give consideration to its own interests, but it must also give at least equal consideration to the interests of the insured ... ‘and if it fails so to do it acts in bad faith.’” (quoting American Fid. & -7- Cas. Co. v. G.A. Nichols Co., 173 F.2d 830, 832 (10th Cir. 1949)). 4 However, New York does not permit ordinary negligence to be a basis for liability, while Kansas does. Compare Pavia, 626 N.E.2d at 27 (“[E]stablished precedent clearly bars a ‘bad faith’ prosecution for conduct amounting to ordinary negligence.”), with Bollinger, 449 P.2d at 508 (“[L]iability may be imposed against the insurer on either theory. In other words, the insurer, in defending and settling claims against its insured, owes to the insured the duty not only to act in good faith but also to act without negligence.”). Thus, New York’s refusal to include ordinary negligence as a basis for an insurer’s liability under this cause of action represents the conflict of laws in this case. 4 To the extent plaintiffs argue the bad faith standards of New York and Kansas differ, we disagree. Although the Kansas Supreme Court has not explicitly said so, we believe its explanation of what does not constitute bad faith mirrors New York’s “deliberate or reckless” requirement with regards to the insurer’s alleged failure to take the insured’s interests into equal consideration with its own: Where the insurance company acts honestly and in good faith upon adequate information, it should not be held liable because it failed to prophesy the result. Something more than mere error of judgment is necessary to constitute bad faith. The company cannot be required to predict with exactitude the results of a trial; nor does the company act in bad faith where it honestly believes, and has cause to believe, that any probable liability will be less than policy limits. Bollinger, 449 P.2d at 514 (citations omitted). -8-