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Insurer Can't 'Handle the Truth' in Bad-Faith Case: Judge

NEW YORK, Oct 18 (Reuters) - Drawing inspiration from the courtrooms of Hollywood, a state judge in Brooklyn excoriated a commercial automobile insurer on Monday for not being able to "handle the truth" of its bad faith during a 2006 lawsuit that resulted in a $2.25 million verdict against two of its policyholders.

Justice Arthur Schack granted plaintiff Jesus Taveras' motion for summary judgment in the bad-faith action against American Transit Insurance Company, putting the insurer on the hook for a $2.25 million jury award to Taveras, who was injured when the cab he was riding in was involved in a three-cab pile-up.

American Transit's conduct "reminds the court of the testimony given by Jack Nicholson's character, Marine Colonel Nathan Jessup, in the 1991 film A Few Good Men," Schack wrote.

The company, he added, "refuses not only to acknowledge, but to handle the truth!"

Taveras was riding in a cab driven by Muhammad Amir and insured by American Transit when the accident occurred in Manhattan in 2002. Taveras sued the owners and operators of all three cabs. Following a two-part trial in 2006, a jury awarded Taveras $9.26 million, which was reduced on appeal to $2.25 million.

American Transit insured two of the cabs involved in the accident for policies each worth up to $100,000. But instead of accepting a settlement offer within the policy limits, as suggested by the plaintiff, the company continued to "disclaim and throw Amir 'under the cab,'" Schack wrote. Among other misdeeds, Schack ruled, the company failed to perform a proper investigation and ignored the chances that a jury would find in Taveras' favor.

'GROSS DISREGARD'

In an attempt to get the insurer to pay up, Taveras filed a bad-faith lawsuit against American Transit on behalf of Amir in 2010.

In his ruling on both parties' motions for summary judgment, Schack noted that courts are typically hesitant to hand plaintiffs a win in bad-faith lawsuits against insurers, because there are usually genuine factual controversies about whether the insurer's behavior meets the high threshold for proving they acted in "gross disregard" of their policyholders' interest under New York case law.

But that was precisely what the evidence showed in this case, Schack said.

"AT's employees admitted to AT's 'reckless' conduct and one even deemed it 'suicide' to go forward on damages, based on the limited information maintained by AT and the lack of any colorable defense to plaintiff's damages," Schack wrote.

Jeffrey Block, who represented Taveras, said that Monday's ruling was one of the first to give plaintiffs a win against an insurer in a bad-faith lawsuit at the summary judgment stage.

"It proves that we as plaintiffs, representing the small guys, can fight the big guys, the insurance industry, to make sure our clients have a full and fair resolution to their cases, and that we should not be dictated settlement terms," Block said.

An attorney and company representative for AT did not immediately return calls for comment Tuesday.

The case is Taveras v. American Transit Insurance Company, in the Supreme Court of the State of New York, Kings County, index no. 24794/10.

For Taveras: Jeffrey Block of Block O'Toole and Murphy.

For AT: Richard Sands of Harvey Gladstein & Partners.

(Reporting by Jessica Dye)

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