## Facts

- A physician purchased three disability insurance policies issued by an insurer through insurance agents.
- Two policies defined “total disability” as inability to perform “the substantial and material duties” of the insured’s regular occupation; a third used “any of the substantial and material duties.”
- The physician became ill and was diagnosed with myelodysplasia; he alleged fatigue, headaches, musculoskeletal pain, and medical instructions to avoid radiation exposure.
- He submitted a claim for total disability benefits and alleged the insurer prolonged the claims process by repeated document demands and reassignment of claim handlers.
- After an extended investigation period, the insurer denied total disability benefits under all three policies on the ground that the insured could still perform some substantial and material occupational duties.
- The insured sued for breach of contract, “bad faith” claims handling/denial, fraud/fraudulent misrepresentation, and negligent infliction of emotional distress.

## Issues

1. Whether dismissal at the pleading stage was proper where “total disability” under the policy definitions depended on facts about the insured’s medical condition and occupational duties.
2. Whether New York law permits recovery of consequential (extra-policy) damages for an insurer’s wrongful, bad-faith delay or denial of benefits under a contract theory, and whether an independent tort claim for “bad faith” exists.
3. Whether fraud and emotional-distress tort claims could proceed as independent causes of action based on the insurer’s investigation and denial.

## Decision

- The appellate court modified the dismissal order and reinstated the insured’s breach-of-contract claims.
- The court held that whether the insured was “totally disabled” within the policy language presented a factual question not resolvable on a motion to dismiss.
- The court held that New York does not recognize a standalone tort for an insurer’s bad-faith denial of coverage.
- The court permitted the insured to pursue consequential damages under ordinary contract principles for losses proximately caused by the insurer’s alleged bad-faith breach, if foreseeable and within the parties’ contemplation when contracting.
- The court affirmed dismissal of certain tort claims, including negligent infliction of emotional distress, and limited fraud-based theories to the extent they were duplicative of contract allegations rather than independent misrepresentations causing distinct damages.

## Legal Principles

- Interpretation and application of “total disability” language to an insured’s condition and occupational duties often presents fact questions inappropriate for resolution on the pleadings.
- New York does not recognize an independent tort cause of action for an insurer’s “bad faith” refusal to pay benefits.
- An insured may recover consequential damages for breach of an insurance contract when such damages were foreseeable, within the parties’ contemplation at contract formation, and proximately caused by the breach.
- Consequential damages for wrongful delay/denial are governed by contract-damages limits (foreseeability and causation), not punitive or tort-based standards.
- Tort claims (fraud, emotional distress) cannot proceed when they merely restate a contract dispute; fraud requires misrepresentation collateral to the contract and distinct damages.

## Conclusion

The court allowed the insured to proceed on contract claims and to seek consequential contract damages for harms foreseeably caused by an insurer’s alleged bad-faith delay or denial of disability benefits, while rejecting an independent tort of insurer bad faith and dismissing duplicative or insufficiently independent tort theories.


Acquista v. N.Y. Life Ins. Co., 285 A.D.2d 73 (1st Dep’t 2001)