In a significant ruling for auto repair businesses, the Appellate Division of the Supreme Court of New York has reversed a lower court's decision that dismissed a breach of contract lawsuit filed by Prospect Auto Sales & Repairs, Inc. against State Farm Mutual Automobile Insurance Company. The court's decision, made on September 23, 2026, allows Prospect Auto to continue its pursuit of damages related to unpaid repair costs for a vehicle insured by State Farm.
The case, identified by docket number 2024-05835, centers around a dispute that arose after State Farm issued an insurance policy to Janet Sukhram for her 2018 Audi Q7. Following an accident on February 20, 2023, Sukhram filed a claim for damages with State Farm. She then authorized Prospect Auto to repair her vehicle and negotiate with State Farm regarding the payment for those repairs.
Prospect Auto completed the repairs at a total cost of $19,736.60 but received only $13,188.22 from State Farm. This discrepancy led Prospect Auto to file a lawsuit against the insurance company, claiming that State Farm breached its contract by failing to pay the full amount for the necessary repairs. The repair shop argued that State Farm had an obligation to indemnify Sukhram for the reasonable costs of repairs and had failed to negotiate in good faith.
The legal battle began when State Farm moved for summary judgment to dismiss the complaint, asserting that there is no private right of action under certain sections of New York's Insurance Law. The lower court agreed with State Farm and granted the motion, leading to Prospect Auto's appeal.
In its ruling, the Appellate Division disagreed with the lower court's interpretation. The court stated, "Under a fair reading of the complaint, it does not set forth a cause of action to recover damages for violations of Insurance Law § 2601 and 11 NYCRR 216.7 but rather properly seeks to recover damages for breach of contract predicated, in part, on allegations of such violations." This clarification is crucial as it allows Prospect Auto to argue that State Farm's failure to negotiate in good faith constitutes a breach of the contract.
The court also noted that State Farm failed to provide sufficient evidence to support its claim that it had paid for all necessary repairs. The judges pointed out that the insurance company did not furnish the survey it claimed to rely upon for determining the payment amount. The court emphasized that the arguments made by State Farm were "wholly conclusory and unsubstantiated." Additionally, the court found that the affidavit provided by State Farm's representative did not meet the necessary legal standards, as it relied on hearsay rather than personal knowledge. As a result, the Appellate Division concluded that State Farm did not establish its entitlement to judgment as a matter of law, leading to the reversal of the lower court's decision.
This ruling is significant for auto repair shops and insurance policyholders alike. It reinforces the rights of repair shops to seek full payment for services rendered under insurance contracts. The decision also highlights the importance of good faith negotiations between insurance companies and repair facilities.
Moving forward, this ruling may encourage more repair shops to pursue claims against insurance companies when they feel that they have not been compensated fairly for their work. It also sets a precedent that could influence how insurance companies handle negotiations with repair shops in the future.
As for what comes next, it remains to be seen whether State Farm will seek to appeal this decision. The court's ruling opens the door for Prospect Auto to continue its case in the lower court, where they will have the opportunity to present their arguments and evidence regarding the breach of contract claim.