The U.S. District Court for the Eastern District of New York recently issued an opinion in 433 Main Street Realty LLC v Darwin Nat’l Assur. Co., 2014 WL 1622013 (E.D.N.Y. Apr. 22, 2014), addressing the redundancy of an insured’s claims for breach of the insurance contract and breach of the implied covenant of good faith and fair dealing. New York law does not recognize a separate claim for bad faith when the allegations of the bad faith claim parallel those underlying the breach of contract claim. After analyzing the facts of the case and considering the arguments of the parties, the court dismissed the insured’s bad faith claim on the ground that it was redundant.
The case concerned an insured that owned a construction project for a residential building. The insurance company issued an insurance policy that covered the building. While the policy was in effect, the building was damaged by Hurricane Sandy. The policy included a $10,000 deductible, except in the case of a loss caused by flood, which was subject to a $250,000 deductible. The parties disagreed with respect to which deductible applied to the loss.
Additionally, for approximately eight months following the loss, the insurance company did not make any payments to the insured for the loss. The insured then met with the insurance adjuster, who requested additional information and indicated the claim would be handled on an expedited basis. The insurance company followed-up with several more document requests over the next four months. The insured felt that the insurance company was not going to pay the claim and decided to commence litigation, stating claims for breach of contract and breach of the duty of good faith and fair dealing—among other things.
The court began by detailing New York law, which recognizes an implied duty of good faith and fair dealing. However, that duty is recognized merely as a breach of contract. New York jurisprudence does not recognize separate claims for breach of contract and bad faith when they are predicated on the same underlying facts. Under New York law, to the extent the bad faith and breach of contract claims rely on the same facts, the bad faith claim must be dismissed as redundant and unnecessary. The insured argued that it asserted its claim for breach of the implied covenant of good faith and fair was more than a mere breach of contract claim because the insurance company (1) mishandled the claim, (2) delayed payment of the claim despite the adjuster’s promise otherwise, and (3) insisted that increased deductible applied to the claim. The court rejected the insured’s arguments, finding that the claims were based on the same underlying allegations. Based on that finding, the court dismissed the insured’s bad faith claim as being redundant.
The insurance coverage attorneys at Maloney Lauersdorf Reiner frequently represent clients in cases involving claims for breach of an insurance contract and insurance bad faith. Please contact us with any questions about this case or any other matter you see address in the Insurance Coverage Blog.