Insurance Bad Faith Claim Dismissed as Redundant

On the heels of the recent decision by the Eastern District of New York in 433 Main Street Realty, LLC v. Darwin Nat’l Assur. Co., 2014 WL 1622013 (E.D.N.Y. Apr. 22, 2014), a judge in the Southern District of New York similarly dismissed an insured’s claim for insurance bad faith as being redundant.  In County of Orange v. The Travelers Indem. Co., 2014 WL 1998240 (S.D.N.Y. May 14, 2014), the court found that the insured’s claims for breach of contract and insurance bad faith were duplicative and dismissed the latter claim.  As noted in the post on 433 Main Street, although New York law does recognize that there is a duty of good faith and fair dealing inherent in every contract, it does not recognize a separate tort claim for insurance bad faith that is based on the same allegations as a claim for breach of contract.

The County of Orange case concerned an insured’s claim submitted after several of its properties were damaged as a result of Hurricane Irene and Tropical Storm Lee.  The insurance company denied the insured’s claim with respect to each of the properties on the ground that the losses were not covered under the terms of the policy.  The insured claimed that the insurance company failed to conduct an investigation of the loss before denying the claims.  According to the insured, the formal denial letters issued by the insurance company were identical (with one exception), even though the damage to the various properties was distinct.  The insured filed suit against the insurance company alleging claims for breach of contract and breach of the implied covenant of good faith and fair dealing.

The insurance company moved to dismiss the claim for insurance bad faith on the basis that it was redundant to the claim for breach of contract.  In response, the insured argued that the facts giving rise to the two claims were distinct.  Specifically, the insured argued that the basis of the breach of the implied covenant claim was the insurance company’s conduct in knowingly delaying and denying  the claim without investigation, while the breach of contract claim relies solely from the terms of the insurance policy.  The court analyzed the insured’s allegations supporting each claim and determined that the facts underlying each claim “are the same: that [the insurance company] did not perform its contractual duties as it had agreed to under the insurance policy.”  Notably, the court found that the alleged delay and lack of investigation addressed “the same ultimate grievance of failure to comply with the agreement.”  Based on that finding, the court dismissed the insured’s claim for breach of the implied covenant of good faith and fair dealing.

The attorneys at Maloney Lauersdorf Reiner frequently litigation claims involving allegations of breach of the insurance contract and breach of the implied covenant of good faith and fair dealing–i.e., insurance bad faith.  Please contact us with any questions or concerns about this case or any other matter addressed in the MLR Insurance Coverage Blog.

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