Two recent New York federal court decisions – 433 Main Street Realty, et al. v. Darwin National Assurance Co., No. 14-cv-587 (NGG) (VMS) (E.D.N.Y. Apr. 22, 2014) and County of Orange v. The Travelers Indemnity Co. No. 7:13-cv-06790, S.D. N.Y.; 2014 U.S. Dist. – provide a good synopsis of the factual predicate needed in New York to sustain a claim against an insurer for breach of the implied covenant of good faith and fair dealing.  

Underlying Facts 

Both cases involved coverage disputes stemming from damage caused by severe storms. In 433 Main Street Realty, the insureds, a residential property owner and residential building developer, sought coverage under a marine policy for damage to a construction site stemming from Superstorm Sandy. The dispute centered on the size of the applicable deductible. The insured argued that the loss was wind-related and subject to a $10,000 deductible. By contrast, the insurer argued that the loss was caused by flooding and subject to the $250,000 deductible for flood-related losses. In the ensuing coverage action, the policyholder’s complaint included several counts, one of which charged the insurer with breach of contract and breach of the duty of good faith and fair dealing in mishandling the claim, unreasonably delaying payment and insisting that the $250,000 deductible applied to the loss.

In County of Orange, the insured, a municipality, sought coverage under a property insurance policy for significant damage caused by Hurricane Irene and Tropical Storm Lee to several pieces of property owned by the municipality. The insured sought coverage for the loss; however, a dispute over coverage developed concerning the timeliness and adequacy of the insurer’s coverage investigation and the sufficiency of the disclaimer letters it subsequently issued. As in 433 Main Street Realty, in the ensuing coverage action here, the insured’s breach of contract complaint also included a count for breach of insurer’s implied covenant of good faith and fair dealing toward the insured.

Decisions and Rationale

In both County of Orange and 433 Main Street Realty, the insurers successfully moved to dismiss the insured’s counts for breach of the implied covenant of good faith and fair dealing for failure to state a cause of action. In granting the motions, the courts in these cases reasoned that, in New York, a cause of action for breach of good faith and fair dealing “must be premised on a different set of facts from those underlying a claim for breach of contract.” Applying this rule here, the 433 Main Street Realty court held “[Insureds] label [the Insurer’s] conduct as ‘[mishandling]’ or ‘unreasonable delay’ but do not back up these conclusions with facts showing bad faith that differ from those supporting the alleged breach of contract.” (Emphasis supplied.)

Similarly, in County of Orange, the court ruled that “[Insured’s] breach of the covenant of good faith and fair dealing must be dismissed as duplicative of the breach of contract claims. The facts giving rise to the two claims are the same: that [the Insurer] did not perform its contractual duties as it had agreed to under the insurance policy. The delay and lack of investigation address the same ultimate grievance of failure to comply with the agreement.” (Emphasis supplied.)

Practice Pointer

County of Orange and 433 Main Street Realty provide a good reminder that in New York an insured’s cause of action for breach of the insurer’s implied covenant of good faith and fair dealing cannot be premised on the same facts on which a breach of contract count against the insurer is based. Where, as in these two cases, the factual predicate for the bad faith count is duplicative of the breach of contract count, the insurer defendant would be well positioned to move for dismissal of the bad faith count as a matter of New York law.