HNRK Coverage Corner
On September 17, 2019, Judge Hurd of the NDNY issued a decision in Lohnes v. Liberty Mut. Ins. Co., Case No. 19-cv-00068, dismissing a claim for bad faith claims handling for failure to plead “specific conduct” by the insurer distinct from the underlying breach of the policy.
As previously discussed on this blog (see here, here, and here), New York law does not recognize a separate tort claim for bad faith claims handling. However, the courts—beginning with a pair of Court of Appeals decisions, Bi-Economy Market, Inc. v. Harleysville Ins. Co. of N.Y., 10 N.Y.3d 187 (2008) and Panasia Estates, Inc. v. Hudson Ins. Co., 10 N.Y.3d 200 (2008)—have permitted insureds to recover consequential damages (above the policy limits) on a theory that the insurer’s bad faith conduct violates the implied covenant of good faith and fair dealing. (An example would be a property insurer that stalls the claims handling process following a house fire, as a result of which the house collapses, compounding the insured’s damages.)
In Lohnes, the Court concluded that the complaint failed to plead such a claim, explaining:
Under New York law, there is a covenant of good faith and fair dealing implied in all contracts. This covenant embraces a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. Generally, under New York law, parties to an express contract are bound by an implied duty of good faith, but breach of that duty is merely a breach of the underlying contract. To successfully plead a breach of contract under a theory of breach of the implied covenant of good faith and fair dealing, a plaintiff must allege that defendant, in bad faith, engaged in behavior that effectually destroyed or injured the plaintiff’s right to receive the fruits of the contract. Further, plaintiffs are required to plead specific factual allegations of a party’s bad faith, as conclusory allegations of a party’s failure to act in good faith are insufficient.
Because a breach of this duty is merely a breach of the underlying contract, New York law does not recognize a separate cause of action for breach of the implied covenant of good faith and fair dealing when a breach of contract claim, based upon the same facts, is also pled. A breaching party’s bad faith in connection with a breach of contract does not provide an independent basis for recovery. Thus, a claim premised on a breach of the implied covenant should be dismissed as duplicative if it is based upon the same facts underpinning an express breach of contract claim.
Here, as Plaintiff represents in her memorandum of law, the facts underpinning the bad faith claim are the same as those underpinning her express breach of contract claim. Namely, that Liberty refused to defend and indemnify Mr. Terrance. While Plaintiff asserts that this refusal to comply with the terms of the Policy constituted breaches of Liberty’s duties under the contract and amounted to “bad faith insurance practices,” she has not plead specific conduct by Liberty that is different from that underpinning the breach of contract claim. Further, Plaintiff’s assessment in her memorandum of law that this conduct was deliberate and reckless, and amounted to a gross disregard for the interests of Mr. Terrance, does not make out a claim different from the breach of contract claim. Accordingly, Liberty’s motion is granted to the extent it seeks to dismiss the bad faith claim asserted in the Amended Complaint.
Pleading rules are a procedural matter, and thus may differ in certain respects in state and federal court. Notably, however, the First Department ruled earlier this year (in a decision covered on this blog) that an insured need not satisfy a “heightened pleading standard” in alleging consequential damages arising from an insurer’s bad faith claims handling.
- Partner
Bradley Nash represents policyholders in insurance disputes and other parties in complex commercial litigation in state and federal courts in New York and across the country. Brad focuses his practice on insurance recovery for ...
Search Blog
Recent Posts
- Is Carbon a “Pollutant”? — The Supreme Courts of Alaska and Hawaii Receive Certified Questions Regarding Scope of Pollution Exclusions in Liability Policies
- Court Rules That D&O Policy’s “Bump-Up” Exclusion Does Not Apply to Merger Transaction
- Eleventh Circuit Rules Insurer Cannot Recoup Defense Costs Under Duty to Defend Policy
- Federal Court Declines to Exercise Jurisdiction Over Insurer’s Declaratory Judgment Action That Raised “Novel Issue of Ohio Insurance Law”
- Bankruptcy Court Lifts Automatic Stay to Permit Officers of Silicon Valley Bank to Access D&O Coverage
- E&O Policy Exclusion Bars Coverage for Negligence Claim Against Law Firm Arising from Third Party’s Misappropriation of Client’s Funds
- New Jersey Appellate Court Holds That Policy’s War Exclusion Did Not Apply to State-Sponsored Cyberattack
- New York Court Discusses Appellate Division Split Over Recoupment of Defense Costs Under a Duty to Defend Policy
- Delaware Law Governs D&O Policy Issued to Delaware Corporation Doing Business Outside the State
- Ohio Supreme Court Rules Computer Software Cannot Be Subject To “Physical Loss” Or “Physical Damage” Under Insured’s Property Insurance Policy
Popular Categories
- Occurrence/Accident
- Duty to Defend
- Insurance Coverage
- D&O Policies
- Pollution Exclusion
- Policy Exclusions
- CGL Policies
- E&O Policies
- Cyber Coverage
- Additional Insured Endorsement
- Business Interruption Coverage
- Construction
- Bad Faith Claims Handling
- COVID-19
- Indemnification and Advancement
- Damages
- Excess Insurance
- Duty to Cooperate
- Advertising Injury
- Rules of Interpretation
- Related Claims
- Personal and Advertising Injury
- Covered Loss
- Insurance Brokers
- Confict of Laws
- Discovery/Disclosure
- Appraisal
- Attorney Fees
- Assignment of Claims
- Disability discrimination
- Implied Covenant of Good Faith and Fair Dealing
- Notice
- Privilege/Work Product
- Priority of Coverage
- Intellectual Property
- Contracts
- Professional Malpractice
- Rescission
- Intervention/Joinder
- Subrogation
- Settlements
- General Business Law
- Unfair Claims Settlement Practices
Archives
- September 2023
- August 2023
- June 2023
- May 2023
- April 2023
- March 2023
- January 2023
- December 2022
- September 2022
- May 2022
- April 2022
- March 2022
- November 2021
- June 2021
- February 2021
- January 2021
- December 2020
- November 2020
- October 2020
- September 2020
- August 2020
- April 2020
- March 2020
- February 2020
- January 2020
- December 2019
- November 2019
- October 2019
- September 2019
- August 2019
- July 2019
- May 2019
- April 2019
- March 2019
- February 2019
- January 2019
- December 2018
- November 2018
- October 2018
- September 2018
- August 2018
- July 2018
- May 2018
- April 2018
- March 2018
- February 2018
- January 2018