New York Federal Court Dismisses Superstorm Sandy Bad-Faith Claim as Redundant

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In 433 Main Street Realty, LLC v. Darwin National Assurance Co., 2014 WL 1622103 (E.D.N.Y. Apr. 22, 2014), the United States District Court for the Eastern District of New York dismissed the insureds’ cause of action against their insurer for alleged breach of the covenant of good faith and fair dealing in connection with a property damage claim related to Superstorm Sandy. The court concluded that the bad-faith claim was redundant and duplicative of the insureds’ cause of action for breach of contract.

The insureds owned and were developing a residential property in Port Washington, New York when the construction site sustained wind and water damage related to Superstorm Sandy. The insureds sought coverage under a commercial inland marine policy issued by Darwin National Assurance Company which was subject to a $10,000 deductible, except for loss caused by flood, which was subject to a $250,000 deductible. Although Darwin agreed that the claim was covered under the policy, the parties disagreed as to whether the property damage was caused by flood and, therefore, subject to the $250,000 deductible. The insureds later commenced a declaratory judgment action asserting, among other things, causes of action for breach of contract and breach of the insurer’s good faith obligations premised upon Darwin’s alleged mishandling of the claim and its insistence that the higher deductible applied.

The district court acknowledged that New York implies a duty of good faith and fair dealing into every express contract, but further recognized that a breach of that duty is merely a breach of the underlying contract. In that regard, the court concluded that New York authorities do 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 also is pled. Under those circumstances, the cause of action for breach of the implied covenant of good faith and fair dealing should be dismissed as redundant.

In reviewing the insureds’ allegations, the district court held that the core of the dispute was that the insurer had not paid what the insureds believed was due under the insurance policy. Accordingly, because the insureds failed to allege facts showing bad faith differing from the facts supporting the alleged breach of contract, the district court dismissed the bad faith claim as redundant. Notably, however, the court acknowledged in a footnote that dismissal of the bad faith claim does not preclude the insureds from claiming consequential damages beyond the policy limits on their breach of contract claim based on allegations of bad faith.

Topics:  Bad Faith, Covenant of Good Faith and Fair Dealing, Hurricane Sandy, Natural Disasters

Published In: Business Torts Updates, Civil Procedure Updates, General Business Updates, Insurance Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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