Southern District of New York: Bad Faith Claim Based on Underlying Contract Claim Must be Dismissed as Duplicative

by Saul Ewing LLP
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Orange v. The Travelers Indemnity Co., No. 7:13-CV-06790-NSR (S.D.N.Y. May 14, 2014).

The Southern District of New York granted an insurer’s partial motion to dismiss insured’s separate claim of bad faith as duplicative where insured also maintained a breach of contract claim and both claims were predicated on the same underlying contractual dispute.

In 2011, Hurricane Irene and Tropical Storm Lee damaged four properties owned by the County of Orange, New York.  The County estimated its damages at over $400,000 for all four of its properties.  The County filed claims for coverage with its insurer, Travelers Indemnity Company, under a $5 million policy which covered wind and water damage.  Travelers denied the claim, informing the County that the properties were not covered under the policy.  The County alleged that Travelers did not conduct an investigation before denying the claim and issued identical denial letters for all four properties even though the properties sustained different types of damage.  The County subsequently sued Travelers for breach of contract and breach of the covenant of good faith and fair dealing in connection with the underlying insurance claims.

Travelers responded by filing a motion to dismiss the claim for breach of the implied covenant of good faith and fair dealing.  Travelers argued that the County’s bad faith claim was duplicative of the breach of contract claim because it was premised upon the same underlying facts.  The County responded that the claims arose from separate sets of facts and argued that Travelers’ decision to knowingly delay and deny the County’s claim without investigation gave rise to a distinct cause of action premised in bad faith.  The court disagreed.  The court first noted that New York law recognizes an implied duty of good faith in every contract.  As a result, the court  “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,” because in those circumstances, the breach of the duty of good faith is essentially a breach of the contract.  Unless the factual allegations supporting the bad faith claim were different from those of the contract claim, the bad faith claim could not survive a motion to dismiss, according to the court.

Ultimately, the court found that the facts supporting each of the County’s claims stemmed from the same underlying cause: Travelers’ failure to adhere to its contractual duties set forth in the insurance policy.  It noted that the alleged delay and failure to investigate ultimately boiled down to a failure to comply with the agreement.  The court also pointed out that the County’s own complaint comported with this conclusion, where the County argued that Travelers “wilfully and in bad faith ignor[ed] the clear language of the Policy’s provisions.”  As a result, the court granted Travelers’ motion to dismiss the County’s bad faith claim as duplicative of its breach of contract claim.

 

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