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Bad Faith Claim against Insurer is Nothing More than a Breach of Contract

Insurance PolicyIt is not uncommon to see a complaint against an insurance carrier in New York State that includes an allegation of the breach of the duty of good faith and fair dealing, or as it has commonly come to be known, bad faith. Bad faith allegations are regularly asserted, despite the fact that these claims are routinely dismisses under New York Law.

Recently, the United States District Court for the Southern District of New York re- affirmed that New York law does not provide an independent claim for breach of the implied covenant of good faith and fair dealing against an insurance carrier. Spandex House, Inc. v. Travelers Prop. Cas. Co. of Am., 2015 U.S. Dist. LEXIS 14667 (S.D.N.Y. Feb. 6, 2015)

The court reiterated that a “Breach of the duty of good faith and fair dealing is merely a breach of the underlying contract, and a claim for breach of the implied covenant will be dismissed as redundant where the conduct allegedly violating the implied covenant is also the predicate for breach of covenant of an express provision of the underlying contract.” A claim for breach of the duty of good faith “can only survive a motion to dismiss if it is based on allegations that differ from those underlying an accompanying breach of contract claim.”

 New York does not recognize or codify a dedicated tort claim for bad faith insurance practices. Only the New York Attorney General is authorized to enforce N.Y. Ins. Law § 2601 regarding unfair claims settlement practices. The statute does not provide a private cause of action and may only be enforced by the State. See Augeri v. Fidelity National Title Insurance Company, 2011 N.Y. Misc. LEXIS 5885, * 11, 2011 NY Slip Op 33206(U) (Supreme Ct., Nassau Cty. 2011), citing New York Univ. v. Cont’l Ins. Co., 87 N.Y.2d 308 (N.Y. 1995), at 317 (1995), Zawahir v. Berkshire Life Ins. Co., 22 A.D. 3d 841, 842 (2d Dept. 2005), Kantrowitz v. Allstate Indem Co., 48 A.D. 3d 753, 754 (2d Dept. 2008).

In addition, a party cannot recover attorneys fees or punitive damages based on a claim of unfair settlement practices. See Augeri, supra.

Since bad faith disputes are treated in New York as contractually based, to successfully allege a common law tort claim against an insurance company, a plaintiff must be able to make allegations so egregious that target not just the plaintiff, but that also exhibit a pattern of conduct directed to the public at large. See Rocanova v. Equitable Life Assurance Society of the United States, 83 N.Y.2d 603, 613-614 (1994) (discussing punitive damages in the insurance context).

The assertion of bad faith claims against an insurer will certainly be met with a motion to dismiss. In fact, one court took the liberty of pre-emptively dismissing all of the alleged bad faith claims in Super Storm Sandy litigations, since these claims were pure contractual disputes. Funk v. Allstate Ins. Co., 2013 U.S. Dist. LEXIS 177799 (E.D.N.Y. Dec. 13, 2013)

Therefore plaintiff’s practitioners should be warned that asserting those claims invites motion practice, expense and delay of the resolution of the case, where the claims will be dismissed under New York law.

Rosa M. Feeney, Esq
rmfeeney@lewisjohs.com

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