 
                Egregious Conduct Needed to Bring Bad Faith Suit
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Posted on April 6, 2022 by Barry Zalma
Richard Converse and Stephanie Converse contended that State Farm violated a contract between the parties to insure rental property the Plaintiffs owned in Watertown, New York. That property burned on December 8, 2019, and Plaintiffs contend that State Farm has refused to pay their valid claim for the proceeds of their insurance policy.
In Richard Converse, and Stephanie Converse v. State Farm Fire And Casualty Company, No. 5:21-CV-457 (TJM/ATB), United States District Court, N.D. New York (March 31, 2022) the USDC applied New York law and dismissed the bad faith causes of action.
BACKGROUND
Plaintiffs sued on March 22, 2021 raising three causes of action; Count One alleged breach of contract. Count Two sought a declaratory judgment; Count Three alleged a breach of the covenant of good faith and fair dealing. Plaintiffs sought compensatory and punitive damages, along with attorneys fees.
State Farm filed a motion to dismiss, which seeks dismissal of Counts Two and Three, as well as any claim for punitive damages or attorneys fees.
ANALYSIS
Declaratory Judgment and Attorney’s Fees
Plaintiffs conceded that they cannot maintain a claim for declaratory judgment when they have an appropriate remedy in a breach-of-contract claim. The Court granted the motion on that basis.
As a general matter, federal courts disfavor awarding fees to the prevailing party unless “unusual circumstances” exist. Faraci v. Hickey-Freeman Co., 607 F.2d 1025, 1028 (2d Cir. 1979). Since Plaintiffs offered no opposition to this portion of the motion and thus appear to have abandoned that claim, and because the general rule is not to award such fees, the Court will grant the motion in this respect as well.
Good Faith and Fair Dealing
Under New York law, parties to an express contract are bound by an implied duty of good faith, but breach of that duty is 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. When a complaint alleges both a breach of contract and a breach of the implied covenant of good faith and fair dealing based on the same facts, the latter claim should be dismissed as redundant.
Plaintiffs alleged that they filed an insurance claim on December 11, 2019, three days after the fire in question. They claimed they assisted in Defendant’s investigation, including by sitting for an interview with an agent, and participating in an examination under oath. Plaintiffs produced documents and complied with all aspects of the investigation. Police and fire reports of the incident that gave rise to them found no “intent occurred in ignition of the fire.”
Fire Allegedly Caused by a Cigarette in the Trash
The Watertown Fire Department concluded that the source of the fire was “‘unintentional, ‘” caused by someone who “inadvertently” threw a cigarette in the trash. Defendant denied Plaintiffs’ claim in its entirety, finding that Plaintiffs had breached the policy’s terms in three ways.
THE CONTRACT CLAIM
With respect to their Contract Claim, Plaintiffs allege that State Farm breached the terms of the contract (the insurance policy) with Plaintiffs by denying coverage for the losses sustained by Plaintiffs because of the December 8, 2019 fire.
Plaintiffs contended that they fully cooperated with Defendant in their investigation of the claims, the Proof of Loss Forms, the Examination under Oath, and all other requests made by Defendant to Plaintiffs. They also claimed that the reasons for the denial are spurious and unsupported by any evidence. Plaintiffs allege that their good faith and fair dealing claim relates to Defendant’s conduct in processing Plaintiff [Stephanie Converse’s] claim under the policy. They raise a separate good faith and fair dealing claim “for [Defendant’s] handling of the claims submitted by Plaintiffs and conduct surrounding this [sic] claims that demonstrates a willful disregard for Plaintiff’s [sic] rights.”
Plaintiffs alleged that “as with any other insured on an insurance contract, ” they “relied on the representations of Defendant that they would process and handle claims fairly and without malice, ” and that Defendant breached this promise. They further alleged that Plaintiffs understood that there is no private cause of action under N.Y. Ins. Law ¶ 2601(a). However, Plaintiff[s], and any other insured on an insurance contract, were assured that Defendant would not process claims in violation of law and stated public policy in New York State.
ANALYSIS
The Court found that the breach-of-contract claim and the good-faith-and-fair-dealing claim are based on the same set of facts. In their contract claim Plaintiffs allege that the they suffered a loss that the insurance contract covered, they made a claim, and that Defendant denied that claim without reason. Their good-faith-and-fair-dealing claim likewise alleges that Defendant denied a valid claim. That claim also adds facts about the length of time it took the Defendant to deny the claim and the improper basis for the denial. That is a complaint about the claims process and the decision to deny the claim. Both claims rely on the same set of facts.
PUNITIVE DAMAGES
Finally, Defendant seeks to dismiss Plaintiffs’ claim for punitive damages. The only claim that remains here is a contract claim. In New York, punitive damages are not recoverable for an ordinary breach of contract as their purpose is not to remedy private wrongs but to vindicate public rights. A party may obtain punitive damages where the conduct constituting, accompanying, or associated with the breach of contract is first actionable as an independent tort for which compensatory damages are ordinarily available, and is sufficiently egregious to warrant the additional imposition of exemplary damages.
Plaintiffs here have alleged that Defendant breached the contract. They have also alleged that Defendant waited nearly ten months to deny their claim, did so for improper reasons, and may have told a State agency some of the facts the Defendant alleged led to denying the claim. None of that conduct is the sort of egregious conduct aimed at the public that would permit punitive damages on a contract claim.
For the reasons stated above, Defendant’s motion to dismiss was granted.
ZALMA OPINION
Cigarettes are often claimed to be the cause of a fire when the investigator is unable to find another cause. Years ago a fire cause investigator and I tried to set a fire using a lit cigarette. We put tissue paper and napkins in a trash can and threw lit cigarettes into the can. Nothing happened although we used almost twenty cigarettes. At best some tissue paper turned brown as the cigarette burned down. In most situations cigarettes only cause a fire when they are used as a fuse when placed in a book of matches. The court’s decision was not forthcoming about the facts but I surmise that State Farm also has a defense to the contract claim.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected].
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The Professional Claims Handler
Post 5218
Read the full article at https://www.linkedin.com/pulse/zalma-philosophy-claims-handling-part-8-barry-zalma-esq-cfe-zdwsc, see the full video at https://rumble.com/v70zl4s-the-zalma-philosophy-of-claims-handling-part-8.html and at https://youtu.be/MIYcF71ffRQ, and at https://zalma.com/blog plus more than 5200 posts.
Claims Commandment X – Thou Shall Not Pretend to be a Lawyer
Some experienced and professional claims people know the law in their area of expertise better than most lawyers.
Adjusters should be adjusters and leave lawyering to lawyers. Similarly, lawyers should be lawyers and never try to be adjusters.
Claims Commandment XI – Thou Shall Empathize With the Claimant
Everyone presenting a claim is unhappy, disturbed, shocked, injured and needs help.
Empathy is identification with and understanding of another’s situation, feelings, and motives. It is the ability to understand another person’s circumstances, point of view, thoughts, and feelings....
HOW TO CREATE AN EXCELLENCE IN CLAIMS HANDLING PROGRAM
See the full video at https://rumble.com/v70wb2i-the-zalma-philosophy-of-claims-handling-part-6.html and at https://youtu.be/tL5nDKPEs40 and at https://zalma.com/blog plus more than 5200 posts.
Post 5217
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry.
An Excellence in Claims Handling program begins with a statement in the insurer’s claims manual or statement of professionalism that it is dedicated to providing excellence in claims handling to every insured who presents a claim.
The excellence in claims handling program should include, at a minimum:
A series of lectures supported by text materials explaining:
A definition of insurance.
How to read and understand an insurance policy.
How to interview an insured, witness, or claimant.
How to assist an insured in the insured’s obligation to ...
The Professional Claims Handler
Post 5216
Read the full article at https://www.linkedin.com/pulse/zalma-philosophy-claims-handling-part-5-barry-zalma-esq-cfe-jde8c, see the full video at https://rumble.com/v70q4x8-the-zalma-philosophy-of-claims-handling-part-5.html and at https://youtu.be/6b9tZQsEkB4, and at https://zalma.com/blog plus more than 5200 posts.
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry.
Standards to be a Professional Claims Adjuster
The Insurance claims professional should be a person who:
1.    Can read and understand the insurance policies issued by the insurer.
2.    Understands the promises made by the policy.
3.   Understand their obligation, as an insurer’s claims staff, to fulfill the promises made.
4.    Are competent investigators.
5.    Have empathy and recognize the difference between empathy and sympathy.
6.    ...
The Professional Claims Handler
Post 5219
Posted on October 31, 2025 by Barry Zalma
An Insurance claims professionals should be a person who:
Can read and understand the insurance policies issued by the insurer.
Understands the promises made by the policy.
Understand their obligation, as an insurer’s claims staff, to fulfill the promises made.
Are competent investigators.
Have empathy and recognize the difference between empathy and sympathy.
Understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals.
Understand how to repair damage to real and personal property and the value of the repairs or the property.
Understand how to negotiate a fair and reasonable settlement with the insured that is fair and reasonable to both the insured and the insurer.
How to Create Claims Professionals
To avoid fraudulent claims, claims of breach of contract, bad faith, punitive damages, unresolved losses, and to make a profit, insurers ...
 
            
        
                    
        The History Behind the Creation of a Claims Handling Expert
The Insurance Industry Needs to Implement Excellence in Claims Handling or Fail
Post 5210
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry. This statement of my philosophy on claims handling starts with my history as a claims adjuster, insurance defense and coverage lawyer and insurance claims handling expert.
My Training to be an Insurance Claims Adjuster
When I was discharged from the US Army in 1967 I was hired as an insurance adjuster trainee by a professional and well respected insurance company. The insurer took a chance on me because I had been an Army Intelligence Investigator for my three years in the military and could use that training and experience to be a basis to become a professional insurance adjuster.
I was initially sat at a desk reading a text-book on insurance ...
 
            
        
                    
        The History Behind the Creation of a Claims Handling Expert
The Insurance Industry Needs to Implement Excellence in Claims Handling or Fail
Post 5210
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry. This statement of my philosophy on claims handling starts with my history as a claims adjuster, insurance defense and coverage lawyer and insurance claims handling expert.
My Training to be an Insurance Claims Adjuster
When I was discharged from the US Army in 1967 I was hired as an insurance adjuster trainee by a professional and well respected insurance company. The insurer took a chance on me because I had been an Army Intelligence Investigator for my three years in the military and could use that training and experience to be a basis to become a professional insurance adjuster.
I was initially sat at a desk reading a text-book on insurance ...
