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April 06, 2022
New York Refuses Bad Faith Case When Breach of Contract is Pleaded

Egregious Conduct Needed to Bring Bad Faith Suit

Read the full article at https://www.linkedin.com/pulse/new-york-refuses-bad-faith-case-when-breach-contract-barry and at https://zalma.com/blog plus more than 4150 posts.

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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Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com.

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September 05, 2025
Interpleader Helps Everyone Potential Claimant to Insurance Proceeds

Interpleader Protects All Claimants Against Life Policy and the Insurer

Who’s on First to Get Life Insurance Proceeds

Post 5184

See the full video at https://lnkd.in/gyxQfnUz and at https://lnkd.in/gAd3wqWP, and at https://zalma.com/blog plus more than 5150 posts.

Go to X @bzalma; Go to Barry Zalma videos at Rumble.com at https://lnkd.in/gRthzSnT; Go to Barry Zalma on YouTube- https://lnkd.in/g2hGv88; Go to the Insurance Claims Library – https://lnkd.in/gwEYk.
Interpleader Protects All Claimants Against Life Policy and the Insurer

In Metropolitan Life Insurance Company v. Selena Sanchez, et al, No. 2:24-cv-03278-TLN-CSK, United States District Court, E.D. California (September 3, 2025) the USDC applied interpleader law.
Case Overview

This case involves an interpleader action brought by the Metropolitan Life Insurance Company (Plaintiff-in-Interpleader) against Selena Sanchez and other defendants (Defendants-in-Interpleader).

Key Points

Plaintiff-in-Interpleader’s Application:

The Plaintiff-in-Interpleader...

00:06:34
September 05, 2025
Demands for Reasons for Termination not a “Claim”

A Claim by Any Other Name is not a Claim
Post 5182

It is Imperative that Insured Report Potential Claim to Insurers

Read the full article at https://lnkd.in/gfbwAsxw, See the full video at https://lnkd.in/gea_hgB3 and at https://lnkd.in/ghZ7gjxy, and at https://zalma.com/blog plus more than 5150 posts.

In Jeffrey B. Scott v. Certain Underwriters At Lloyd’s, London, Subscribing To Policy No. B0901li1837279, RLI Insurance Company, Certain Underwriters At Lloyds, London And The Insurance Company, Subscribing To Policy No. B0180fn2102430, No. 24-12441, United States Court of Appeals, Eleventh Circuit (August 25, 2025) the court explained the need for a claim to obtain coverage.

Case Background:

This appeal arises from a coverage dispute under a Directors & Officers (D&O) insurance policy. Jeffrey B. Scott, the plaintiff-appellant, was terminated from his role as CEO, President, and Secretary of Gemini Financial Holdings, LLC in October 2019. Following his termination, Scott threatened legal action against Gemini, and ...

00:08:22
September 04, 2025
Demands for Reasons for Termination not a “Claim”

A Claim by Any Other Name is not a Claim
Post 5182

It is Imperative that Insured Report Potential Claim to Insurers

Read the full article at https://lnkd.in/gfbwAsxw, See the full video at https://lnkd.in/gea_hgB3 and at https://lnkd.in/ghZ7gjxy, and at https://zalma.com/blog plus more than 5150 posts.

In Jeffrey B. Scott v. Certain Underwriters At Lloyd’s, London, Subscribing To Policy No. B0901li1837279, RLI Insurance Company, Certain Underwriters At Lloyds, London And The Insurance Company, Subscribing To Policy No. B0180fn2102430, No. 24-12441, United States Court of Appeals, Eleventh Circuit (August 25, 2025) the court explained the need for a claim to obtain coverage.

Case Background:

This appeal arises from a coverage dispute under a Directors & Officers (D&O) insurance policy. Jeffrey B. Scott, the plaintiff-appellant, was terminated from his role as CEO, President, and Secretary of Gemini Financial Holdings, LLC in October 2019. Following his termination, Scott threatened legal action against Gemini, and ...

00:08:22
September 03, 2025

Barry Zalma: Insurance Claims Expert Witness
Posted on September 3, 2025 by Barry Zalma
The Need for a Claims Handling Expert to Defend or Prove a Tort of Bad Faith Suit

© 2025 Barry Zalma, Esq., CFE

When I finished my three year enlistment in the US Army as a Special Agent of US Army Intelligence in 1967, I sought employment where I could use the investigative skills I learned in the Army. After some searching I was hired as a claims trainee by the Fireman’s Fund American Insurance Company. For five years, while attending law school at night while working full time as an insurance adjuster I became familiar with every aspect of the commercial insurance industry.

On January 2, 1972 I was admitted to the California Bar. I practiced law, specializing in insurance claims, insurance coverage and defense of claims against people insured and defense of insurance companies sued for breach of contract and breach of the implied covenant of good faith and fair dealing. After 45 years as an active lawyer, I asked that my license to practice law be declared inactive ...

post photo preview
September 03, 2025
Barry Zalma, Esq., CFE Insurance Claims Expert Witness

The Need for a Claims Handling Expert to Defend or Prove a Tort of Bad Faith Suit
© 2025 Barry Zalma, Esq., CFE

When I finished my three year enlistment in the US Army as a Special Agent of US Army Intelligence in 1967, I sought employment where I could use the investigative skills I learned in the Army. After some searching I was hired as a claims trainee by the Fireman’s Fund American Insurance Company. For five years, while attending law school at night while working full time as an insurance adjuster I became familiar with every aspect of the commercial insurance industry.

On January 2, 1972 I was admitted to the California Bar. I practiced law, specializing in insurance claims, insurance coverage and defense of claims against people insured and defense of insurance companies sued for breach of contract and breach of the implied covenant of good faith and fair dealing. After 45 years as an active lawyer, I asked that my license to practice law be declared inactive and became a consultant and expert witness for lawyers representing insurers and lawyers ...

post photo preview
September 03, 2025
Evidence Required to Prove Breach of Contract

APPRAISAL AWARD SETS AMOUNT OF DAMAGES RECOVERED FROM INSURER

Post 5180

See the full video at https://rumble.com/v6yd2z0-evidence-required-to-prove-breach-of-contract.html and at https://youtu.be/2ywEjs3hZsw, and at https://zalma.com/blog plus more than 5150 posts.

It’s a Waste of Time to Sue Your Insurer if You Don’t Have Evidence

Evidence Required to Prove Breach of Contract

Read the full article at https://www.linkedin.com/pulse/evidence-required-prove-breach-contract-barry-zalma-esq-cfe-rfelc, see the full video at https://rumble.com/v6yd2z0-evidence-required-to-prove-breach-of-contract.html and at https://youtu.be/2ywEjs3hZsw, and at https://zalma.com/blog plus more than 5150 posts.

It’s a Waste of Time to Sue Your Insurer if You Don’t Have Evidence

In Debbie Beaty and Jonathan Hayes v. Homeowners Of America Insurance Company, No. 01-23-00844-CV, Court of Appeals of Texas, First District (August 26, 2025) Debbie Beaty and Jonathan Hayes filed a claim under their homeowner’s insurance policy with Homeowners of ...

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