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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].

Subscribe to Zalma on Insurance at locals.com https://zalmaoninsurance.local.com/subscribe.

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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.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/

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Allegations That Establish Breach of a Condition Defeats Suit

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Injury at Massage Causes Suit Against Therapist

Read the full article at https://lnkd.in/gziRzFV8, see the full video at https://lnkd.in/gF4aYrQ2 and at https://lnkd.in/gqShuGs9, and at https://zalma.com/blog plus more than 5050 posts.

Hiscox Insurance Company (“Hiscox”) moved the USDC to Dismiss a suit for failure to state a claim because the insured reported its claim more than 60 days after expiration of the policy.

In Mluxe Williamsburg, LLC v. Hiscox Insurance Company, Inc., et al., No. 4:25-cv-00002, United States District Court, E.D. Missouri, Eastern Division (May 22, 2025) the trial court’s judgment was affirmed.

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Plaintiff, the operator of a massage spa franchise, entered into a commercial insurance agreement with Hiscox that provided liability insurance coverage from July 25, 2019, to July 25, 2020. On or about June 03, 2019, a customer alleged that one of Plaintiff’s employees engaged in tortious ...

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June 02, 2025
Zalma’s Insurance Fraud Letter – June 1, 2025

ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Posted on June 2, 2025 by Barry Zalma

Post 5087

See the full video at and at

Read the full article and the full issue of ZIFL June 1, 2025 at https://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-06-01-2025.pdf

Zalma’s Insurance Fraud Letter – June 1, 2025

See the full video at https://lnkd.in/gw-Hgww9 and at https://lnkd.in/gF8QAq4d, and at https://zalma.com/blog plus more than 5050 posts.

ZIFL – Volume 29, Issue 11

The Source for the Insurance Fraud Professional

Read the full article and the full issue of ZIFL June 1, 2025 at https://lnkd.in/gTWZUnnF

Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at ...

00:08:42
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May 30, 2025
Plain Language of Policy Enforced

No Coverage if Home Vacant for More Than 60 Days

Failure to Respond To Counterclaim is an Admission of All Allegations

Post 5085

See the full video at https://lnkd.in/gbWPjHub and at https://lnkd.in/gZ9ztA-P, and at https://zalma.com/blog plus more than 5050 posts.

In Nationwide Mutual Insurance Company v. Rebecca Massey, Civil Action No. 2:25-cv-00124, United States District Court, S.D. West Virginia, Charleston Division (May 22, 2025) Defendant Nationwide Mutual Insurance Company's (“Nationwide”) motion for Default Judgment against Plaintiff Rebecca Massey (“Plaintiff”) for failure to respond to a counterclaim and because the claim was excluded by the policy.

BACKGROUND

On February 26, 2022, Plaintiff's home was destroyed by a fire. At the time of this accident, Plaintiff had a home insurance policy with Nationwide. Plaintiff reported the fire loss to Nationwide, which refused to pay for the damages under the policy because the home had been vacant for more than 60 days.

Plaintiff filed suit ...

00:06:50
May 15, 2025
Zalma's Insurance Fraud Letter - May 15, 2025

ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional

See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.

Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:

Health Care Fraud Trial Results in Murder for Hire of Witness

To Avoid Conviction for Insurance Fraud Defendants Murder Witness

In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...

May 15, 2025
CGL Is Not a Medical Malpractice Policy

Professional Health Care Services Exclusion Effective

Post 5073

See the full video at https://lnkd.in/g-f6Tjm5 and at https://lnkd.in/gx3agRzi, and at https://zalma.com/blog plus more than 5050 posts.

This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.

In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:

Insurance Coverage Dispute:

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April 30, 2025
The Devil’s in The Details

A Heads I Win, Tails You Lose Story
Post 5062

Posted on April 30, 2025 by Barry Zalma

"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the ­­­Perpetrators than any Other Crime."

Immigrant Criminals Attempt to Profit From Insurance Fraud

People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.

The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...

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