In its recent decision, the Appellate Division (1st Dept.) of the New York Supreme Court may have provided insurers with another basis to dismiss arguably duplicative claims arising from Super Storm Sandy. In Orient Overseas Associates v. XL Insurance America, Inc., the Appellate Division considered whether, in a case in which a breach of contract claim was already plead against an insurer based on its alleged failure to pay for damages covered under its policy, this same conduct may provide the basis for a separate claim against the insurer for “unfair claim settling practices.” The Appellate Division found that, because the “unfair claim settling practice” claim was duplicative of the insured’s breach of contract claim, it was subject to dismissal.
In Orient, the insured filed suit against three of its insurers for breach contract as a result of their alleged failure to pay it for damages sustained to its property in Super Storm Sandy, and as to one of the insurers, also asserted a claim for “unfair claims selling practices.” This later count was dismissed, but the insured was permitted to re-file its complaint. In the re-filed complaint, the insured against asserted a breach of contract claim against all insurers, but this time added a claim for “unfair settlement practices/bad faith” against the same insurer singled out in the first complaint. The trial court dismissed this later claim as duplicative of the breach of contract claim against the insurer. The Appellate Division affirmed.
Initially, the Appellate Division agreed with the trial court’s conclusion that New York law did not recognize a standalone claim for “unfair claim settling practices.” Although the Appellate Division held that, in certain circumstances, “the very nature of a contractual obligation, and the public interest in seeing it performed with reasonable care” creates both a duty of reasonable care in the performance of the contract, and where the duty is breached, a separate cause of action, it found that these same considerations did not warrant the creation of a separate claim against an insurance company for “unfair claim settling practices.”
The Appellate Division then reviewed the allegations of the “unfair settlement practices/bad faith” claim, and pointed out that that the claim repeated all of the components of the breach of contract claim, merely adding allegations of policy sub-limit and deductible misrepresentation, as well as refusal to pay the insured, leading to unfair settling practices. The Appellate Division found that these additional allegations did not change the fact that, in essence, the claim was one for the insurer’s failure to perform under its contract.