Orange County, New York, has claim against Travelers tossed out
A New York District Court Judge recently partially dismissed a lawsuit against Travelers Indemnity Company.
Orange County, New York sued Travelers Insurance over losses stemming from Hurricane Irene and Tropical Storm Lee. In its lawsuit, Orange County claimed both breach of contract and a breach of good faith and fair dealing for Travelers’ denial of the county’s insurance claims. The county had $5 million worth of coverage with Travelers for loss due to wind and water for 2011. After the two storms in the late summer and fall of 2011, the county claimed $412,350.41 in damages to four buildings. Travelers denied that the policy covered the damage.
On May 14, 2014 District Judge Nelson Roman dismissed Orange County’s claim of breach of implied covenant of good faith and fair dealing.
New York breach of contract law
Under New York law, every contract has an implied covenant of good faith and fair dealing. However, an insurance company cannot be sued for both breach of contract and a breach of the implied covenant of good faith and fair dealing if the two claims arise from the same underlying cause of action.
Travelers therefore moved to dismiss the county’s claim of breach of good faith. Orange County argued that the underlying cause of actions were different. The county claimed that Travelers knowingly delayed and denied the county’s claim without investigation, which was a breach of good faith. The county claimed the breach of contract was solely based on the parties’ insurance coverage agreement.
District Judge Nelson Roman disagreed. In his opinion, Judge Roman held that “the facts giving rise to the two claims are the same: that Travelers did not perform its contractual duties as it had agreed to under the insurance policy. The delay and lack of investigation address the same ultimate grievance of failure to comply with the agreement.”
Breach of good faith claims
The dismissal of the claim for breach of good faith and fair dealing is important for several reasons. Occasionally, New York Courts have held that a breach of the implied covenant of good faith and fair dealing is a tort, not just a breach of contract. This can lead to tort damages as well as contract damages. A breach of good faith and fair dealing claim has also been described as a “Hail Mary” claim that can be used when no other contract claim fits. As such, it is beneficial to Travelers to have that claim dismissed and force Orange County to prove a specific breach of contract.
Severe weather events have increased in recent years. Insurance companies who have denied claims may face increased lawsuits as a result. Insurance companies facing breach of contract or breach of good faith and fair dealing should speak to an experienced insurance defense firm to discuss legal options.