A Nassau County trial court dismissed an insured’s bad faith counterclaim against an insurer in a declaratory judgment action on the basis that New York law does not recognize a claim for bad faith refusal to comply with an insurance contract.
In Preferred Contractors Ins. Co. v. Cipco Boarding Co, Inc., the insurer moved to dismiss the insured’s bad faith counterclaim for failure to state a cause of action. While the court recognized that New York does recognize a claim for bad faith failure to settle a tort action within insurance policy limits, the court held that there is no separate action for an insurer’s bad faith refusal to comply with an insurance contract. Relying on previously decided cases, the court determined that such a cause of action is duplicative of a cause of action for breach of contract and dismissed the insured’s claim for failure to state a cause of action.
In Preferred Contractors Ins. Co., the insured was sued for negligence for property damage after the insured allegedly failed to properly secure roof tarps in the wake of Superstorm Sandy. The insurer initially denied coverage, but later provided coverage subject to a reservation of rights to seek a judicial determination that the policy did not provide coverage for the suit against the insured. The insurer then brought a declaratory judgment against the insured and the insured counterclaimed for breach of contract and bad faith.
In reaching its decision to dismiss the insured’s bad faith cause of action, the court relied on many previous holdings finding that no such cause of action exists under New York law because it is duplicative of a breach of contract action.