NEW YORK FEDERAL COURT FINDS THAT NO BAD FAITH CAUSE OF ACTION EXISTS IN HURRICANE SANDY COVERAGE DISPUTE

In 433 Main Street Realty, LLC v. Darwin National Assurance Co., the United States District Court for the Eastern District of New York dismissed the insureds’ bad faith suit against their carrier stemming from a property damage claim related to Hurricane Sandy.  The insureds owned and were developing a residential property that was damaged during the Hurricane. The insureds sought coverage under a commercial inland marine policy that was subject to a $10,000 deductible, except for flood losses, which required a $250,000 deductible.  The parties disagreed as to whether the property damage was caused by flood and subject to the $250,000 deductible.

The insureds filed a declaratory judgment action asserting breach of contract and bad faith, premised upon the carrier’s alleged mishandling of the claim and its insistence that the higher deductible applied.  The court concluded that New York authorities do not recognize a separate cause of action for bad faith when a breach of contract claim based upon the same facts also is pled. The crux of the dispute, according to the court, was that the carrier failed to pay monies that the insureds believed was due under their insurance policy.  As such, the insureds failed to allege facts showing bad faith that were independent of the facts supporting their breach of contract claim.  The court did note, however, that dismissal of a bad faith claim does not preclude the insureds from claiming consequential damages for bad faith in amounts greater than the limits.