New York Court Reaffirms Limitations on Policy Claims Arising Out of Superstorm Sandy

In Sikarevich Family L.P. v. Nationwide Mutual Insurance Co., No. 13-cv-05564, 2014 U.S. Dist. LEXIS 92254 (E.D.N.Y. July 3, 2014), the United States District Court for the Eastern District of New York addressed a policyholder’s claims for:  (1) breach of the covenant of good faith and fair dealing, (2) unjust enrichment, (3) consequential damages, and (4) punitive damages.  Notably, the policyholder alleged a breach of contract cause of action. The policyholder’s claims arose out of Nationwide’s denial of coverage for the policyholder’s first party property damage and business income loss resulting from what the district court referred to as “Hurricane Sandy.” Nationwide denied coverage on the ground that the damage (and resulting business interruption) was caused by water, an excluded Cause of Loss under the Policy. Nationwide moved to dismiss each of the policyholder’s claims, except for breach of contract. The policyholder generally alleged that Nationwide breached the covenant of good faith and fair dealing by failing to properly investigate and “valuate” the claim and, in turn, denying coverage. Citing the well-settled rule in New York, the district court reiterated that there is no “separate cause of action for breach of the implied covenant of good faith and fair dealing when a breach of contract claim, based on the same facts, is also pled.” Importantly, even where breach of contract is not also pleaded, the district court affirmed that New York law does not recognize an independent tort claim for bad faith denial of insurance claim because such claims are “duplicative of a claim sounding in breach of contract.”  Thus, the district court dismissed the policyholder’s claim for breach of the covenant of good faith and fair dealing. The district court also dismissed the policyholder’s claim for unjust enrichment, finding that since the cause of action stemmed from Nationwide’s alleged failure to comply with its obligations under the Policy, the policyholder “cannot plead its unjust enrichment claim in the alternative to its breach of contract claim.” Additionally, the district court dismissed the policyholder’s punitive damages claim as duplicative of the breach of contract claim. In particular, the district court held that the policyholder failed to plead an actionable tort independent of the contract.  Nonetheless, the district court allowed the policyholder’s claim for consequential damages in connection with its breach of contract claim. This decision is a significant victory for insurers and has potential far-reaching implications with regard to the exposure insurers may face arising out of “Sandy claims.”

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