It is well settled under New York law that implicit in every contract is a duty of good faith and fair dealing between the parties. In the context of an insurance policy there is an implicit promise that the insurer will investigate the loss in good faith and timely pay covered claims. In three recent decisions, the Appellate Division, Second Department, reiterated these principles, holding in each case that an insured's claim for breach of the implied covenant of good faith and fair dealing by failing to pay the insured's claim is not duplicative of a separate claim for breach of contract. See Pandarakalam v. Liberty Mut. Ins. Co., 2016 NY Slip Op 02339, ___ A.D.3d ___ (2d Dept, March 30, 2016); Doody v. Liberty Mut. Group Inc., 2016 New York Slip Op. 01798, ___A.D.3d___(2d Dep't, March 16, 2016); Gutierrez v. Government Employees Ins. Co., 136 A.D.3d 975 (2d Dep't 2016).
In Gutierrez, the insured claimed injuries in a motor vehicle accident and obtained a policy limits settlement of $50,000 from the carrier for the offending driver, and then made a claim for supplemental underinsured motorist (SUM) benefits against his own carrier, GEICO. When GEICO did not pay the SUM claim, the insured sued GEICO for breach of the insurance contract for failure to pay the SUM benefits and also made a separate claim that GEICO breached its duty to act in good faith by unreasonably withholding payment of the benefits. In response to the insurer's argument that the two claims were duplicative, the Court noted that the claim for breach of the implied covenant of good faith and fair dealing "is not necessarily duplicative of the cause of action alleging breach of contract." Specifically, the Court pointed out that the insurance carrier has a duty to investigate in good faith and pay covered claims, and that damages for breach of that duty include both the value of the claim and consequential damages, which may exceed the limits of the policy, for failure to pay the claim within a reasonable time. The Court noted that such consequential damages "may include loss of earnings not directly caused by the covered loss, but caused, instead, by the breach of the implied covenant of good faith and fair dealing."
Less than a month later, in Doody, the same Court held that "the cause of action alleging breach of the covenant of good faith and fair dealing is not wholly duplicative of the cause of action alleging breach of contract" where the insureds commenced an action against their insurer to recover damages for breach of their homeowner's insurance policy following a fire at their home. Again, the Court's decision to permit the additional claim for breach of the covenant of good faith hinged on the additional damages sought beyond those recoverable in the breach of contract cause of action, specifically replacement cost benefits and reimbursement of public adjuster fees.
Finally, in Pandarakalam, the Court affirmed the trial court's denial of an insurer's cross-motion for summary judgment, permitting the insured's causes of action for breach of contract and consequential damages arising from the insurer's alleged breach of the covenant of good faith and fair dealing. The insured sought to recover damages resulting from debris removal that he incurred during the rebuilding of his house after a fire and for consequential damages for his additional living expenses because the insurer failed to show that the consequential damages were not within the contemplation of the parties when they entered into the insurance policy.
These three decisions appear to indicate that the courts in New York are becoming more flexible with regard to allowing an insured to sue its insurer for breach of the implied covenant of good faith and fair dealing and to pursue consequential damages, which may exceed the damages normally recoverable under the policy's limits. In addition, these decisions are a reminder that such a claim is not duplicative of the insured's breach of contract claim.