In Orient Overseas Assoc. v. XL Insurance America, Inc., 2015 NY Slip Op 07788 (1st Dep’t Oct. 27, 2015), the Appellate Division, First Department, of the New York State Supreme Court held that a cause of action for bad faith in claims handling could not stand when the plaintiff insured had also asserted a claim for breach of contract based on the same facts. The court found the bad faith claim to be duplicative of the breach of contract claim and dismissed it.

In Orient Overseas Assoc., an insurance dispute arose related to property damage caused by Hurricane Sandy at a property in lower Manhattan. The plaintiff, Orient Overseas, filed a complaint against several defendant insurers that asserted a claim for breach of contract against each of them as well as a second claim against defendant insurer Westport Insurance Corp. for “unfair selling practices” (the fifth cause of action). Orient Overseas argued that a claim for bad faith can be asserted separately from a breach of contract claim, but, to the extent the trial court disagreed, sought leave to amend the complaint in order to consolidate its breach of contract and bad faith claims. The court dismissed Orient Overseas’ bad faith claim but allowed it to amend its complaint to replead its fifth cause of action. Orient Overseas then filed and served an amended complaint that included a cause of action for “unfair claims selling/bad faith claims.” Orient Overseas’ motivation in asserting a tort claim was to seek attorneys fees from the insurer under a common law tort claim of bad faith, which would not be recoverable under a breach of contract claim due to an exclusion in the policy. Westport moved to dismiss the fifth cause of action of the amended complaint as being identical to the cause of action dismissed in the original complaint. The trial court granted Westport’s motion, and Orient Overseas appealed the decision to the First Department.

On appeal, the court noted that Westport pleaded certain facts in its breach of contract claim, and then “repeat[ed] all of the allegations made in support of the breach of contract claim and add[ing] that Westport ‘has misrepresented to Plaintiff Orient … the applicable sub-limit and deductible.’” The court stated that by alleging Westport “misrepresented” the applicable sub-limit and deductible under the applicable policy, “plaintiff is complaining that Westport, in bad faith, has not performed their agreement in accordance with plaintiff’s understanding of it.” Id. at *3. The court further stated that “the fifth cause of action is in fact a contract claim and is duplicative of the fourth cause of action, which alleges breach of contract against Westport” noting that “there is no compelling authority indicating that a separate, non-contractual claim exists for ‘bad faith claims handling.’” Id. Therefore, the court found that the fifth cause of action for bad faith was duplicative of the breach of contract claim, and affirmed dismissal of that cause of action.


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