February 20, 2020 Article

A Review of New York Courts’ Outlooks on “Bad Faith” and Consequential Damages

Recent cases have addressed the circumstance where an insured is alleging that the insurer breached the policy and caused additional damages in doing so.

By Christie R. McGuinness

Bad-faith claims against an insurer are always of interest as they strike at the heart of the relationship between the insurer and the insured. In New York, an insured’s bad-faith claims typically allege that the insurer failed to live up to its obligations under the policy and wrongfully denied the benefits of the policy. Because New York finds an implied duty of good faith in every contract, there is no independent action for an alleged breach of good faith and fair dealing unless a plaintiff can plead facts that are separate and distinct from the facts supporting breach of contract.

In New York, recent cases have addressed the circumstance where an insured is alleging that the insurer not only breached the policy but also caused additional damages to the insured by its alleged breach.[1] Are those additional damages compensable to insureds and, if so, under what circumstances may those damages be pled? The New York cases also address the pleading standards for both breach of contract and breach of the implied duty of good faith and fair dealing. 

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