Brown v. Erie Insurance Company

• Decision Date: 08 July 2022
• Docket Number: 361,CA 21-01457
• Citation: 207 A.D.3d 1144,172 N.Y.S.3d 299
• Parties: Marie BROWN, Plaintiff-Respondent, v. ERIE INSURANCE COMPANY, Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

207 A.D.3d 1144

172 N.Y.S.3d 299

Marie BROWN, Plaintiff-Respondent,

v.ERIE INSURANCE COMPANY, Defendant-Appellant.

361

CA 21-01457

Supreme Court, Appellate Division, Fourth Department, New York.

Entered: July 8, 2022

RUPP BAASE PFALZGRAF CUNNINGHAM LLC, BUFFALO (CORY J. WEBER OF COUNSEL), FOR DEFENDANT-APPELLANT.

SMALL LAW FIRM, BUFFALO (BRIAN J. ALTERIO OF COUNSEL), FOR PLAINTIFF-RESPONDENT.

PRESENT: WHALEN, P.J., SMITH, PERADOTTO, NEMOYER, AND WINSLOW, JJ.

MEMORANDUM AND ORDER

It is hereby ORDERED that the order insofar as appealed from is unanimously reversed on the law without costs, the motion is granted in its entirety, the second cause of action is dismissed, and the cross motion is denied.

Memorandum: Plaintiff commenced this action seeking, among other things, to collect supplemental uninsured/underinsured motorist (SUM) benefits under an insurance policy issued by defendant. On appeal, defendant contends that Supreme Court erred in denying its motion insofar as it sought dismissal of the cause of action in plaintiff's complaint alleging breach of the implied covenant of good faith and fair dealing and granting plaintiff's cross motion for leave to amend the complaint with respect to that cause of action. We agree.

"In New York, all contracts imply a covenant of good faith and fair dealing in the course of performance" ( 511 W. 232nd Owners Corp. v. Jennifer Realty Co. , 98 N.Y.2d 144, 153, 746 N.Y.S.2d 131, 773 N.E.2d 496 [2002] ; see New York Univ. v. Continental Ins. Co. , 87 N.Y.2d 308, 318, 639 N.Y.S.2d 283, 662 N.E.2d 763 [1995] ). That covenant "embraces a pledge that ‘neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract’ " ( Dalton v. Educational Testing Serv. , 87 N.Y.2d 384, 389, 639 N.Y.S.2d 977, 663 N.E.2d 289 [1995], quoting Kirke La Shelle Co. v. Armstrong Co. , 263 N.Y. 79, 87, 188 N.E. 163 [1933] ; see Paramax Corp. v. VoIP Supply, LLC , 175 A.D.3d 939, 940, 107 N.Y.S.3d 231 [4th Dept. 2019] ; Gutierrez v. Government Empls. Ins. Co. , 136 A.D.3d 975, 976, 25 N.Y.S.3d 625 [2d Dept. 2016] ). "While the duties of good faith and fair dealing do not imply obligations ‘inconsistent with other terms of the contractual relationship’ ..., they do encompass ‘any promises which a reasonable person in the position of the promisee would be justified in understanding were included’ " ( 511 W. 232nd Owners Corp. , 98 N.Y.2d at 153, 746 N.Y.S.2d 131, 773 N.E.2d 496 ; see New York Univ. , 87 N.Y.2d at 318, 639 N.Y.S.2d 283, 662 N.E.2d 763 ). "Even if a party is not in breach of its express contractual obligations, it may be in breach of the implied duty of good faith and fair dealing ... when it exercises a contractual right as part of a scheme to realize gains that the contract implicitly denies or to deprive the other party of the fruit [or benefit] of its bargain" ( Paramax Corp. , 175 A.D.3d at 940-941, 107 N.Y.S.3d 231 [internal quotation marks omitted]). Thus, a cause of action for breach of the implied duty of good faith and fair dealing "is not necessarily duplicative of a cause of action alleging breach of contract" ( Gutierrez , 136 A.D.3d at 976, 25 N.Y.S.3d 625 ).

In the context of insurance contracts specifically, the implied covenant of good faith and fair dealing includes a duty on the part of the insurer " ‘to investigate in good faith and pay covered claims’ " ( Bi-Economy Mkt., Inc. v. Harleysville Ins. Co. of N.Y. , 10 N.Y.3d 187, 194, 856 N.Y.S.2d 505, 886 N.E.2d 127 [2008], rearg denied 10 N.Y.3d 890, 861 N.Y.S.2d 262, 891 N.E.2d 295 [2008], quoting New York Univ. , 87 N.Y.2d at 318, 639 N.Y.S.2d 283, 662 N.E.2d 763 ; see Gutierrez , 136 A.D.3d at 976, 25 N.Y.S.3d 625 ). "Breach of that duty can result in recoverable consequential damages, which may exceed the limits of the policy" ( Tiffany Tower Condominium, LLC v. Insurance Co. of the Greater N.Y. , 164 A.D.3d 860, 862, 84 N.Y.S.3d 167 [2d Dept. 2018] ; see Bi-Economy Mkt., Inc. , 10 N.Y.3d at 192-193, 856 N.Y.S.2d 505, 886 N.E.2d 127 ; Panasia Estates, Inc. v. Hudson Ins. Co. , 10 N.Y.3d 200, 203, 856 N.Y.S.2d 513, 886 N.E.2d 135 [2008] ). "[I]n order to establish a prima facie case of bad faith, the plaintiff must establish that the insurer's conduct constituted a ‘gross disregard’ of the insured's interests—that is, a deliberate or reckless failure to place on equal footing the interests of [the] insured with [the] insurer's own interests" ( Pavia v. State Farm Mut. Auto. Ins. Co. , 82 N.Y.2d 445, 453, 605 N.Y.S.2d 208, 626 N.E.2d 24 [1993], rearg denied 83 N.Y.2d 779, 611 N.Y.S.2d 126, 633 N.E.2d 480 [1994] ; see Miller v. Allstate Indem. Co. , 132 A.D.3d 1306, 1307-1308, 17 N.Y.S.3d 240 [4th Dept. 2015] ; Jonas v. New York Cent. Mut. Fire Ins. Co. , 244 A.D.2d 916, 917, 665 N.Y.S.2d 189 [4th Dept. 1997] ).

Based on the foregoing principles, where "the cause of action to recover damages for breach of the policy and the cause of action to recover damages for breach of the implied covenant of good faith and fair dealing allege different conduct on the part of the defendant and seek different categories and/or types of damages, the cause of action seeking damages for breach of the implied covenant of good faith and fair dealing should not be dismissed as ‘duplicative’ of the cause of action alleging breach of contract" ( East Ramapo Cent. Sch. Dist. v. New York Schs. Ins. Reciprocal , 199 A.D.3d 881, 885, 158 N.Y.S.3d 173 [2d Dept. 2021] ). Here, however, the allegations in plaintiff's complaint that defendant violated its duty of good faith and fair dealing are predicated solely upon the claim that defendant failed or refused to pay her the full amount of SUM coverage under the insurance policy, i.e., that defendant had breached the terms of the policy. Consequently, plaintiff failed to state a cause of action for breach of the implied duty of good faith and fair dealing (see generally CPLR 3211 [a] [7] ), and the court should have granted defendant's motion insofar as it sought to dismiss that cause of action as duplicative of the breach of contract cause of action (see Sue/Perior Concrete & Paving, Inc. v. Lewiston Golf Course Corp. , 109 A.D.3d 80, 92, 968 N.Y.S.2d 271 [4th Dept. 2013], affd 24 N.Y.3d 538, 2 N.Y.S.3d 15, 25 N.E.3d 928 [2014], rearg denied 25 N.Y.3d 960, 8 N.Y.S.3d 257, 30 N.E.3d 900 [2015] ; see also Paull v. First UNUM Life Ins. Co. , 295 A.D.2d 982, 984, 744 N.Y.S.2d 95 [4th Dept. 2002] ; cf. East Ramapo Cent. Sch. Dist. , 199 A.D.3d at 885, 158 N.Y.S.3d 173 ; see generally New York Univ. , 87 N.Y.2d at 319-320, 639 N.Y.S.2d 283, 662 N.E.2d 763 ).

In addition, the court abused its discretion in granting plaintiff's cross motion for leave to amend the complaint with respect to the cause of action alleging breach of the implied duty of good faith and fair dealing. "Although leave to amend a pleading should be freely granted absent prejudice or surprise ..., leave to amend should be denied where ... the proposed amendment is patently lacking in merit" ( Baker v. Keller , 241 A.D.2d 947, 947, 661 N.Y.S.2d 330 [4th Dept. 1997] ; see Christian v. Brookdale Senior Living Communities, Inc. , 199 A.D.3d 1450, 1451, 154 N.Y.S.3d 616 [4th Dept. 2021] ; Armstrong v. Merrick , 99 A.D.3d 1247, 1247, 951 N.Y.S.2d 450 [4th Dept. 2012] ; see generally CPLR 3025 [b] ; Davis v. South Nassau Communities Hosp. , 26 N.Y.3d 563, 580, 26 N.Y.S.3d 231, 46 N.E.3d 614 [2015] ). In accordance with that standard, "[a] court should not examine the merits or legal sufficiency of the proposed amendment unless the proposed pleading is clearly and patently insufficient on its face" ( Landers v. CSX Transp., Inc. , 70 A.D.3d 1326, 1327, 893 N.Y.S.2d 774 [4th Dept. 2010] [internal quotation marks omitted]; see Great Lakes Motor Corp. v. Johnson , 156 A.D.3d 1369, 1370-1371, 68 N.Y.S.3d 614 [4th Dept. 2017] ; Putrelo Constr. Co. v. Town of Marcy , 137 A.D.3d 1591, 1593, 27 N.Y.S.3d 760 [4th Dept. 2016] ; Holst v. Liberatore , 105 A.D.3d 1374, 1374, 964 N.Y.S.2d 333 [4th Dept. 2013] ). "[T]he decision whether to grant leave to amend a complaint is committed to the sound discretion of the court" ( Davis , 26 N.Y.3d at 580, 26 N.Y.S.3d 231, 46 N.E.3d 614 [internal quotation marks omitted]; see Edenwald Contr. Co. v. City of New York , 60 N.Y.2d 957, 959, 471 N.Y.S.2d 55, 459 N.E.2d 164 [1983] ).

Here, while there is no prejudice...