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NY Court Reaffirms There is No Cause of Action for Bad Faith Disclaimer Under NY Law

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In Spandex House, Inc. v. Travelers Property Cas. Co. of America, Inc.,14 Civ. 4251 (PAC), (S.D.N.Y. Feb. 6, 2015) the United States District Court for the Southern District of New York recently affirmed that New York law does not recognize a cause of action for bad faith disclaimer of coverage. Plaintiff commenced the action against its general liability insurer, Travelers, seeking a declaration that coverage existed for an underlying lawsuit. Plaintiff alleged that, in addition to its wrongful denial of coverage, Travelers refusal to defend Plaintiff was in breach of the implied duty of good faith and fair dealing. Travelers moved to dismiss the bad faith claim, arguing that New York law does not allow for an independent cause of action for breach of the implied covenant of good faith and fair dealing unless the allegations giving rise to the tort differ from those supporting the breach of contract claim. Plaintiff responded that recent case law developments, including the Second Circuit’s decision in Hugo Boss Fashions, Inc. v. Fed. Ins. Co., 252 F.3d 608 (2d Cir. 2001), supported its cause of action. The court rejected Plaintiff’s argument and ruled that the cause of action should be dismissed because Plaintiff failed to prove that its bad faith claim was based on allegations different than those serving as the predicate for its breach of contract claim.