On November 17, 2021, the Second Department issued a decision in East Ramapo Cent. Sch. Dist. v. New York Schs. Ins. Reciprocal, 2021 NY Slip Op. 06341, holding that an insurer’s alleged bad faith claim denial was a question of fact that could not be resolved on a motion to dismiss, explaining:
Implicit in every contract is an implied covenant of good faith and fair dealing. The implied covenant of good faith and fair dealing is a pledge that neither party to the contract shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruit of the contract, even if the terms of the contract do not explicitly prohibit such conduct. No obligation may be implied that would be inconsistent with other terms of the contractual relationship. In the context of an insurance-related dispute, the implied covenant of good faith and fair dealing means that the insurer must investigate claims for coverage in good faith, must not manufacture factually incorrect reasons to deny insurance coverage, must not deviate from its own practices or from industry practices, and must not act with gross disregard of the insured’s interests. Because claims arising from an insurer’s bad-faith denial of coverage are generally proven by evidence largely circumstantial in nature, courts are reluctant to dismiss complaints alleging bad faith at the pretrial stage.
. . .
Here, the Supreme Court, in the August 2017 order, erred in grating the defendant’s motion pursuant to CPLR 3211(a)(7) to dismiss the cause of action to recover damages for breach of the implied covenant of good faith and fair dealing. The plain language of the complaint reflects the plaintiff’s allegation that the defendant breached the implied covenant of good faith and fair dealing. The complaint alleged, inter alia, that the defendant failed to investigate in good faith the claims in the underlying action, denied coverage to the plaintiff based upon a manufactured and/or nonexistent assertion, deviated from industry practices by denying coverage to the plaintiff where no reasonable insurer would have denied such coverage, and disclaimed coverage with gross disregard for the facts and applicable law. In determining the defendant’s motion to dismiss, the court was required to accept as true the facts alleged in the complaint, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged by the plaintiff fit within any cognizable legal theory. Instead, the court improperly focused upon whether the plaintiff had shown how sharing the disclaimer letter with the plaintiffs in the underlying action was collusion or bad faith, and thus erroneously determined that the plaintiff had failed to state a cause of action because the plaintiff did not make such a showing.
Moreover, where, as here, 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. Accordingly, the defendant’s motion pursuant to CPLR 3211(a)(7) to dismiss the cause of action to recover damages for breach of the implied covenant of good faith and fair dealing should have been denied.
(Internal quotations and citations omitted).