A & M Warshaw Plumbing & Heating, Inc. v. Mount Vernon Fire Insurance Company

Background

A & M Warshaw Plumbing & Heating, Inc. and A & M Warshaw Services LLC, doing business as A&M Warshaw Fire Protection, sued Mount Vernon Fire Insurance Company over insurance coverage. The plaintiffs sought a declaration that Mount Vernon had to defend and indemnify them in a New York state class action and damages arising from Mount Vernon’s refusal to provide that coverage.

The underlying state case began when two laborers sued A&M Plumbing over alleged failures to pay full wages under a public works contract. The state-court plaintiffs later added A&M Fire and alleged that the contract required payment under New York Labor Law § 220(3)(a), which concerns prevailing wages on public works projects. Each plaintiff had an insurance policy covering claims for alleged violations of the Fair Labor Standards Act or similar laws regulating subjects such as minimum wages, working hours, overtime, and recordkeeping. Mount Vernon denied coverage, reasoning that the state case asserted a contract claim rather than a claim for violating a wage law.

Mount Vernon moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). That procedure uses the same standard as a motion claiming that a complaint does not state a legally sufficient claim. The motion challenged three claims: breach of the implied promise of good faith and fair dealing, punitive damages, and attorneys’ fees and expenses incurred in bringing the coverage action.

Implied Covenant Claim

The court held that the implied-covenant claim duplicated the contract claims. Under New York law, a plaintiff generally cannot pursue both claims when they arise from the same conduct and seek the same damages, unless the claims involve different conduct and different categories or types of damages.

The plaintiffs alleged that Mount Vernon breached both the insurance contracts and the implied covenant by refusing to defend and indemnify them. Although the plaintiffs described the denials as knowing, reckless, and in bad faith, the court concluded that those descriptions did not distinguish the claim from the contract claims. The plaintiffs also sought the same expenses incurred defending the underlying lawsuit. The court therefore dismissed the implied-covenant claim as duplicative.

Punitive Damages

The court dismissed the demand for punitive damages. Under New York law, punitive damages on a contract claim require, among other things, an independent tort, meaning a separate legally wrongful act beyond the alleged contract breach, and conduct that forms part of a pattern directed at the public generally.

The court found that the plaintiffs had not identified an independent tort. Their allegations that Mount Vernon denied coverage recklessly and in bad faith described, at most, a contract dispute; New York law does not recognize a separate tort for bad-faith refusal to comply with an insurance contract. The plaintiffs also alleged only that Mount Vernon denied their own coverage requests and did not allege similar conduct toward other customers or the public generally. The punitive-damages demand therefore failed for both reasons.

Attorneys’ Fees and Expenses

The court also dismissed the claim for attorneys’ fees and expenses incurred in bringing this action. New York generally follows the rule that each side pays its own legal fees in an action to enforce an insurance agreement. The court discussed two relevant exceptions: an insured may recover fees when the insurer first places it in a defensive position through a legal step comparable to a lawsuit, or when the insurer denies coverage in bad faith.

Neither exception applied. Mount Vernon denied the plaintiffs’ coverage requests, but it did not file a declaratory judgment action or take another comparable legal step before the plaintiffs filed this lawsuit. The court also rejected the argument that the requested fees were recoverable as consequential damages, explaining that relabeling litigation fees does not avoid the general New York rule.

The court further held that the plaintiffs had not adequately alleged bad faith. The insurance language could reasonably support either side’s interpretation about whether it covered a breach-of-contract claim based on a prevailing-wage law. That arguable difference of opinion gave Mount Vernon a reasonable basis for its denial. The plaintiffs also alleged no additional facts showing that the denial was so baseless that no reasonable insurer could have made it. The bad-faith exception therefore did not apply.

Leave to Replead and Disposition

The court granted the plaintiffs’ request to replead the dismissed claims, provided they had a good-faith basis for doing so. The court stated that they had 30 days to replead.

Judge Ronnie Abrams granted Mount Vernon’s partial motion for judgment on the pleadings. The opinion’s ruling addressed the three challenged claims: the implied-covenant claim, the punitive-damages demand, and the attorneys’ fees and expenses claim. The court directed the Clerk of Court to terminate the motion at docket number 18.