Corretto LLC v. Erie Insurance Company

Background

Corretto LLC brought claims against Erie Insurance Company for breach of contract and breach of the implied covenant of good faith and fair dealing. Corretto alleged that it had an insurance policy with Erie covering certain business-income losses and utility-service disruptions. After a gas leak was found at Corretto’s café on August 10, 2023, gas service was shut off, and Corretto stopped operating its kitchen and business. Corretto submitted an insurance claim the same day.

According to Corretto, Erie investigated the claim, requested information multiple times, and had not paid the claim as of March 10, 2024. Corretto alleged that Erie’s conduct was intended to avoid payment and caused the loss of its entire business, with damages of at least $2,000,000.

Motion to Dismiss

Erie moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not allege enough facts to state a legally plausible claim. Erie sought dismissal only of Corretto’s implied-covenant claim. Erie argued that the claim was duplicative of the breach-of-contract claim because both claims concerned Erie’s obligation to pay under the policy and relied on the same factual allegations.

Corretto argued that the claims were based on different conduct: the contract claim concerned Erie’s failure to pay, while the implied-covenant claim concerned Erie’s allegedly inadequate investigation. Corretto also argued that the implied-covenant claim could proceed as an alternative claim.

Court’s Analysis

The court applied New York law, noting that both parties briefed the issue under New York law and agreed to its application. Under that law, a separate claim for breach of the implied covenant of good faith and fair dealing is generally not recognized when a breach-of-contract claim is based on the same facts. A claim is also duplicative when it seeks the same damages as the contract claim, even if the plaintiff describes the conduct differently.

The court held that Corretto’s allegations about Erie’s allegedly improper investigation addressed the same underlying grievance as the contract claim: Erie’s alleged failure to comply with the insurance policy. The court therefore found the implied-covenant claim duplicative.

The court separately held that the two claims sought identical relief. Corretto sought compensation for the loss of its business under both claims and did not allege a separate injury, debt, or expense resulting from the investigation. The court also noted that New York recognizes exceptions for certain extra-contractual bad-faith claims involving an insurer’s denial of coverage, but Corretto did not argue that either exception applied.

Finally, the court rejected Corretto’s argument that the implied-covenant claim could be pleaded in the alternative. Alternative pleading may be allowed when the existence or meaning of a contract is uncertain. Here, however, Erie did not dispute the existence or interpretation of the insurance policy; it disputed only its obligation to pay under the policy. The court concluded that alternative pleading was therefore inappropriate.

Ruling

Judge Andrew L. Carter, Jr. granted Erie’s motion to dismiss Corretto’s claim for breach of the implied covenant of good faith and fair dealing. The Clerk of Court was directed to terminate the pending motion, and Erie was ordered to answer the complaint within three weeks of the opinion. The opinion does not state that the breach-of-contract claim was dismissed.