Ruiz v. Liberty Mutual Fire Insurance Company

Background

John Ruiz brought a diversity action against Liberty Mutual Fire Insurance Company involving two homeowners insurance claims. The complaint alleged that a pipe burst and flooded the insured premises on January 28, 2017, and that another burst pipe caused a second flood on January 13, 2018. Ruiz alleged that Liberty Mutual inspected the property, that a disagreement arose about the amount of his losses, and that Liberty Mutual later denied both claims based on alleged fraud or concealment. Ruiz also alleged that Liberty Mutual delayed and then ended an appraisal concerning the first flood.

Ruiz asserted breach of contract and breach of the implied covenant of good faith and fair dealing. He sought compensatory and consequential damages, as well as attorneys’ fees and costs. Liberty Mutual moved under Rule 12(b)(6), which allows dismissal when a complaint does not adequately state a legally sufficient claim.

Implied Covenant Claim

The court denied the motion to dismiss the implied-covenant claim. Under New York law, a claim for breach of the implied covenant generally cannot proceed when it is based on the same facts and seeks the same damages as a contract claim. The court concluded, however, that Ruiz alleged more than Liberty Mutual’s failure to pay the claimed policy benefits. He also alleged bad-faith conduct involving the inspection, appraisal, delay, and cancellation of the appraisal. He further sought additional remediation and living expenses allegedly caused by that conduct.

Consequential Damages

The court denied the motion to dismiss Ruiz’s demand for consequential damages. It held that, at this early stage, Ruiz plausibly alleged that Liberty Mutual’s claim handling and denial caused additional damages beyond the losses from the floods. The court stated that whether those damages resulted from a contract breach or breach of the implied covenant, and whether they were foreseeable, were factual issues not appropriate for decision on the motion to dismiss.

Attorneys’ Fees

The court granted the motion to the extent it sought dismissal of Ruiz’s attorneys’ fee demand. New York generally does not allow the successful party in litigation to recover attorneys’ fees unless an agreement, statute, or court rule authorizes them. Although New York recognizes a limited exception when an insured is forced into a defensive position by an insurer’s effort to avoid its policy obligations, the court held that exception did not apply here. Liberty Mutual denied Ruiz’s coverage claims, but Ruiz then affirmatively brought this action to establish his rights under the policy. The court also rejected treating the attorneys’ fees as consequential damages.

Disposition

The court granted in part and denied in part Liberty Mutual’s motion for partial dismissal. It granted the motion insofar as it sought dismissal of Ruiz’s demand for attorneys’ fees and denied it in all other respects. The court ordered Liberty Mutual to answer the complaint by January 13, 2020, and directed the Clerk to terminate the motion.