Bareby v. Union Mutual Fire Insurance Company

Background

Ohad Bareby filed a breach-of-contract action against Union Mutual Fire Insurance Company. Bareby alleged that he had an insurance policy covering damage from a pipe failure in his building, that a pipe burst on November 30, 2020, and that the resulting damage exceeded $106,000. He alleged that Union Mutual refused to pay the claim and later denied the claim and rescinded the policy.

According to the complaint, Union Mutual faulted Bareby for having a plumber repair the pipe before Union Mutual inspected it and accused him of misrepresenting that the building had two tenants when it had three. Bareby alleged that Union Mutual’s rescission was a bad-faith effort to avoid coverage. He also included allegations concerning the implied covenant of good faith and fair dealing and New York Insurance Law § 2601, which addresses unfair claims-settlement practices.

Union Mutual removed the case from New York Supreme Court based on diversity jurisdiction and moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal for failure to state a legally sufficient claim.

The parties’ arguments

Union Mutual argued that Bareby could not establish a breach of the policy because he had agreed to its rescission. In support, Union Mutual submitted an affidavit, the insurance policies, a rescission letter, and premium-refund checks. The checks stated that cashing them would constitute an agreement accepting the rescission. Union Mutual argued that Bareby endorsed and cashed the checks.

Bareby submitted a declaration stating that he cashed the checks after his public adjuster advised him that doing so would not forfeit his claims. He also submitted communications challenging the rescission and an inspection form that he contended showed Union Mutual knew about the number of apartments before the pipe burst.

Court’s analysis

On a motion to dismiss, the court generally considers the complaint, accepts its factual allegations as true, and draws reasonable inferences in the plaintiff’s favor. The court generally may also consider documents attached to or incorporated into the complaint, or documents on which the complaint heavily relies.

Judge Koeltl concluded that the parties’ dispute over rescission and accord and satisfaction could not be resolved at this stage. The complaint did not refer to or rely on the premium-refund correspondence, the cashed checks, the affidavits, the emails, or the inspection notice. Those materials therefore were not integral to the complaint merely because they were relevant to Union Mutual’s defense.

The court also found material factual disputes concerning the rescission and accord-and-satisfaction defenses. These included whether Bareby’s alleged misrepresentation was material, whether Union Mutual sent the checks in an effort to obtain an accord and satisfaction, and whether communications between Bareby’s adjuster and Union Mutual’s underwriter prevented an accord and satisfaction. An accord and satisfaction is an alleged agreement resolving a dispute through an accepted payment or other performance.

The court declined to convert the motion to dismiss into a motion for summary judgment. It explained that discovery had not yet begun and that the parties had not requested conversion. Summary judgment is a procedure for deciding whether undisputed evidence requires judgment without a trial, ordinarily after the parties have had an opportunity to gather and present evidence.

Other allegations

The court stated that the complaint alleged only one cause of action: breach of contract. It did not assert separate causes of action for breach of the implied covenant of good faith and fair dealing or for violating New York Insurance Law § 2601. The court therefore said there were no separate claims of those types to dismiss.

The court also noted that Bareby could not bring an independent claim for relief under New York Insurance Law § 2601 because, according to the cited authority, that statute does not give an insured a private right of action.

Disposition

The court denied Union Mutual’s motion to dismiss and directed the Clerk of Court to close the motion. Union Mutual was directed to answer the complaint by February 24, 2023. The parties were directed to file a report under Rule 26(f) by March 10, 2023. The court did not decide whether the rescission was valid, whether Bareby accepted it, or whether Union Mutual ultimately owed coverage under the policy.