Scheuer v. United States Liability Insurance Company

Background

Robin Scheuer and John Scheuer, acting as trustees of the John W Scheuer 2000 Trust, sued United States Liability Insurance Company (USLI) for breach of an insurance contract and declaratory relief. The case was originally filed in New York state court and later removed to federal court.

The complaint alleged that water escaped from a pipe or plumbing system at the insured property on or about February 4, 2022, causing damage. USLI denied the insurance claim, stating that the loss resulted from the plaintiffs’ failure to maintain heat at the property and was not covered by the policy.

Motion to Dismiss the Good-Faith Allegations

USLI argued that the plaintiffs had asserted a separate claim for breach of the implied covenant of good faith and fair dealing and that New York law did not allow that duplicative claim alongside a contract claim based on the same facts. The plaintiffs responded that they asserted only one breach-of-contract claim and included the good-faith allegations to support that claim.

The court agreed with the plaintiffs’ characterization. It held that the complaint alleged one breach-of-contract claim, with the implied duty of good faith and fair dealing serving as part of that claim rather than as a separate cause of action. The court therefore denied USLI’s motion to dismiss the contract claim.

Consequential Damages

USLI also sought dismissal of the plaintiffs’ claim for consequential damages, arguing that the complaint did not allege sufficient facts showing that those damages were foreseeable and reasonably contemplated when the insurance policy was issued. The court held that merely referring to a line of cases concerning consequential damages, without providing supporting factual allegations, did not satisfy the pleading requirement.

The court granted USLI’s motion to dismiss the claim for consequential damages without prejudice. The court also granted the plaintiffs leave to file an amended complaint.

Motion to Strike

USLI moved under Federal Rule of Civil Procedure 12(f) to strike allegations in paragraphs 28 through 39. The court granted the motion as to the allegation that USLI was “treating their own insureds like fiscal enemies,” finding that phrase inflammatory and irrelevant to the plaintiffs’ claims.

The court denied the motion to strike as to the remaining allegations. It found those allegations potentially relevant to the contract claim, including the plaintiffs’ allegations concerning USLI’s investigation, alleged bad faith, and request for consequential damages. The court stated that USLI could challenge the truth or admissibility of those allegations at a later stage, but that those issues did not justify striking them from the complaint at this point.

Disposition

Judge Nelson S. Roman denied USLI’s motion to dismiss the plaintiffs’ sole breach-of-contract claim; granted without prejudice USLI’s motion to dismiss the claim for consequential damages; and denied in part and granted in part USLI’s motion to strike. The court granted the plaintiffs leave to file an amended complaint by July 27, 2023, and directed USLI to answer or seek permission to file another motion by August 28, 2023.