Mikaelian et al v. Liberty Mutual Insurance

Filing 18

ORDER granting 10 Motion to Dismiss for Failure to State a Claim. For the reasons set forth herein, the Court grants defendant's motion to dismiss in its entirety. However, plaintiffs may seek leave of the Court to amend their Complaint within thirty (30) days from the date of this Memorandum and Order.. Ordered by Judge Joseph F. Bianco on 9/8/2016. (Dolecki, Lauren)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
_____________________
No 15-CV-6182 (JFB)(AYS)
_____________________

MIKAEL MIKAELIAN, ET AL.,
Plaintiffs,
VERSUS

LIBERTY MUTUAL INSURANCE,
Defendant.
_______________________
MEMORANDUM AND ORDER
September 8, 2016
_______________________

JOSEPH F. BIANCO, District Judge:
Plaintiffs, Mikael Mikaelian and
Horoutun (“Harry”) Mikaelian (collectively,
“plaintiffs”), bring this action alleging breach
of
contract,
bad
faith,
fraudulent
investigation,
and
negligent
misrepresentation by defendant LM
Insurance Corporation, sued herein as
Liberty Mutual Insurance (“defendant” or
“Liberty”). Plaintiffs also seek a declaratory
judgment and specific performance.
Defendant now moves, pursuant to Rule
12(b)(6) of the Federal Rules of Civil
Procedure, to dismiss plaintiffs’ Complaint.
For the reasons set forth herein, the Court
grants defendant’s motion in its entirety.
I.
A.

BACKGROUND
Factual Background

The Court takes the following facts from
the Complaint (“Compl.”). The Court
assumes these facts to be true for purposes of
deciding this motion and construes them in

the light most favorable to plaintiffs, the nonmoving party.
Plaintiffs allege that, in October 2012,
Harry Mikaelian purchased and renovated the
residential property located at 26310 East
Williston Avenue, Floral Park, New York
11001 (the “Premises”). (Compl. ¶ 6.)
Plaintiffs further allege that, on October 19,
2012, Harry Mikaelian’s father, Mikael
Mikaelian, purchased a homeowner’s
insurance policy (the “Policy”) from
defendant to insure the Premises, which he
renewed through October 19, 2016. (Compl.
¶ 7.) Plaintiffs allege that, at all relevant
times, Harry Mikaelian has resided at the
Premises, whereas Mikael Mikaelian has
resided at 85-05 213th Street, Queens Village,
New York 11427. (Compl. ¶¶ 2-3.)
Plaintiffs allege that, in July 2013, Harry
Mikaelian installed an air conditioner and
exhaust fan in the roof above the Premises’
attic. (Compl. ¶ 9.) Plaintiffs allege that,
“[o]ver the last year,” Harry Mikaelian
“noticed a musty smell and moist room

conditions within certain areas of the
Premises,” which worsened as time
progressed, prompting him to hire Leighton
Associates Inc. (“Leighton”), environmental
health and safety consultants, to conduct an
initial mold evaluation of the Premises on
July 7, 2015. (Compl. ¶ 10.) Plaintiffs allege
that, after taking air and surface samples of
the Premises, Leighton concluded that there
was extensive mold growth in the Premises
and, thus, recommended mold remediation.
(Compl. ¶¶ 11-12.)

sampling, mold remediation was not required
within the Premises. (Compl. ¶ 17.) Plaintiffs
allege that, upon receiving this notice, they
were concerned that defendant would not
provide coverage for mold remediation under
the Policy and, therefore, emailed Ruiz to
request a follow-up inspection by H2M.
(Compl. ¶ 18.)
On August 13, 2015, plaintiffs allege that
Ruiz informed Harry Mikaelian that it was
defendant’s position that mold remediation
was not necessary and, therefore, would not
be covered under the policy. (Compl. ¶ 19.)1
Plaintiffs allege that, on August 14, 2015,
Leighton emailed Harry Mikaelian, opining
that H2M and Leighton had conflicting
reports on the need for mold remediation
because H2M based its analysis and
conclusion on information provided by
defendant and defendant did not provide
H2M with a full copy of Leighton’s lab
report. (Compl. ¶¶ 20-21.) Plaintiffs then
demanded a second inspection by defendant,
claiming that H2M’s inspection was
inaccurate. (Compl. ¶ 22.) On August 17,
2015, Harry Mikaelian emailed defendant to
inform it that, after H2M completed the
follow-up inspection scheduled for August
25, 2015, he planned to commence mold
remediation based on concern of health
issues to himself, his wife, and their unborn
child. (Compl. ¶ 23.) Plaintiffs allege that, in
reply, defendant reaffirmed that the Policy
did not cover the mold remediation and that

On or about July 14, 2015, Harry
Mikaelian submitted a formal claim for
coverage under his Policy with defendant.
(Compl. ¶ 13.) On July 23, 2015, James Ruiz,
an adjuster in defendant’s Homeower Claims
Department sent Harry Mikaelian a letter
informing him that an investigation of his
claim
for
damages
due
to
“Constant/Repeated Seepage/Leak” had been
commenced. (Compl. ¶ 14.) Plaintiffs allege
that, on July 28, 2015, after reviewing
Leighton’s recommendations for mold
removal and remediation, Harry Mikaelian
hired an independent third-party contractor,
Bayside Contracting, Inc. (“Bayside”), to
provide an estimate of costs for mold
removal. (Compl. ¶ 15.) Plaintiffs further
allege that, also on July 28, 2015, defendant
hired H2M Architects & Engineers (“H2M”)
to inspect the Premises on defendant’s behalf.
(Compl. ¶ 16.) On August 4, 2015, H2M sent
an inspection report to Harry Mikaelian,
which determined that, based upon mold air

email from Ruiz, stating “[a]s previously stated, no
coverage determination has been made at this time.
Once we received (sic) H2M’s final report we will
evaluate your claim accordingly” (Ex. H to Compl.,
ECF No. 1-2, at 71), to support its argument that Ruiz
did not inform plaintiffs on August 13, 2015, that
remediation would not be covered under the policy.
Although, for purposes of the instant motion, the Court
construes the allegations in favor of plaintiffs, this
discrepancy between the allegations in the Complaint
and the emails attached to the Complaint does not
impact the Court’s analysis.

1

In its memorandum in support of its motion to
dismiss,
defendant
argues
that
plaintiffs
mischaracterize Ruiz’s response to Harry Mikaelian.
Specifically, defendant points to a copy of the email
exchange between Harry Mikaelian and Ruiz, in
which, on August 13, 2015, Ruiz states “based on the
inspection there is currently no need for mold
remediation to your home,” but that Liberty felt it
necessary for H2M to return to the Premises and
inspect the ceiling to try to resolve the discrepancy
between the reports. (Ex. F to Compl., ECF No. 1-2, at
64.) Defendant further points to an August 17, 2015

2

it based this decision on H2M’s report.
(Compl. ¶ 24.)

(2007)). This standard does not require
“heightened fact pleading of specifics, but
only enough facts to state a claim to relief that
is plausible on its face.” Twombly, 550 U.S.
at 570.

Plaintiffs allege that Harry Mikaelian
determined that he could not wait for the
second inspection due to the health concerns
and hired Bayside to perform the necessary
mold remediation, which was completed on
or before August 24, 2015. (Compl. ¶ 25.)
Plaintiff Harry Mikaelian and his family
stayed in a hotel during the remediation, and
on August 25, 2015, Leighton re-inspected
the Premises and determined it was safe for
occupancy. (Compl. ¶¶ 26-27.)
B.

The Supreme Court clarified the
appropriate pleading standard in Ashcroft v.
Iqbal, setting forth a two-pronged approach
for courts deciding a motion to dismiss. 556
U.S. 662 (2009). The Supreme Court
instructed district courts to first “identify[ ]
pleadings that, because they are no more than
conclusions, are not entitled to the
assumption of truth.” Id. at 679 (explaining
that though “legal conclusions can provide
the framework of a complaint, they must be
supported by factual allegations”). Second, if
a complaint contains “well-pleaded factual
allegations, a court should assume their
veracity and then determine whether they
plausibly give rise to an entitlement to relief.”
Id. A claim has “facial plausibility when the
plaintiff pleads factual content that allows the
court to draw the reasonable inference that
the defendant is liable for the misconduct
alleged. The plausibility standard is not akin
to a ‘probability requirement,’ but it asks for
more than a sheer possibility that a defendant
has acted unlawfully.” Id. at 678 (quoting and
citing Twombly, 550 U.S. at 556-57 (internal
citation omitted)).

Procedural Background

Plaintiffs filed their Complaint in the
Supreme Court of the State of New York,
County of Queens, on September 22, 2015.
Defendant removed the action to this Court
on October 28, 2015. On January 6, 2016,
defendant moved to dismiss. Plaintiffs filed
their opposition on January 15, 2016, and
defendant filed its reply on February 22,
2016. The Court held oral argument on
March 16, 2016. The matter is fully briefed,
and the Court has considered all of the
parties’ submissions.
II.

STANDARD OF REVIEW

In reviewing a motion to dismiss pursuant
to Federal Rule of Civil Procedure 12(b)(6),
the Court must accept the factual allegations
set forth in the complaint as true and draw all
reasonable inferences in favor of the plaintiff.
See Cleveland v. Caplaw Enters., 448 F.3d
518, 521 (2d Cir. 2006); Nechis v. Oxford
Health Plans, Inc., 421 F.3d 96, 100 (2d Cir.
2005). “In order to survive a motion to
dismiss under Rule 12(b)(6), a complaint
must allege a plausible set of facts sufficient
‘to raise a right to relief above the speculative
level.’” Operating Local 649 Annuity Trust
Fund v. Smith Barney Fund Mgmt. LLC, 595
F.3d 86, 91 (2d Cir. 2010) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555

The Court notes that in adjudicating a
Rule 12(b)(6) motion, it is entitled to
consider: “(1) facts alleged in the complaint
and documents attached to it or incorporated
in it by reference, (2) documents ‘integral’ to
the complaint and relied upon in it, even if
not attached or incorporated by reference, (3)
documents or information contained in
defendant’s motion papers if plaintiff has
knowledge or possession of the material and
relied on it in framing the complaint, (4)
public disclosure documents required by law
to be, and that have been, filed with the
Securities and Exchange Commission, and
3

(5) facts of which judicial notice may
properly be taken under Rule 201 of the
Federal Rules of Evidence.” In re Merrill
Lynch & Co., 273 F. Supp. 2d 351, 356-57
(S.D.N.Y. 2003) (internal citations omitted),
aff’d in part and reversed in part on other
grounds sub nom. Lentell v. Merrill Lynch &
Co., 396 F.3d 161 (2d Cir. 2005); see also
Cortec Indus., Inc. v. Sum Holding L.P., 949
F.2d 42, 48 (2d Cir. 1991) (“[T]he district
court . . . could have viewed [the documents]
on the motion to dismiss because there was
undisputed notice to plaintiffs of their
contents and they were integral to plaintiffs’
claim.”).
III.

1. Breach of Contract
Defendant argues that plaintiffs’ breach
of contract claim should be dismissed
because (1) Harry Mikaelian is not an insured
under the Policy; (2) Mikael Mikaelian does
not have an insurable interest in the Premises;
and (3) the Policy does not cover the alleged
loss.
“Insurance policies are, in essence,
creatures of contract, and accordingly,
subject
to
principles
of
contract
interpretation.” In re Estates of Covert, 761
N.E.2d 571, 576 (N.Y. 2001); see also
Lantheus Med. Imaging, Inc. v. Zurich Am.
Ins. Co., -- F. Supp. 3d --, No. 10 CIV. 9371
(KPF), 2015 WL 1914319, at *7 (S.D.N.Y.
Apr. 28, 2015), aff’d sub nom. Lantheus Med.
Imaging, Inc. v. Zurich Am. Ins. Co., -- F.
App’x --, No. 15-1717, 2016 WL 3006869
(2d Cir. May 25, 2016). Accordingly,
“contracts of insurance, like other contracts,
are to be construed according to the sense and
meaning of the terms which the parties have
used, and if they are clear and unambiguous
the terms are to be taken and understood in
their plain, ordinary and proper sense.” In re
Estates of Covert, 761 N.E.2d at 576 (internal
quotation marks, alteration, and citations
omitted); see also White v. Cont’l Cas. Co.,
878 N.E.2d 1019, 1021 (N.Y. 2007) (“As
with any contract, unambiguous provisions
of an insurance contract must be given their
plain and ordinary meaning.”); Mongelli v.
Chicago Ins. Co., No. 99 CV 8149 (SJ), 2002
WL 32096578, at *3 (E.D.N.Y. Jan. 15,
2002) (“‘Although any ambiguities must be
resolved in favor of the insured, where the
provisions of an insurance contract are clear
and unambiguous, they must be enforced as
written.’” (quoting Hartford Ins. Co. of the
Midwest v. Halt, 646 N.Y.S.2d 589, 594
(App. Div. 1996))).

DISCUSSION

Defendant moves to dismiss, arguing that
the breach of contract claim should be
dismissed because the loss is not covered by
the Policy for the following reasons: (1)
Harry Mikaelian is not an insured under the
Policy; (2) Mikael Mikaelian does not have
an insurable interest in the Premises; and (3)
the Policy does not cover loss caused by mold
or seepage/leakage of water occurring over
an extended period. Defendant further argues
that plaintiffs’ claim for bad faith should be
dismissed because New York law does not
recognize an independent claim for relief
based upon an insurer’s denial of liability
coverage, and also argues that plaintiffs fail
to state a claim for fraudulent inducement or
negligent
misrepresentation.
In
the
alternative, defendant argues that such claims
should be dismissed as duplicative of
plaintiffs’ breach of contract claim. Finally,
defendant argues that plaintiffs’ causes of
action for a declaratory judgment and
specific performance should be dismissed
because plaintiffs have an adequate remedy
at law.

“The party claiming insurance coverage
bears the burden of proving entitlement.”
4

Nat’l Abatement Corp. v. Nat’l Union Fire
Ins. Co. of Pittsburgh, PA, 824 N.Y.S.2d 230,
232 (App. Div. 2006); see also Kidalso Gas
Corp. v. Lancer Ins. Co., 802 N.Y.S.2d 9, 10
(App. Div. 2005) (“It is basic that it is the
insured which has the burden of showing that
the insurance contract covers the loss for
which the claim is made.”); Gongolewski v.
Travelers Ins. Co., 675 N.Y.S.2d 299 (App.
Div. 1998) (“An insured seeking to recover
for a loss under an insurance policy has the
burden of proving that a loss occurred and
also that the loss was a covered event within
the terms of the policy.” (internal quotation
marks and citations omitted)).

¶ 8, Ex. A at 3.) The Policy defines “insured”
as “you (the “named insured”) and residents
of your household who are: a. Your relatives;
or b. Other persons under the age of 21 and in
the care of any person named above.”
(Policy, Ex. B to De Funis Decl., at 6.)
Although Harry Mikaelian is Mikael
Mikaelian’s son and, thus, qualifies as his
relative, plaintiffs have acknowledged that
they do not live in the same household.
Instead, plaintiffs have alleged that Harry
resides at the Premises – 263-10 East
Williston Avenue, Floral Park, New York –
whereas Mikael resides at 85-05 213th Street,
Queens Village, New York. (Compl. ¶¶ 2-3.)
Thus, because Harry does not reside in the
same household as his father, he is not
entitled to insurance coverage under the
terms of the Policy. See, e.g., Aetna Cas. &
Sur. Co. v. Gutstein, 599 N.E.2d 672, 672
(N.Y. 1992) (holding son was not covered
under his father’s insurance policy where son
maintained his own apartment where he
resided more than 80% of the time, and
policy provided coverage only for a “family
member,” defined in the policy as “a person
related to [the insured] by blood, marriage or
adoption who is a resident of [the insured’s]
household”); State Farm Mut. Auto. Ins. Co.
v. Bonifacio, 892 N.Y.S.2d 555, 556 (App.
Div. 2010) (finding daughter was not a
covered person under her parents’ insurance
policy where she had established legal
residence in Manhattan and had lived there in
her own apartment for more than two years
before her accident, even though she listed
parents’ address on her driver’s license, kept
a room there, and possessed a key to the
home); see also State Farm Mut. Auto. Ins.
Co. v. Nicoletti, 784 N.Y.S.2d 128, 129 (App.
Div. 2004) (“Whether a person is a ‘resident’
of an insured’s ‘household’ requires
something more than temporary or physical
presence and requires at least some degree of
permanence and intention to remain.”
(internal quotation marks and citations

a. Harry Mikaelian
Defendant argues that the breach of
contract claim should be dismissed with
respect to Harry Mikaelian because he is not
an insured on the Policy. It is undisputed (as
set forth in the Complaint) that Harry
Mikaelian does not appear on the face of the
policy. However, plaintiffs argue that he is
still entitled to coverage under the policy
because he resides at the Premises and, thus,
qualifies as an additional insured.
Under New York law, it is well-settled
that a party that is not named either as an
insured or additional insured on the face of
the insurance policy is not entitled to
coverage. See, e.g., New York State Thruway
Auth. v. Ketco, Inc., 990 N.Y.S.2d 72, 74
(App. Div. 2014) (“[A] party is not entitled to
coverage if it is not named as an insured or
additional insured on the face of the policy as
of the date of the accident for which coverage
is sought.”); Nat’l Abatement Corp., 824
N.Y.S.2d at 232 (noting that a party is “not
entitled to coverage if not named as an
insured or an additional insured on the face of
the policy”).
It is undisputed that, during the relevant
time period, Mikael Mikaelian was the
named insured under the Policy. (See Compl.
5

in this state, shall be enforceable
except for the benefit of some person
having an insurable interest in the
property insured. In this article,
“insurable interest” shall include any
lawful and substantial economic
interest in the safety or preservation
of property from loss, destruction or
pecuniary damage.

omitted) (collecting cases)).
Although plaintiffs argue that Harry
Mikaelian was covered by the policy because
the policy “covers additional ‘insureds,’
which includes any relatives of the
policyholder residing in the covered
property” (Pls.’ Opp’n at 5), that is plainly
not how “insured” is defined in the Policy.
Instead, as discussed supra, the Policy clearly
defines “insured” as the named insured or
“residents of [the named insured’s]
household” who are either relatives or under
twenty-one years old and in the care of the
insured. (Policy, Ex. B to De Funis Decl., at
6.) Thus, because it is undisputed (as set forth
in the Complaint) that Harry Mikaelian did
not live with his father, and therefore, was not
a member of his father’s household, he is not
covered by the terms of the Policy and does
not have a cognizable breach of contract
claim.

N.Y. Ins. Law § 3401; see also Azzato v.
Allstate Ins. Co., 951 N.Y.S.2d 726, 733
(App. Div. 2012) (“It has long been the rule
that, in order to prevent fraud and crime and
to prohibit wagering contracts on property in
which the insured possesses no interest, the
lack of an insurable interest in the property
insured renders the property insurance void
and unenforceable. Thus, the law of this State
requires that the named insured have an
insurable interest in the subject matter of the
policy of insurance.” (internal quotation
marks, alteration and citation omitted)).

b. Mikael Mikaelian

New York courts have noted that “a legal
or equitable interest in the property insured is
not necessary to support an insurable interest.
Rather, a person has an insurable interest in a
property whenever he or she would profit by
or gain some advantage from the property’s
continued existence or suffer some loss or
disadvantage by its destruction.” Azzato, 951
N.Y.S.2d at 733 (internal quotation marks
and citations omitted); see also Scarola v.
Ins. Co. of N. Am., 292 N.E.2d 776, 777 (N.Y.
1972) (“In general a person has an insurable
interest in the subject matter insured where he
has such a relation or connection with, or
concern in, such subject matter that he will
derive pecuniary benefit or advantage from
its preservation, or will suffer pecuniary loss
or damage from its destruction, termination,
or injury by the happening of the event
insured against.”). However, “the interest
must be of such a character that the
destruction of the property will have a direct,
and not a mere remote or consequential,

Defendant argues that the breach of
contract claim should be dismissed with
respect to Mikael Mikaelian because he has
no insurable interest in the Premises.
Although plaintiffs allege that Mikael
Mikaelian purchased the Policy, the
Complaint clearly states that Harry Mikaelian
purchased the Premises. (Compl. ¶¶ 6-7.) The
Complaint does not allege that Mikael has
any connection to the Premises apart from his
purchase of the Policy. Plaintiffs do not
dispute this, but rather argue that Mikael need
not have a legal or equitable interest in the
property to have an insurable interest. (Pls.’
Opp’n at 5-6.)
New York Insurance Law Section 3401
provides that:
No contract or policy of insurance on
property made or issued in this state,
or made or issued upon any property
6

effect upon it. Mere possession or license to
use the property is insufficient to support an
insurable interest where the insured would
experience no direct economic loss by its
destruction.” Azzato, 951 N.Y.S.2d at 733
(internal quotation marks and citations
omitted).

asserting a lack of insurable interest because
it accepted insurance payments from Mikael
Mikaelian, because the insurable interest
requirement is statutory, it is not subject to
estoppel. See, e.g., F.A.S.A. Const. Corp. v.
Vill. of Monroe, 789 N.Y.S.2d 175, 177
(App. Div. 2005) (“[E]quitable estoppel
cannot be invoked to relieve a party from the
mandatory operation of a statute.” (internal
quotation marks and citation omitted));
Notaro v. Power Auth. of State of New York,
840 N.Y.S.2d 683, 684 (App. Div. 2007)
(same); Kiselgof v. New York State Div. of
Hous. & Cmty. Renewal, 803 N.Y.S.2d 166,
168 (App. Div. 2005) (same).

Thus, because plaintiffs have not alleged
that Mikael has any connection to the
property aside from procuring the insurance
and paying the insurance premiums,
plaintiffs have not adequately alleged that
Mikael has an insurable interest in the
property. See, e.g., Silberman v. Royal Ins.
Co., 584 N.Y.S.2d 625, 625 (App. Div. 1992)
(holding that “[t]he plaintiff’s payment of the
purchase price and insurance premiums on
the vehicle [owned by his wife] did not give
rise to any equitable or other interest within
the meaning of Insurance Law § 3401 that
could be insured”); Azzato, 951 N.Y.S.2d at
734 (finding wife lacked insurable interest in
property although plaintiffs alleged that she
contributed to the purchase of her husband’s
share of the property, and helped maintain
and furnish the property where plaintiffs did
not allege that she earned any income from or
resided in the property, or had any right to do
so).

Thus, because Mikael Mikaelian lacked
an insurable interest in the Property, he
cannot pursue a claim for breach of contract
based on the Policy.
Accordingly, because neither Harry nor
Mikael Mikaelian can properly bring a
breach of contract claim based on the Policy,
defendant’s motion to dismiss plaintiffs’
breach of contract claim is granted.2,3
2. Bad Faith4
Plaintiffs argue that defendant failed to
investigate their claims in good faith by
failing to properly investigate their claim and
then failing to provide plaintiffs with full

Further, although plaintiffs have argued
that defendant should be estopped from
Because the Court finds that plaintiffs’ breach of
contract claim must be dismissed because Harry
Mikaelian is not covered by the Policy and Mikael
Mikaelian does not have an insurable interest in the
Premises, it need not, and does not, reach defendant’s
alternate argument that the breach of contract claim
should be dismissed because the Policy does not cover
loss caused by mold or seepage/leakage of water
occurring over an extended period.
2

However, because Harry Mikaelian is not covered by
the Policy and Mikael Mikaelian does not have an
insurable interest in the Premises, a declaratory
judgment or specific performance requiring the Policy
to be enforced would be inappropriate. Thus,
plaintiffs’ causes of action for a declaratory judgment
and specific performance are also dismissed.
Because plaintiffs’ remaining claims regarding bad
faith, fraudulent investigation, and negligent
misrepresentation are all based upon the Policy, and
given the Court’s ruling that neither plaintiff has a
valid claim under the Policy, the remaining claims
necessarily fail as a matter of law. In any event, as set
forth below, those claims are also dismissed on
alternative grounds.
4

3

Plaintiffs also seek a declaratory judgment providing
that the terms of the Policy provide full insurance
coverage for their damages and a “judgment against
Defendant declaring that Plaintiffs are covered for the
within loss, in toto” (Compl. ¶¶ 62-63), as well as
specific performance of the Policy (Compl. ¶¶ 67-68).

7

coverage for the claim. Defendant has moved
to dismiss, arguing that plaintiffs’ bad faith
claim is not cognizable under New York law.

particular, plaintiffs allege that defendant
engaged in fraud by failing to properly
investigate
their
Claim
and
then
“unreasonably and knowingly deny[ing] the
Claim with a false basis for doing so.”
(Compl. ¶ 49.) Plaintiffs further argue in their
opposition that defendant “stated that no
remediation was necessary, but they knew
this to be false as they had been provided with
proof that significant water damage and mold
did in fact exist in the Property,” namely, the
Leighton report. (Pls.’ Opp’n at 10.)
Defendant has moved to dismiss plaintiffs’
fraudulent investigation claim, arguing that
plaintiffs’ have failed to adequately allege the
elements of a fraud claim.

New York law does not recognize an
independent claim for bad faith based upon
an insurer’s denial of liability coverage. See,
e.g., Cont’l Cas. Co. v. Nationwide Indem.
Co., 792 N.Y.S.2d 434, 435 (App. Div. 2005)
(“[T]here is no separate cause of action in tort
for an insurer’s bad faith failure to perform
its obligations under an insurance policy.”);
Royal Indem. Co. v. Salomon Smith Barney,
Inc., 764 N.Y.S.2d 187, 188 (App. Div. 2003)
(“Allegations that an insurer had no good
faith basis for denying coverage are
redundant to a cause of action for breach of
contract based on the denial of coverage, and
do not give rise to an independent tort cause
of action, regardless of the insertion of tort
language into the pleading.”); Paterra v.
Nationwide Mut. Fire Ins. Co., 831 N.Y.S.2d
468, 470 (App. Div. 2007) (“The plaintiffs’
claim predicated on a breach of the implied
covenant of good faith is duplicative of the
breach of contract claim. Since there is no
separate tort for bad faith refusal to comply
with an insurance contract, this claim should
have been dismissed.”). Thus, because
plaintiffs’ bad faith claim is premised on the
notion that defendant acted in bad faith in
denying coverage, which is not a cognizable
claim under New York law, defendant’s
motion to dismiss plaintiffs’ bad faith claim
is granted.5

“To state a cause of action for fraud, a
plaintiff must allege a representation of
material fact, the falsity of the representation,
knowledge by the party making the
representation that it was false when made,
justifiable reliance by the plaintiff and
resulting injury.” Kaufman v. Cohen, 760
N.Y.S.2d 157, 165 (App. Div. 2003). Fraud
may also be “predicated on acts of
concealment where the defendant had a duty
to disclose material information.” Id.
Although plaintiffs argue that they relied
on defendant’s representation that Liberty
was fully investigating the claim (Pls.’ Opp’n
at 10), such an argument belies their
assertions in their Complaint that, upon
receiving H2M’s inspection report, plaintiffs
“were concerned that Defendant would not
provide coverage for the necessary mold
remediation under the Policy, so Plaintiff
Harry emailed Ruiz to request a follow up
inspection by H2M” (Compl. ¶ 18) and later

3. Fraudulent Investigation
Plaintiffs’ fraudulent investigation claim
is very similar to their claim for bad faith. In

Pls.’ Opp’n at 8-9 (citing Smith v. Gen. Accident Ins.
Co., 697 N.E.2d 168, 170-72 (N.Y. 1998); Commerce
& Indus. Ins. Co. v. N. Shore Towers Mgmt. Inc., 162
Misc.2d 778 (N.Y. City Civ. Ct. 1994); Reifenstein v.
Allstate Ins. Co., 461 N.Y.S.2d 104, 106 (App. Div.
1983)).)

5

The Court notes that the cases plaintiffs cite in
support of their argument that their bad faith claim is
cognizable are inapplicable because all involve
instances where an insurer has refused to settle a claim
on behalf of its insured, as opposed a situation where
an insurer has denied coverage or improperly
investigated a claim under an insurance policy. (See

8

“demanded a second inspection by Defendant
on the grounds that H2M’s inspection was
inaccurate as a result of Defendant’s failure
to provide a complete lab report from
Leighton Associates.” (Compl. ¶ 22.)
Further, plaintiffs allege that, on August 17,
2015, Harry Mikaelian emailed defendant to
inform Liberty that after H2M’s follow-up
inspection was completed, he would
commence mold remediation, and then, on or
before August 24, 2015, hired Bayside to
perform the mold remediation. (Compl. ¶¶
23, 25.) Thus, plaintiffs’ own Complaint
clearly indicates that they did not rely upon
defendant’s representation regarding the
need for mold remediation, but rather,
repeatedly questioned the defendant’s
position regarding the need for mold
remediation and, eventually, hired their own
contractor to conduct the mold remediation
based on a concern that defendant was not
acting quickly enough to arrange an
additional inspection and remediation. See,
e.g., Dyke v. Peck, 719 N.Y.S.2d 391, 394
(App. Div. 2001) (finding it was clear that
plaintiff did not rely on defendants’
representations regarding condition of floor
where two days after statement, he wrote to
the real estate agent wanting immediate
answer to his question concerning what was
under the rug in that area); Ross v. Gidwani,
850 N.Y.S.2d 567, 568 (App. Div. 2008)
(finding plaintiff did not rely on alleged
misrepresentation regarding content of
autopsy authorization where she made further
inquiry of hospital and autopsy was
conducted as she requested). Therefore,
because plaintiffs have not adequately
alleged the element of reliance that is
necessary to support a plausible fraud claim,
defendant’s motion to dismiss plaintiffs’
claim for fraudulent investigation is granted.

requests in a timely manner, failing to
properly adjust the case in a manner
consistent with insurance industry standards,
failing to provide a reasonable basis for
denying payment on the Claim, and failing to
meet its duty to engage in good faith and fair
dealings with plaintiffs. (Compl. ¶¶ 54-57.)
Plaintiffs further claim in their opposition
that “the Defendant chose to rely on a report
from an architect and engineering company
when denying coverage, despite knowing
such information was false because they had
in their possession a lab report from an
environmental and safety consultant
indicating water damage and mold.” (Pls.’
Opp’n at 11.) Defendant moves to dismiss,
arguing that plaintiffs have failed to allege
any necessary elements of a negligent
misrepresentation claim.
“Under New York law, the elements for a
negligent misrepresentation claim are that (1)
the defendant had a duty, as a result of a
special relationship, to give correct
information; (2) the defendant made a false
representation that he or she should have
known was incorrect; (3) the information
supplied in the representation was known by
the defendant to be desired by the plaintiff for
a serious purpose; (4) the plaintiff intended to
rely and act upon it; and (5) the plaintiff
reasonably relied on it to his or her
detriment.” Hydro Inv’rs, Inc. v. Trafalgar
Power Inc., 227 F.3d 8, 20 (2d Cir. 2000); see
also Fresh Direct, LLC v. Blue Martini
Software, Inc., 776 N.Y.S.2d 301, 302 (App.
Div. 2004).
As with plaintiffs’ fraud claim, their
negligent misrepresentation claim similarly
fails because plaintiffs’ Complaint clearly
indicates that they did not rely on any
information supplied by defendant, but rather
demanded a second inspection and,
ultimately, hired their own contractor to
perform the mold remediation. (See supra at
III.3.) As such, plaintiffs cannot claim that

4. Negligent Misrepresentation
Plaintiffs allege that defendant acted
negligently by failing to respond to their
9

they reasonably relied to their detriment on
any statements by defendant regarding the
need for mold remediation. See, e.g., Fane v.
Zimmer, Inc., 927 F.2d 124, 130 (2d Cir.
1991) (finding negligent misrepresentation
claim was properly dismissed where there
was no evidence that the plaintiff or her
doctor relied on defendant’s representation,
but rather, doctor “expressly stated that he
did not rely on [defendant’s] representations
or promotional material” and plaintiff was
unaware of representations); Automatic
Findings, Inc. v. Miller, 648 N.Y.S.2d 90, 91
(App. Div. 1996) (“[S]ince the plaintiffs did
not rely to their detriment on the reports and
actions of defendants in investigating the
claim, they may not predicate liability on
negligent misrepresentation.”); Antonious v.
Muhammad, 673 N.Y.S.2d 158, 159 (App.
Div. 1998) (“To the extent that the plaintiffs
are alleging negligent misrepresentation, the
record establishes that the plaintiffs did not
rely to their detriment on any information
provided by the respondents. Thus, that cause
of action must fail.”) Therefore, because
plaintiffs have not adequately alleged the
requisite elements
of a negligent
misrepresentation claim, defendant’s motion
to
dismiss
plaintiffs’
negligent
misrepresentation claim is granted.6

such as futility, bad faith, undue delay, or
undue prejudice to the opposing party.” Jin v.
Metro. Life Ins. Co., 310 F.3d 84, 101 (2d Cir.
2002); see Local 802, Assoc. Musicians of
Greater N.Y. v. Parker Meridien Hotel, 145
F.3d 85, 89 (2d Cir. 1998) (finding that leave
to amend may be denied based upon the
“futility of amendment”). As to futility,
“leave to amend will be denied as futile only
if the proposed new claim cannot withstand a
12(b)(6) motion to dismiss for failure to state
a claim, i.e., if it appears beyond doubt that
the plaintiff can plead no set of facts that
would entitle [it] to relief.” Milanese v. RustOleum Corp., 244 F.3d 104, 110 (2d Cir.
2001) (citing Ricciuti v. N.Y.C. Transit Auth.,
941 F.2d 119, 123 (2d Cir. 1991)).
As noted above, the Complaint fails to
allege a plausible breach of contract, bad
faith, fraud, or negligent misrepresentation
claim. Moreover, based upon the allegations
in the Complaint, it appears that any attempt
to re-plead would be futile. For example,
there appear to be no additional allegations
which could be added (in good faith) to
demonstrate that Mikael Mikaelian has an
insurable interest in the Premises. In addition,
plaintiffs did not request leave to re-plead in
their opposition, nor did they suggest at oral
argument that there were any additional
allegations that could be asserted to support a
plausible claim. However, in an abundance of
caution, if plaintiffs believe that they could
remedy the defects identified by the Court
with respect to any of these claims (or if they
believe that there is any other basis for
amendment), they may file a motion to
amend within thirty (30) days of this
Memorandum and Order. If no such motion
is filed, the Court will close case.

IV. LEAVE TO AMEND
Having concluded that plaintiffs have
failed to state a plausible claim, the Court has
considered whether they should be afforded
an opportunity to amend their Complaint.
Rule 15(a)(2) of the Federal Rules of Civil
Procedure provides that a party shall be given
leave to amend “when justice so requires.”
“Leave to amend should be freely granted,
but the district court has the discretion to
deny leave if there is a good reason for it,
6

Defendant has also argued that plaintiffs are not
entitled to recover attorneys’ fees, punitive damages,
or consequential damages. Because defendant’s
motion to dismiss is granted and plaintiffs’ claims are

dismissed, plaintiffs are clearly not entitled to recover
attorneys’ fees, punitive damages, or consequential
damages as plaintiffs are not the prevailing party in
this action.

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V. CONCLUSION
For the foregoing reasons, the Court
grants defendant’s motion to dismiss in its
entirety. However, plaintiffs may seek leave
of the Court to amend their Complaint within
thirty (30) days from the date of this
Memorandum and Order.
SO ORDERED.

______________________
JOSEPH F. BIANCO
United States District Judge
Dated:

September 8, 2016
Central Islip, NY
***

Plaintiffs are represented by Peter
Hatzipetros, Anastasi Pardalis, and Joseph D.
Nohavicka of Paradalis & Nohavicka, LLP,
35-10 Broadway, Suite 201, Astoria, New
York 11106. Defendant is represented by
Marshall T. Potashner and Bension D.
DeFunis of Jaffe & Asher LLP, 600 Third
Avenue, 9th Floor, New York, New York
10016.

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