# 1555 Jefferson Road LLC v. Travelers Property Casualty Company of America

> District Court, W.D. New York · May 7, 2024

URL: https://www.frixlaw.com/law-library/cases/10367204

## Case

- **Court:** District Court, W.D. New York
- **Decided:** May 7, 2024
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK

1555 JEFFERSON ROAD LLC,

Plaintiff, Case # 23-CV-6347-FPG

v. DECISION AND ORDER

TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA,

Defendant.

INTRODUCTION
After this Court granted Defendant Travelers Property Casualty Company of America’s
(“Travelers”) partial motion to dismiss, Plaintiff 1555 Jefferson Road LLC (“Jefferson Road”)
filed an amended complaint seeking declaratory judgment and asserting a breach of contract claim
arising out of Travelers’ alleged failure to defend Jefferson Road in a state-court personal injury
action. ECF No. 12. Travelers has now filed a partial motion to dismiss and a motion to strike.
ECF No. 13. As explained below, Travelers’ motions are DENIED.
BACKGROUND
This action arises out of Travelers’ alleged failure to defend and indemnify Jefferson Road
as an additional insured under one or more insurance policies in connection with a state-court
personal injury action (the “Underlying Action”) against Jefferson Road, Sun Chemical
Corporation, Sun Environmental Corporation, and AmesburyTruth. See ECF No. 12 ¶¶ 2, 9.1 The
plaintiff in the Underlying Action claims that he sustained injuries in March 2019 while
performing work at 1555 Jefferson Road, Rochester, New York pursuant to an agreement between

1 Unless otherwise noted, all facts are taken from the amended complaint and the attached exhibits, ECF No. 12.
his employer and AmesburyTruth. Id. ¶ 19. Specifically, the plaintiff in the Underlying Action
claims that he was injured after being exposed to chemicals as a result of the negligence of
Jefferson Road, Sun Environmental Corporation, or AmesburyTruth in failing to provide a safe
place to work. Id. ¶ 20.
AmesburyTruth later commenced a third-party action (the “First Third-Party Action”)

against the personal injury plaintiff’s employer, alleging that the employer or its subcontractors
failed to perform the employer’s work in a reasonably safe manner. Id. ¶¶ 14, 21. Jefferson Road
also brought a third-party action (the “Second Third-Party Action”), alleging that Schlegel
Systems, Inc. (“Schlegel”) was leasing the premises from Jefferson Road on the date of the alleged
accident and owed Jefferson Road certain obligations under the lease agreement. Id. ¶¶ 16, 22.
One of those obligations was to obtain broad form comprehensive general liability
(“CGL”) insurance and to name Jefferson Road as an additional insured. ECF No. 12 ¶¶ 24, 26;
see ECF No. 12-1 at 12. In addition, if Schlegel subleased or permitted anyone else to occupy the
premises, its obligations under the lease agreement would continue, and the same obligation to

procure insurance coverage would apply to any subtenant, assignee, or occupant. ECF No. 12 ¶
27; see ECF No. 12-1 at 8. At the time of the personal injury plaintiff’s alleged accident,
AmesburyTruth occupied the premises “by virtue of a relationship or other agreement” between
Schlegel and AmesburyTruth. ECF No. 12 ¶ 28. Both Schlegel and AmesburyTruth obtained
CGL policies from Travelers which contained endorsements identifying Jefferson Road as an
additional insured. See ECF No. 12 ¶¶ 29–38; ECF Nos. 12-2–6.
After receiving the complaint in the Underlying Action, Jefferson Road notified Schlegel,
AmesburyTruth, and Travelers of the claims and “tendered its defense and indemnification by a
letter dated December 23, 2021.” ECF No. 12 ¶ 40; ECF No. 12-7. In that letter, Jefferson Road
requested that Schlegel and AmesburyTruth notify their insurance carriers of the action and take
steps to defend Jefferson Road. ECF No. 12-7 at 3. Although Travelers assigned one or more
insurance adjusters to Jefferson Road’s claim, it has “failed and refused to formally respond” to
Jefferson Road’s “numerous and specific tenders of defense and indemnification.” ECF No. 12 ¶
44. Since its first tender in December 2021, Jefferson Road “has tendered its defense and

indemnification to Travelers no less than fifteen (15) separate times, to no avail.” Id. ¶ 48.
One of those fifteen times was on March 22, 2023, after Schlegel and Amesbury Truth
produced the Travelers insurance policy documents in the Underlying Action. ECF No. 12 ¶ 51.
About two months later, Travelers responded, and “for the first time,” took the position “that
coverage may not be available to [Jefferson Road] under the policy, and merely offered to
‘participate’ in” Jefferson Road’s defense “under a complete reservation of rights.” Id. ¶ 52; ECF
No.12-8. Travelers has, however, continued to defend AmesburyTruth in the Underlying Action
and Schlegel in the Second Third-Party Action. ECF No. 12 ¶ 50, 55.
Jefferson Road alleges that, in doing so, Travelers has acted in bad faith and “gross

disregard for its obligations” to Jefferson Road under the policies. ECF No. 12 ¶ 71; see also id.
¶ 50 (“Travelers acted in bad faith by engaging in a pattern of avoiding, ignoring, and failing to
respond to [Jefferson Road’s] multiple tenders . . . all while continuing to defend [Amesbury Truth
and Schlegel]”).
LEGAL STANDARDS
I. Rule 12(b)(6)
To succeed on a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the
defendant must show that the complaint contains insufficient facts to state a claim for relief that is
plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007). A complaint is
plausible when the plaintiff pleads sufficient facts that allow the Court to draw reasonable
inferences that the defendant is liable for the alleged conduct. Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). Plausibility “is not akin to a probability requirement.” Id. Instead, plausibility requires
“more than a sheer possibility that a defendant has acted unlawfully.” Id. “Where a complaint
pleads facts that are merely consistent with a defendant’s liability, it stops short of the line between

possibility and plausibility of entitlement to relief.” Id. (quotation marks and citation omitted). A
pleading that consists of “labels and conclusions” or “a formulaic recitation of the elements of a
cause of action will not do.” Twombly, 550 U.S. at 555. Nor does a complaint suffice if it tenders
“naked assertion[s]” devoid of “further factual enhancement.” Id. at 557. In considering the
plausibility of a claim, the Court must accept factual allegations as true and draw all reasonable
inferences in the plaintiff’s favor. Faber v. Metro. Life Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011).
At the same time, the Court is not required to accord “[l]egal conclusions, deductions, or opinions
couched as factual allegations . . . a presumption of truthfulness.” In re NYSE Specialists Sec.
Litig., 503 F.3d 89, 95 (2d Cir. 2007) (quotation marks omitted).

II. Rule 12(f)
Under Federal Rule of Civil Procedure 12(f), a court may strike from a pleading “any
redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f). “Motions to
strike are generally disfavored,” Coach, Inc. v. Kmart Corps., 756 F. Supp. 2d 421, 425 (S.D.N.Y.
2010), and “the courts should not tamper with the pleadings unless there is a strong reason for
doing so.” Lipsky v. Commonwealth United Corp., 551 F.2d 887, 893 (2d Cir. 1976). Accordingly,
when “deciding whether to strike a Rule 12(f) motion on the ground that the matter is impertinent
and immaterial, it is settled that the motion will be denied, unless it can be shown that no evidence
in support of the allegation would be admissible.” Lipsky, 551 F.2d at 893. In other words,
[t]o prevail on a motion to strike, the [movant] must show that: (1) no evidence in support of the
allegations would be admissible; (2) the allegations have no bearing on the relevant issues; and (3)
permitting the allegations to stand would result in prejudice to the movant.” Hargett v. Metro.
Trans. Auth., 552 F. Supp. 2d 393, 404 (S.D.N.Y. 2008).
DISCUSSION

In its amended complaint, Jefferson Road brings two claims against Travelers. In its first
claim, Jefferson Road seeks a declaratory judgment that Travelers is obligated to defend and
indemnify Jefferson Road and that Travelers is obligated to reimburse it for any costs and
expenses, including attorneys’ fees, incurred in defending the Underlying Action and in bringing
the Second Third-Party Action. ECF No. 12 ¶¶ 57–60. In its second claim, Jefferson Road seeks
money damages for Travelers’ alleged breach of contract, including a breach of the implied
covenant of good faith and fair dealing. As relevant to Travelers’ motion, Jefferson Road seeks
consequential damages for Travelers’ alleged breach of contract in the form of attorneys’ fees and
costs incurred in bringing this action. Id. ¶ 73.

Travelers has moved to dismiss Jefferson Road’s request for attorneys’ fees and costs
incurred in this action and to strike Jefferson Road’s allegations of bad faith. ECF No. 13-1. As
explained below, Travelers’ motions are DENIED.
I. Motion to Dismiss Claim for Attorneys’ Fees and Costs
Travelers argues that attorneys’ fees and costs are not recoverable where, as here, the
insured has brought an action against the insurer—even if the insured shows that the insurer
wrongly denied a defense. Jefferson Road contends that the Court should not dismiss its claim for
attorneys’ fees and costs at this early stage of the litigation. The Court agrees with Jefferson Road.
As this Court has explained, in New York, every contract contains an implied covenant of
good faith and fair dealing. 1555 Jefferson Road LLC v. Travelers Prop. Casualty Co. of Am., No.
23-CV-6347, 2023 WL 6927205, at *3 (W.D.N.Y. Oct. 19, 2023) (citing Nat’l Mkt. Share, Inc. v.
Sterling Nat’l Bank, 392 F.3d 520, 525 (2d Cir. 2004)). This implied covenant “embraces a pledge
that neither party shall do anything which will have the effect of destroying or injuring the right of

the other party to receive the fruits of the contract.” Fishoff v. Coty Inc., 634 F.3d 647, 653 (2d
Cir. 2011) (quoting 511 West 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 153
(2002)). Such a covenant is implicit in contracts of insurance too, “such that a reasonable insured
would understand that the insurer promises to investigate in good faith and pay covered claims.”
Bi-Econ. Mkt., Inc. v. Harleysville Ins. Co. of N.Y., 10 N.Y.3d 187, 194 (2008); see also Satispie,
LLC v. Travelers Prop. Casualty Co. of Am., 448 F. Supp. 3d 287, 294 (W.D.N.Y. 2020).
A breach of this implied covenant constitutes “a breach of the underlying contract.” Nat’l
Mkt. Share, 392 F.3d at 525. Therefore, a breach of the implied covenant of good faith and fair
dealing does not usually provide an independent cause of action. See Goldmark, Inc. v. Catlin

Syndicate Ltd., 2011 WL 743568, at *4 (E.D.N.Y. Feb. 24, 2011) (citing Bi-Econ. Mkt., Inc., 10
N.Y.3d at 193–94). But, while “not an independent cause of action, a breach of the [implied
covenant] may justify the recovery of consequential damages in addition to the loss insured by the
policy at issue.” Id. As the New York Court of Appeals explained in Panasia Estates, Inc. v.
Hudson Insurance Co., a party may also seek consequential damages “in an insurance contract
context, so long as the damages were ‘within the contemplation of the parties as the probable result
of a breach at the time of or prior to contracting.’” Panasia Estates, Inc. v. Hudson Ins. Co., 10
N.Y.3d 200, 203 (2008) (quoting Bi-Econ. Mkt., 10 N.Y.3d at 192).
Relying on Court of Appeals cases predating both Panasia and Bi-Economy, Travelers
asserts that Jefferson Road cannot recover fees incurred in this action even if it shows that
Travelers wrongly denied a defense in the Underlying Action. ECF No. 13-1 at 8 (citing N.Y.
Univ. v. Cont’l Ins. Co., 87 N.Y.2d 308, 325 (1995); Mighty Midgets, Inc. v. Centennial Ins. Co.,
47 N.Y.2d 12, 21 (1979)). After Panasia and Bi-Economy, however, courts in New York have

split “as to whether a plaintiff can seek attorneys’ fees as part of its consequential damages claim.”
H&H Env’tl Sys., Inc. v. Evanston Ins. Co., No. 18-CV-6315, 2019 WL 1129434, at *11
(W.D.N.Y. Mar. 12, 2019) (permitting request for attorneys’ fees to survive defendant insurance
companies’ Rule 12 motions), abrogated on other grounds by Admiral Ins. Co. v. Niagara
Transformer Corp., 57 F.4th 85 (2d Cir. 2023); compare Chernish v. Mass. Mut. Life. Ins. Co.,
No. 08-CV-0957, 2009 WL 385418, at *5 (N.D.N.Y. Feb. 10, 2009) (concluding that, after Bi-
Economy, pleading stage was too early in litigation to resolve entitlement to attorneys’ fees), with
Santoro v. GEICO, 986 N.Y.S.2d 572, 573–74 (2d Dep’t 2014) (citing Panasia but concluding
that attorneys’ fees and costs from affirmative litigation are not recoverable under New York

University and Centennial Insurance).
Although federal courts have been willing to permit claims for attorneys’ fees to proceed,
New York state courts have rejected the argument that Panasia and Bi-Economy allow an insured
to recover attorneys’ fees and costs incurred in affirmative litigation against an insurer. As the
Appellate Division, Second Department has put it, “nothing in Bi-Economy or Panasia alters the
common-law rule that, absent a contractual or policy provision permitting the recovery of an
attorney’s fee, ‘an insured may not recover the expenses incurred in bringing an affirmative action
against an insurer to settle its rights under the policy.’” Stein, LLC v. Lawyers Title Ins. Corp.,
953 N.Y.S.2d 303, 304 (2d Dep’t 2012); see Quick Response Commercial Div., LLC v. Cincinnati
Ins. Co., 2018 WL 2209203, at *2 (N.D.N.Y. May 14, 2018) (“In the face of this tension, courts
have decided that Panasia’s holding yields to the general rule, and attorney’s fees cannot be
recovered as consequential damages.”); Brown v. Gov’t Emps. Ins. Co., 66 N.Y.S.3d 733, 737 (3d
Dep’t 2017) (“We agree that nothing in Bi-Economy or Panasia implicitly altered or abrogated
previous rules limiting recovery of damages for breach of a contract-related duty.”). In fact, the

Second Department has characterized “the inability of plaintiffs to recover an attorney’s fee, costs,
and interest as consequential damages in [an] affirmative action against their insurer” as “clear and
free from doubt.” 30-40 E. Main St. Bayshore, Inc. v. Republic Franklin Ins. Co., 981 N.Y.S.2d
616, 617 (2d Dep’t 2014).
The Court is therefore persuaded that, even after Panasia and Bi-Economy, an insured
generally cannot recover attorneys’ fees and costs incurred in affirmative litigation against the
insurer as consequential damages. New York courts recognize an exception to the general rule,
however, “where there has been an unreasonable bad faith denial of coverage.” Quick Response,
2018 WL 2209203, at *2. To invoke this exception, a plaintiff must allege “such bad faith in

denying coverage that no reasonable carrier would, under the given facts, be expected to assert it.”
Id. (quoting Sukup v. State of New York, 19 N.Y.2d 519, 522 (1967)); see also Nazareth Coll. of
Rochester v. Harleysville Preferred Ins. Co., No. 16-CV-6418, 2017 WL 999214, at *3 (W.D.N.Y.
Mar. 15, 2017).2 To allege such bad faith, a plaintiff must allege that “(1) the insurer denied
coverage as a result of ‘gross negligence’[] and (2) the insurer lacked even an ‘arguable basis for

2 Although some courts have questioned the “continued vitality [of Sukup] in light of Bi-Economy and its progeny,”
Shapiro v. Liberty Specialty Mkts., Nos. 17-CV-2783, 17-CV-7045, 2018 WL 10582979, at *2 n.2 (S.D.N.Y. July 24,
2018), because the Court of Appeals has not expressly overruled Sukup, this Court—like many other courts in this
Circuit—will continue to rely on it in assessing Jefferson Road’s attorneys’ fee claim. See e.g., CBKZZ Investment,
LLC v. Renaissance Re Syndicate 1458 Lloyds, No. 22-CV-10672, 2024 WL 728890 at *3 (S.D.N.Y. Feb. 22, 2024)
(applying Sukup to deny summary judgment on attorneys’ fees claim); Zicherman v. State Farm Fire & Casualty Co.,
No. 23-CV-2725, 2023 WL 6675327, at *3–4 (E.D.N.Y. Oct. 12, 2023) (applying Sukup to deny motion to dismiss
attorneys’ fees claim).
denying coverage under the standards of a reasonable insurer.” Nazareth Coll., 2017 WL 999214,
at *3 (quoting Kurzdorfer v. GEICO Gen. Ins. Co., No. 12-CV-781, 2013 WL 434186, at *2
(W.D.N.Y. Feb. 4, 2013)).
Jefferson Road’s allegations that it was an additional insured under the CGL policies and
that, beginning with the December 2021 tender, Travelers has ignored its repeated tenders despite

defending AmesburyTruth in the Underlying Action and Schlegel in the Second Third-Party
Action are enough, at this stage of the proceedings, to allow its request for attorneys’ fees and
costs. Cf. H&H Env’tl Sys., 2019 WL 1129434, at *11–12 (acknowledging ability to recover
attorneys’ fees under Sukup and declining to dismiss request for attorneys’ fees on motion to
dismiss in light of uncertain legal landscape surrounding the issue); Nazareth Coll., 2017 WL
99214, at *3 (dismissing claim for attorneys’ fees where only factual allegation to support claim
was that insurer refused to defend and indemnify in face of cases decided after insurer denied
coverage).
The Court therefore declines to dismiss Jefferson Road’s request for attorneys’ fees and

costs at this stage of the proceedings. Travelers’ partial motion to dismiss is denied.
II. Motion to Strike References to “Bad Faith” in the Amended Complaint
Travelers asserts that Jefferson Road’s references to bad faith are immaterial and
impertinent because the Court dismissed Jefferson Road’s bad faith claim with prejudice. In
response, Jefferson Road argues that the allegations of bad faith are relevant to its allegations that
Travelers breached the implied covenant of good faith and fair dealing and to its request for
consequential damages. The Court agrees with Jefferson Road.
Jefferson Road refers to Travelers’ alleged bad faith five times in the amended complaint.
See ECF No. 12 ¶¶ 43, 50, 56, 71, 72. Each allegation of bad faith relates to Travelers’ alleged
failure to defend and indemnify Jefferson Road in the Underlying Action, as well as Travelers’
alleged failure to respond to Jefferson Road’s multiple tenders. See id. At the very least, these
allegations of bad faith are relevant to Jefferson Road’s request for attorneys’ fees and costs as
consequential damages, which, as the Court noted above, requires a showing of bad faith to
succeed. See e.g., Goldmark, Inc., 2011 WL 743568, at *3 (“This Circuit has consistently held
that Bi-Economy stands for the proposition that consequential damages are permitted when they
derive from an insurer’s bad faith refusal to pay an insured’s claim. . .”).
Because Jefferson Road’s allegations of bad faith are relevant to its request for
consequential damages, Travelers has failed to show that: (1) no evidence in support of the
references to bad faith would be admissible; (2) the references to bad faith have no bearing on the
relevant issues; and (3) permitting the references to bad faith to stand would result in prejudice to
the it. See Hargett, 552 F. Supp. 2d at 404. Accordingly, the Court sees no reason, let alone a
“strong reason,” to strike Jefferson Road’s allegations of bad faith. Lipsky, 551 F.2d at 893.
The Court therefore declines to strike Jefferson Road’s allegations of bad faith from the
amended complaint. Travelers’ motion to strike 1s denied.
CONCLUSION
For the foregoing reasons, Defendant’s partial motion to dismiss and motion to strike, ECF
No. 13, are DENIED. Defendant shall answer the amended complaint no later than May 28, 2024.
IT IS SO ORDERED.
Dated: May 7, 2024
Rochester, New York f! □
United States District Judge
Western District of New York

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