In this action for breach of contract, defendant Conestoga Title Insurance Company ("Conestoga") moves for an order, pursuant to CPLR 3211(a)(7), dismissing counts III through VII of plaintiff Wells Fargo Bank, N.A.'s ("Wells Fargo") complaint.

On November 9, 2007, non-party Lehman Brothers Bank, FSB (Lehman) issued a loan for $425,000 to Kayode Adewuyi to fund the purchase of residential property located at 11 North Elliot Place, Brooklyn, NY (the "Property"). As a condition to making the loan, Lehman required a title insurance policy from Conestoga, insuring that title to the Property was free and clear of prior liens, and that Lehman's mortgage would hold a priority interest in the Property. According to plaintiff, defendant Regents Land Services LLC ("Regents"), issued a title examination and report reflecting that there were no outstanding mortgages encumbering the Property. Conestoga issued a title insurance policy dated November 7, 2007 (the "Policy"), in favor of Lehman and its [*2]successors and assigns, insuring against, inter alia, loss or damages incurred by reason of title being vested other than as stated in an annexed schedule, which only indicated that the Property was encumbered by Mr. Adewuyi's fee simple interest. It is undisputed that Regents was and is an issuing agent for Conestoga, and that defendant Anthony Onua is the principal of Regents. Onua was present at the closing of the Property, and the parties dispute whether Onua was acting on behalf of plaintiff as its attorney or as a "settlement agent" of Conestoga's.

According to plaintiff, Mr. Adewuyi eventually defaulted on the loan, and, in anticipation of foreclosing on the Property, Lehman ordered a lien search and discovered a prior unsatisfied mortgage on the Property in the name of Tuthill Finance for $1,000,000, recorded May 15, 2007. Plaintiff alleges that upon discovering the prior mortgage, Lehman filed a claim under the Policy with Conestoga. However, Conestoga denied the claim, citing exclusion 3(a) of the Policy, which excludes coverage for damages arising by reason of "[d]efects, liens, encumbrances, adverse claims, or other matters (a) created suffered, assumed or agreed to by the Insured Claimant" because, upon investigation, it discovered that Onua had notice of the prior Tuthill mortgage, but notified neither Lehman nor Conestoga. Conestoga's theory is that Lehman had knowledge of the prior mortgage through its attorney, Onua, so it is precluded from recovery under the Policy.

Plaintiff initiated this action on January 25, 2013, asserting claims a) against Conestoga for declaratory relief that the losses sustained as a result of the prior mortgage are covered by the Policy, breach of contract, breach of the duty of good faith and fair dealing, bad faith denial of insurance claim, fraudulent misrepresentation, negligent misrepresentation, and negligence; b) against Regents for negligence and breach of contract, and c) against Onua and defendant Anthony Onua, P.C. for breach of contract. Plaintiff claims the mortgage and note were assigned to it on December 26, 2012, giving it standing to initiate this action^[FN1]. By notice of motion dated April 2, 2013, Conestoga moves, pursuant to CPLR 3211(a)(7), to dismiss the causes of action for breach of the duty of good faith and fair dealing, bad faith denial of insurance claim, fraudulent misrepresentation, negligent misrepresentation, and negligence.

"It is well settled that, as a general rule, on a motion to dismiss the complaint for failure to state a cause of action under CPLR 3211(a)(7), the complaint must be construed in the light most favorable to the plaintiff" (Gruen v County of Suffolk, 187 AD2d 560, 562 [2d Dept 1992]). The court must also accept the facts as alleged in the complaint as true and "accord [the] plaintiff[ ] the benefit of every possible favorable inference" (Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409, 414 [2001]). Thus, when evaluating whether a complaint is sufficient to survive a motion to dismiss pursuant to CPLR 3211(a)(7), initially, the "sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail'" (Ruffino v New York City Tr. Auth., 55 AD3d 817, 818 [2d Dept 2008], quoting Morris v Morris, 306 AD2d 449, 451 [2d Dept 2003]).

Defendant argues that the causes of action for breach of duty of good faith and fair dealing and the bad faith denial of insurance coverage must be dismissed as duplicative of plaintiff's breach of contract claim. [*3]

It is well settled that claims of breach of the covenant of good faith and fair dealing that arise from the same set of facts and seek identical damages as a breach of contract claim do not give rise to an independent cause of action (see Amcan Holdings, Inc. v Canadian Imperial Bank of Commerce, 70 AD3d 423, 426 [1st Dept 2010]); see also Paterra v Nationwide Mut. Fire Ins. Co., 38 AD3d 511, 512-13 [2d Dept 2007]). Moreover, " there is no separate cause of action in tort for an insurer's bad faith failure to perform its obligations' under an insurance contract" (Zawahir v Berkshire Life Ins. Co., 22 AD3d 841, 842 [2d Dept 2005], quoting Continental Cas. Co. v Nationwide Indem. Co., 16 AD3d 353, 354-55 [2005]).

Nonetheless, courts in New York recognize that when an insurer denies or delays payment under a policy, a plaintiff is often damaged beyond simply the amount it would be entitled to recover under the policy. In Acquista v New York Life Ins. Co., (285 AD2d 73 [1st Dept 2001]), the First Department noted that because insurance policies are viewed as contracts for the payment of money only, plaintiffs are typically limited to recover the amount of the policy, plus interest. "[T]his concept of damages presumes that a plaintiff has access to an alternative source of funds from which to pay that which the insurer refuses to pay. This is frequently an inaccurate assumption. Additionally, an insured's inability to pay that which the insurer should be covering may result in further damages to the insured" (Acquista, 285 AD2d at 79). Accordingly, the First Department determined that while a "plaintiff's cause of action alleging bad faith conduct on the part of the insurer cannot stand as a distinct tort cause of action, . . . its allegations may be employed to interpose a claim for consequential damages beyond the limits of the policy for the claimed breach of contract" (Aquista, 285 AD2d at 82; see also Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of NY, 10 NY3d 187, [2008](breach of the implicit covenant of good faith and fair dealing found in contract for business interruption coverage, by failing to pay under the policy in bad faith, could result in recovery of consequential damages, including those arising from the demise of the business).

Here, plaintiff alleges that Conestoga breached its duty of good faith and fair dealing and denied its claim in bad faith by raising meritless defenses to coverage and failing to conduct a reasonable investigation prior to denying coverage, and, as a result, plaintiff suffers unspecified damages, including the costs of bringing this action. These claims cannot stand alone as separate causes of action. Accordingly, defendant's motion is granted with respect to counts III and IV. Any consequential damages sustained as a result of defendant's breach of contract are adequately alleged in plaintiff's breach of contract cause of action.

Plaintiff also seeks to recover from Conestoga under alternate tort theories, arguing that Regents, as Conestoga's agent, fraudulently and negligently misrepresented that the Property was free of any prior mortgages, thus inducing Lehman to lend funds to the purchaser. Plaintiff also claims that Conestoga negligently hired and supervised Regents. Although plaintiff seeks recovery from Regents and Onua directly under separate counts, in counts V, VI, and VII plaintiff seeks to recover from Conestoga, contending that Regents and Onua were Conestoga's agents when they committed the wrongs. Based upon the pleadings, the Court cannot determine at this time who ordered the title search from Regents and for whose benefit and, thus, for the limited purpose of this motion, credits plaintiff's contention that the report was issued for its benefit. Conestoga moves to dismiss the causes of action asserted against it for fraudulent and negligent misrepresentation and negligent supervision. [*4]

"Generally, in a claim for fraudulent misrepresentation, a plaintiff must allege a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury'" (Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173, [2011], quoting Lama Holding Co. v Smith Barney, 88 NY2d 413, 421 [1996]). However, "absent a fiduciary relationship between the parties, a duty to disclose arises only under the special facts' doctrine where one party's superior knowledge of essential facts renders a transaction without disclosure inherently unfair'" (Jana L. v West 129th St. Realty Corp., 22 AD3d 274, 277 [1st Dept 2005], quoting Swersky v Dreyer & Traub, 219 AD2d 321, 327 [1st Dept 1996](citations omitted)).

Plaintiff adequately pleads a cause of action for fraud by alleging that Regents, as Conestoga's agent, had special knowledge of the existence of the first mortgage yet misrepresented that title was clear, to induce Lehman into making the loan. Conestoga's argument, that an action for fraud cannot be sustained where the alleged fraud consists only of a defendant's "entry into a contract they purportedly did not intend to honor" (767 Third Ave., LLC v Grebel & Finger, LLP, 8 AD3d 75, 76 [1st Dept 2004]), is inapplicable where, as here, plaintiff does not complain of a false representation that Conestoga never intended to honor, but instead, of the concealment of a prior mortgage to induce it to lend funds to the purchase. Indeed, Conestoga concedes that Onua knew of the existence of the outstanding mortgage lien. As plaintiff has pleaded a clause of action for fraud, defendant's motion is denied with respect to count V.

"A claim for negligent misrepresentation requires the plaintiff to demonstrate (1) the existence of a special or privity-like relationship imposing a duty on the defendant to impart correct information to the plaintiff; (2) that the information was incorrect; and (3) reasonable reliance on the information" (J.A.O. Acquisition Corp. v Stavistky, 8 NY3d 144, 148 [2007]). It is well-settled that a claim for negligent title search cannot arise in an action to recover under a policy. "The contract of insurance is distinct and separate from the contract of searching"(Citibank v Chicago Tit. Ins. Co., 214 AD2d 212, 216 [1st Dept 1995], quoting Trenton Potteries Co. v Tit. Guar. & Trust Co., 176 NY 65, 75 [1903]). As the Court there observed, "it is somewhat incongruous to argue that an insurance policy covering a certain risk carries with it a representation or guarantee that the risk insured against will not occur. Insurance is written to hedge against the risk's occurrence, not as a guarantee that it will not occur" (Citibank, 214 AD2d at 219). Nonetheless, a claim for negligence can be asserted upon an agreement to conduct a title search (see Herbil Holding Co. v Commonwealth Land Tit. Ins. Co., 183 AD2d 219, 229 [2d Dept 1992]; Citibank, 214 AD2d at 216)("Under the contract for searching titles the defendant may be liable for any damages which its negligence may have imposed upon the plaintiff."(quoting Trenton Potteries, 176 NY at 75)). However, if a claim is based upon a certificate of title, and the certificate merges with a subsequently issued policy, "any action for damages arising out of the search — whether sounding in tort or contract— is foreclosed" (Citibank, 214 AD2d at 217, quoting Smirlock Realty Corp v Tit. Guar. Co., 70 [*5]AD2d 455, 465 [2d Dept 1979, mod. on other grounds 52 NY2d 179 [1979]).^[FN2]

Here plaintiff asserts a claim for negligent misrepresentation on the basis that Regents, as Conestoga's agent, had a duty to plaintiff to prepare an accurate title report but did not do so. The claim is based on the title examination report, and not on the policy. Accordingly, plaintiff has sufficiently alleged a cause of action for negligent misrepresentation, and defendant's motion is denied with respect to count VI.

Plaintiff's final cause of action against Conestoga is based on the negligent hiring and supervision of Regents and alleges that Conestoga breached a duty of care owed to plaintiff by allowing an agent under its control "to perpetrate a fraud" on plaintiff. Defendant moves to dismiss this count. Although neither side addresses the claim in their papers, as plaintiff adequately states a claim for negligence, defendant's motion is denied with respect to count VII.

Defendant's motion is granted with respect to counts III, and IV, and denied with respect to counts V, VI, and VII.

The foregoing constitutes the decision and order of the Court.

E N T E R:

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HON. CAROLYN E. DEMAREST, J.S.C.