These motions arise out of a dispute over insurance coverage for damage to a home in Inwood, New York. In mid-2019, defendants, Rafael Bokow and Aliza Nussbaum, began work on a substantial alteration of their home in Inwood, New York. (NYSCEF No. 68 at 2.) Although the parties dispute the character of the work, the project was intended to transform the home from a 1.5 story structure to a 2.5 story structure. (NYSCEF No. 29 at 2.) In March 2020, an inspector from the Town of Hempstead Department of Buildings (DOB) examined the home's new roof and determined that the roof differed from the floor plan and did not comply with the approved architectural plans. (NYSCEF No. 68 at 4.) The DOB never conducted a follow-up inspection of the roof's framing. (Id. at 5.)

In September 2020, defendants moved into the home, although the DOB had not issued a certificate of occupancy (COO). (Id.) The same month, defendants applied for homeowners' insurance with plaintiff, National General Insurance Company. (Id. at 6.) A one-year insurance policy was issued in December 2020. (Id. at 8.)

On July 3, 2021, the home's roof "collapsed" or "sagged" (the characterization is [*2]disputed), resulting in water intrusion throughout the premises. (Id. at 14.) On August 31, 2021, defendants filed a claim for damages with plaintiff, requesting $1,724,947.00 under the policy's "Additional Collapse Coverage." (Id. at 16.) On January 14, 2022, plaintiff sent defendants a notice declining coverage. (NYSCEF No. 63.) The same day, plaintiff filed a complaint seeking a declaratory judgment that there was no coverage for collapse. (NYSCEF No. 29.) On March 10, 2022, defendants answered, denied the allegations that would release plaintiff from liability for coverage, and counterclaimed for breach of contract and breach of the implied covenant of good faith and fair dealing. (NYSCEF No. 24.)

Plaintiff now moves for summary judgment under CPLR 3212. Plaintiff seeks a declaratory judgment that the policy does not provide coverage (the first, second, third, and fourth causes of action), and seeks dismissal of defendants' counterclaims for breach of contract and breach of the implied covenant of good faith and fair dealing. Defendants cross-move for summary judgment, asking this court to rule that plaintiff is liable for the collapse under the policy and that plaintiff acted in bad faith (defendants' first cause of action). Defendants do not identify the underlying claim(s) on which they seek summary judgment. But it is clear from defendants' motion papers that they seek summary judgment on the issue of liability for coverage under the breach-of-contract counterclaim and the issue of bad faith under the breach-of-implied-covenant counterclaim. Plaintiff's motion, and defendants' cross-motion, are both denied.

Plaintiff seeks summary judgment declaring that the damage to defendants' home is not covered by the policy. Plaintiff claims that (i) plaintiff may rescind the policy because defendants' policy application misrepresented that there was no construction on the property; (ii) the policy's faulty-workmanship exclusion bars coverage for the damage; (iii) defendants' insurance claim does not come within the ensuing-loss exception to the faulty-workmanship exclusion; and (iv) collapses are outside the policy's scope of coverage. Plaintiff also moves on summary judgment for dismissal of defendants' good-faith counterclaim, arguing that this claim is duplicative of defendants' breach-of-contract claim.

Defendants seek a summary-judgment ruling that plaintiff has breached the contract by not covering the collapse. They argue that (i) construction was not occurring on the property, so their application did not contain a material misrepresentation; (ii) the faulty-workmanship exclusion does not bar recovery for the damage to their home; (iii) the ensuing-loss exception permits recovery despite faulty workmanship; and (iv) the damage is covered by the policy's additional-collapse coverage. Defendants also move for summary judgment on their good-faith counterclaim, claiming that plaintiff fabricated reasons to deny coverage for the damage.

Factual disputes remain about whether the policy application contains material misrepresentations and whether the policy's additional collapse coverage applies. Both parties' coverage motions are therefore denied. Both parties' motions on defendants' good-faith counterclaim are denied. Neither party has shown that it is entitled to judgment as matter of law and disputes of material fact remain unresolved.

Plaintiff argues on summary judgment that it need not pay defendants' insurance claim because plaintiff is entitled to rescind the policy altogether due to defendants' (asserted) material misrepresentation in their policy application. (NYSCEF No. 53 at 13-18.) Defendants dispute the presence of any misrepresentation. (NYSCEF No. 59 at 15.) They also argue that plaintiff [*3]waived its right to rescind. (Id. at 17-19.)

A. Whether Defendants' Policy Application Contains a Material Misrepresentation

Insurance Law § 3105 (b) (1) provides that an insurance policy may be rescinded due to misrepresentation on an application if the misrepresentation is material. A misrepresentation is material if the insurer's knowledge of the misrepresented facts would have led to a refusal to agree to the contract. (Id.)

Plaintiff claims that defendants represented that their home was not under construction when it in fact was, and that this constitutes a material misrepresentation warranting rescission of the policy. Defendants maintain that the work at issue was renovation rather than construction, and therefore that the policy application does not contain a misrepresentation. (NYSCEF Doc. No. 59 at 15.) Defendants also contend that, at the time they submitted the application, the remaining work on the home was minimal. (Id. at 15-16.)

The materiality of a misrepresentation is generally a question of fact for the jury. (Tyras v Mount Vernon Fire Ins. Co., 36 AD3d 609, 610 [2d Dept 2007].) For materiality to be established as a matter of law, an insurer must present uncontradicted evidence from its underwriting policy showing that the insurer would not have issued the policy if it had the correct information. (E. 115th St. Realty Corp. v Focus & Struga Bldg. Developers LLC, 85 AD3d 511, 511—512 [1st Dept 2011].)

Plaintiff has not established as a matter of law that defendants committed a material misrepresentation.

Plaintiff has introduced into evidence its underwriting guidelines (NYSCEF No. 52) and an affidavit from its underwriter (NYSCEF No. 49), both of which reflect that the policy would not have been issued if plaintiff knew that defendants' home was "under construction" when the application was signed. But neither the guidelines nor the underwriters' affidavit—nor the application itself—define "construction." Plaintiff has thus not established that the alterations to defendants' home constituted "construction" within the meaning of plaintiff's guidelines, as opposed to "renovation" (as defendants argue). Additionally, plaintiff has not established that the alteration work still ongoing when the application was signed (as opposed to the alteration work that had been completed already) constitutes "construction" for these purposes.

Material questions of fact remain, therefore, about (i) what kinds of work constitute "construction" under plaintiff's underwriting guidelines; and (ii) what work was ongoing when the application was signed.

B. Whether Plaintiff Waived its Right to Rescind Defendants' Policy

Defendants argue that plaintiff's rescission argument should be rejected as a matter of law because plaintiff (assertedly) waived its right to rescind the policy. (NYSCEF No. 59 at 17-19.) This court disagrees.

Insurers will waive their right to rescind a policy when they continue to accept policy premiums after learning of facts that would permit rescission. (U.S. Life Ins. Co. in City of New York v Blumenfeld, 92 AD3d 487, 489 [1st Dept 2012].) Defendants argue that plaintiff's inspection of the home in December 2020 placed plaintiff on at least constructive notice of the work that was being done on the property. (NYSCEF No. 59 at 17-18.) Plaintiff continued to accept premiums after this date. Plaintiff counters that a third-party vendor's inspection of the exterior of the premises was not sufficient to place them on notice of construction occurring on the property. (NYSCEF No. 70 at 4.)

In the insurance context, knowledge sufficient to lead a prudent person to inquire about [*4]the matter constitutes notice of whatever the inquiry could have disclosed, and will be regarded as knowledge of the facts. (Id.) In this case, the insurance company's inspector examined only the exterior of the home during the December 2020 inspection. (NYSCEF No. 65.) Photographs from the inspection show that the home's appearance was not indicative of ongoing construction. (Id. at 5-12.) If the home were under construction, this status would not have been apparent from an examination of the exterior on a single occasion. Since the facts known to plaintiff in January 2021 were not those that would lead to further inquiry, plaintiff's continued acceptance of premiums thereafter does not constitute waiver.

On January 14, 2022, plaintiff both cancelled the policy and filed this action, which contains a rescission claim. (NYSCEF No. 63; NYSCEF No. 29.) Defendants argue that plaintiff waived the right to rescind the policy by cancelling it. (NYSCEF No. 59 at 19.) This court disagrees.

Rescission and cancellation are distinct remedies available to an insurer in response to a material misrepresentation. Rescission is retrospective: It voids a policy ab initio and requires an insurer to return premiums. (Kiss Const. NY, Inc. v Rutgers Cas. Ins. Co., 61 AD3d 412, 415 [1st Dept 2009].) Cancellation, on the other hand, is prospective: It voids a policy going forward and does not require a return of premiums collected while the policy was in effect (earned premiums). (See e.g. Stein v Sec. Mut. Ins. Co., 38 AD3d 977, 979 [3d Dept 2007] (stating that a policy is in full effect until the effective cancellation date); Bohlinger v Zanger, 306 NY 228 [1954] (stating that an insurer is entitled to earned premiums).) Accordingly, an insurer may cancel a policy to bar future coverage while simultaneously seeking rescission to avoid liability for past losses.

Defendants argue that Stein v Security Mutual Insurance Co. demonstrates that cancellation of a policy in response to a material misrepresentation precludes rescission. (See 38 AD3d 977 [3d Dept 2007].) In Stein, an insurer that learned of a material misrepresentation gave notice that it was cancelling the policy, effective a month from the notice date. Damage then occurred in the month between the notice date and effective date of the cancellation. The court found that the insurer's decision to cancel the policy, rather than rescind it, meant that the insurer had agreed to provide coverage during that one-month period.

Stein is distinguishable from the current action. Plaintiff has not attempted to switch from cancellation to rescission after plaintiff learned that one of these remedies would be unfavorable. Instead, plaintiff has pursued cancellation and rescission concurrently. Unlike Stein, the facts here do not show that plaintiff agreed to provide coverage after learning of the alleged material misrepresentation.

To succeed on their waiver argument, defendants must show that plaintiff continued to accept premiums despite knowledge of a material misrepresentation. (See Blumenfeld, 92 AD3d at 489.) Defendants have not done so.

Finally, defendants contend that plaintiff is estopped from rescinding because plaintiff allegedly accepted that the loss and resulting damage was covered. (NYSCEF No. 59 at 19.) An insurer will be estopped from disclaiming coverage in a property-damage case only if the insured was prejudiced from a delay. (Fairmont Funding, Ltd. v Utica Mut. Ins. Co., 264 AD2d 581, 581—582 [1st Dept 1999].) Regardless of the other merits of defendants' estoppel claim, they have not shown prejudice arising from a delay in plaintiff's attempt to rescind the policy. Defendants' estoppel claim is therefore denied.

Plaintiff argues that defendants' recovery under the policy is barred by a policy exclusion. (NYSCEF No. 53 at 3-6.) Plaintiff moves for summary judgment declaring that for this reason no coverage exists.

The policy affords coverage for losses to different categories of property, delineated as Coverage A, Coverage B, and Coverage C. It also provides for different types of exclusions, one set of which is set out in Section I — Exclusions. (See NYSCEF No. 51 at 27-29.)

Subsection B of the Section I Exclusions provides:

"We do not insure for loss to property described in Coverages A and B caused by any of the following. However, any ensuing loss to property described in Coverages A and B not precluded by any other provision in this policy is covered. . . .

"3. Faulty, inadequate or defective . . . [d]esign, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction . . . " (NYSCEF No. 51 at 29.)

Plaintiff claims that faulty workmanship caused the damage underlying defendants' insurance claims, and that coverage is therefore barred altogether by this exclusion.

In response, defendants make two arguments. They contend that because their personal property comes within property category Coverage C (not A or B), the faulty-workmanship exclusion does not oust coverage for the harm they suffered to that property. Defendants also contend that coverage for damage to the interior of their home sustained following the structural harm to the roof is not ousted because that damage comes within the policy's "ensuing loss" exception to the Subsection B exclusions. Defendants cross-move for summary judgment on their counterclaim that plaintiff breached the contract by not providing coverage for interior damage or for damage to their personal property.

A. Claims for Damage to Personal Property

It is undisputed that the "faulty workmanship" exclusion within the Section I Exclusions ousts coverage only for "loss to property described in Coverages A and B" and that is otherwise within that exclusion's terms. Personal property is described in Coverage C. As a result, defendants say, the "faulty workmanship" exclusion does not oust coverage for harm to their personal property.

In response, plaintiff points to an endorsement to the policy that alters both the scope of coverage and the scope of exclusions. (See NYSCEF No. 51 at 60-61.) This endorsement makes several changes to the policy's coverage. One of those changes is to broaden coverage for losses to property described in Coverage C (such as personal property). (Compare id. at 26-27 [original coverage for losses to Category C], with id. at 60 [endorsement coverage for loss to Category C].) At the same time, the endorsement also provides that coverage is excluded for loss to property "[u]nder Coverages A, B, and C" when that loss is within "Section I — Exclusions." (Id. at 60.)

Plaintiff argues that the effect of this language is to expand the scope of the policy's Section I Exclusions. That is, under the original language, some of the exclusions in Section I expressly applied to losses to property in Coverage C, and some did not. Now, plaintiff says, the endorsement's exclusion has broadened the Section I Exclusions so that all of them—including the "faulty workmanship" exclusion—apply to losses to property described in Coverage C. (See NYSCEF No. 70 at 5-6.) Perhaps. But that is not the only reasonable interpretation of the endorsement.

One might also reasonably read the endorsement as leaving the scope of the Section I [*5]Exclusions unchanged. On this reading, the endorsement clarifies that those exclusions oust the endorsement's new broader coverage to the extent that the terms of the exclusions apply—but only to that extent. If the Section I Exclusions did not originally oust coverage for a given loss, they do not do so now. And because under this interpretation the "faulty workmanship" exclusion expressly limits its scope to losses to property in Coverages A and B (but not also C), that exclusion still would not bar coverage for losses in Coverage C.

For an exclusion to coverage to apply, an insurer must show that it is that it is subject to no other reasonable interpretation. (See Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, 311 [1984].) Ambiguities in coverage exclusions are construed against the insurer. (Heartland Brewery, Inc. v Nova Cas. Co., 149 AD3d 522, 523 [1st Dept 2017].) Here, given that two reasonable readings exist of the coverage exclusions in the policy endorsement relied on by plaintiff, and that on one of those reasonable readings the "faulty workmanship" exclusion does not apply, that exclusion does not foreclose coverage for injury to defendants' personal property.

Plaintiffs' motion for summary judgment on these grounds is therefore denied. However, the court also denies defendants' cross-motion for summary judgment finding plaintiff liable for damage under Coverage C for injury to their personal property. As discussed above in Point I, it remains possible that plaintiff may rescind the policy. If the policy were to be rescinded altogether, plaintiff would not be liable for coverage for claims asserted under the policy.

B. Claims for Damage to the Interior of the House

With respect to water damage to the interior of the house—i.e., property within Coverages A and B—defendants argue that they are entitled to coverage for this damage notwithstanding the faulty-workmanship exclusion discussed above.

Defendants rely on the ensuing-loss exception to the faulty-workmanship exclusion. The policy provides that notwithstanding this exclusion, "any ensuing loss to property described in Coverages A and B not precluded by any other provision in this policy is covered." (NYSCEF No. 51 at 29.) Defendants contend that interior water damage comes within this exception. (NYSCEF No. 59 at 4-7.)

This type of exception permits recovery when an otherwise-excluded risk (such as faulty workmanship) leads to subsequent damage to other insured property. (Platek v Town of Hamburg, 24 NY3d 688, 694 [2015].) To ensure that the exception does not swallow the exclusion, courts have disallowed "coverage for ensuing loss directly related to the original excluded risk." (Id.) For example, if faulty wiring on an electrical box caused a fire, a party could recover for fire damage to their home but could not recover the cost of rewiring the electrical box. The burden is on the insured to demonstrate that the ensuing-loss exception applies. (Id.)

Defendants claim that the ensuing-loss exception permits them to recover for interior damage. According to defendants, the home's interior water damage is distinct from the damage to the roof. (NYSCEF No. 59 at 4.) Defendants cite two cases, Ewald and Fruchthandler, in which the court permitted ensuing-loss claims despite a faulty-workmanship exclusion. (Id. at 4-7.) In both cases, the excluded peril of faulty workmanship gave rise to defective property (a junction box and plumbing, respectively) which subsequently resulted in conditions (electrical fire; discharged water) that caused damage to property other than the subject of the faulty work. (Ewald v Erie Ins. Co. of New York, 214 AD3d 1382, 1387 [4th Dept 2023]; Fruchthandler v Tri-State Consumer Ins. Co., 171 AD3d 706, 708 [2d Dept 2019].) The insured parties in both cases were permitted to recover for damage to non-defective property.

Plaintiff argues that the ensuing-loss exception does not apply, contending that the damage to the home's interior is directly related to the faulty workmanship at issue. (See NYSCEF No. 70 at 7-8, citing J&S Commercial Const., Inc. v Cook, 2010 NY Slip Op 50201[U], *2 [Sup Ct, Oneida County 2010]; Broome County v Travelers Indem. Co., 125 AD3d 1241, 1245 [3d Dept 2015].)

Case law on the applicability of the ensuing-loss exception favors defendants. Unlike the plaintiff in J&S, defendants are not seeking to recover for damage to the defective property itself (the roof), but other interior property damaged due to the roof's failure. This is analogous to the insured parties' claims in Ewald and Fruchthandler. In both Ewald and Fruchthandler, the parties sought recovery for damage to property that was not itself faultily constructed.

Broome is distinguishable from the current case. In Broome, contractors failed to erect adequate dust barriers, leading to losses from silica dust that spread throughout the building. (125 AD3d at 1242.) The court did not permit recovery for dust-related damage under the ensuing-loss exception because the "loss was directly related to the original risk." (Id. at 1245.) In Broome, the defective property was specifically intended to stop the damage that ultimately resulted. In the present case, the defective framing of the roof was done as part of a broader project of expanding the home from 1.5 to 2.5 stories. The interior water damage following the roof's failure is distinct from the faulty construction of the roof as part of the home's modification. The policy's ensuing-loss exception therefore permits recovery for interior damage to the dwelling.

Given the potential applicability of the ensuing-loss exception, the court denies plaintiff's motion for summary judgment declaring that there is no coverage for interior damage. Again, though, the court also denies defendants' cross-motion seeking summary judgment on this aspect of their breach-of-contract claim. As discussed above in the faulty-workmanship section, the live possibility of rescission means that plaintiff may have no coverage obligation.

Plaintiff moves for summary judgment declaring that there is no coverage for the damage to the roof. According to plaintiff, (i) collapses are generally outside the scope of the policy's coverage, and (ii) the incident does not fall within the policy's additional coverage for specific types of collapse. (NYSCEF No. 53 at 7-12.) Defendants cross-move for summary judgment on their claim that plaintiff breached the contract by not covering the damage despite the policy's additional collapse coverage (ACC). (NYSCEF No. 59 at 7-15.)

The "Section I — Perils Insured Against" portion of the policy agreement states that under Coverages A and B, plaintiff does not insure for loss "involving collapse, other than as provided in E. Additional Coverages 8. Collapse." (NYSCEF No. 51 at 60 [bolding omitted].) Paragraph E.8 provides that "[w]ith respect to this Additional Coverage . . . [c]ollapse means an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its current intended purpose." (Id. at 23.) E.8 further provides that "[a] building or any part of a building that is standing is not considered to be in a state of collapse . . . ." (Id.)

Plaintiff argues that the roof did not cave in and that the roof therefore did not "collapse" within the meaning of E.8. (NYSCEF No. 53 at 10-11.) That is, plaintiff says that while the center support beam cracked, the roof remained standing, barring recovery under the ACC. Defendants argue, on the other hand, that this damage is a collapse as a matter of law. (NYSCEF No. 59 at 8.)

Neither party is entitled to summary judgment on the issue of whether the roof damage is covered. As an insurer moving for summary judgment, plaintiff must establish that there is no possible factual or legal basis for coverage. (See Tower Ins. Co. of New York v BCS Const. Services Corp., 118 AD3d 527, 529 [1st Dept 2014].) Plaintiff has not shown that the damage to the roof necessarily does not qualify as a "collapse" within the meaning of E.8. The cases cited by plaintiff to support its position address collapses that were clearly not abrupt (See Rector St. Food Enterprises, Ltd. v Fire & Cas. Ins. Co. of Connecticut, 35 AD3d 177, 178 [1st Dept 2006].) Plaintiff also cites cases involving structures that were not an integral part of the home. (See Squairs v Safeco Nat. Ins. Co., 136 AD3d 1393, 1394 [4th Dept 2016].)

Plaintiff also argues that E.8 bars coverage because the home remained standing, despite damage to the roof. (NYSCEF Doc. No. 70 at 10.) The relevant section of E.8, however, distinguishes between a "building" and "any part of a building." (NYSCEF Doc. No. 51 at 23.) The current dispute concerns collapse of the roof—a part of the building—rather than collapse of the entire home. Plaintiff has not shown as a matter of law that the roof—the "part of a building" at issue—remained "standing" within the meaning of E.8.

To succeed on their cross-motion for summary judgment, defendants must show as a matter of law that the damage to the roof is a covered collapse within the meaning of the policy. (See Platek, 24 NY3d at 694.) Defendants' argument that this damage is a covered collapse as a matter of law is based on decisions that do not have occasion to address the current policy's "falling down or caving in" language. (See NYSCEF No. 59 at 8-9, citing Wangerin v New York Central Mutual Fire Ins. Co., 111 AD3d 991, 992—993 [3d Dept. 2013]; Royal Indemnity Co. v. Grunberg, 155 AD2d 187, 189-190 [3d Dept. 1990].) These decisions instead rely on the more general principle that if "collapse" in an insurance policy is not defined, substantial impairment of the structural integrity of a building will constitute a collapse for coverage purposes. (See Wangerin 111 AD3d at 992; Royal Indemnity Co. v. Grunberg, 155 AD2d at 189.)

Plaintiff also contends that the building at issue could never be legally occupied as a home because the building never received a COO. According to plaintiff, therefore, defendants therefore cannot show that collapse is the reason the building cannot be occupied for its current intended purpose (i.e., as a residence), as required by E.8. (NYSCEF No. 53 at 11-12.) Defendants argue that the "intended purpose" language in E.8 does not refer to legal purpose but encompasses their intent to live in the building. (NYSCEF No. 59 at 20.) Plaintiff has not shown that "intended purpose" requires specifically legal occupancy. The only support plaintiff has for its contention is one case that suggests that legality of occupancy is relevant to assessing intended purpose—i.e., that a given purpose was less likely to be intended if that purpose was not legal. (Chelsea Properties Inc. v Wesco Ins. Co., 212 AD3d 497, 498 [1st Dept 2023].) But that is different from saying that otherwise undisputed evidence of the policyholder's intended purpose is insufficient if that purpose was not legal.

Given the lack of clarity around whether the roof's damage falls within the scope of the policy's collapse exclusion, the parties' motion and cross-motion on the issue of liability under the policy's ACC are denied.^[FN1]

Finally, defendants briefly note that even if the Section I collapse exclusion were to apply [*6]here, that exclusion would still not oust coverage, because that exclusion also contains an ensuing-loss provision. The exclusion expressly provides that "any ensuing loss to property described in Coverages A and B not precluded by any other provision in this policy is covered." (NYSCEF Doc. No. 51 at 61 [bolding omitted].) Defendants argue that the ensuing-loss provision applies, and permits recovery regardless of the applicability of the collapse exclusion, "for the same reason why the ensuing loss provision is applicable under the 'faulty workmanship exclusion.'" (NYSCEF Doc. No. 59 at 8.)

Plaintiff argues that defendants have not met their burden of demonstrating that this exception applies. (NYSCEF Doc. No. 70 at 9.) This court has already determined, though, that for purposes of the faulty-workmanship exclusion, damage to the interior of the home would constitute an "ensuing loss" resulting from faulty workmanship on the home's roof, such that the ensuing-loss exception could support coverage notwithstanding the faulty-worksmanship exclusion. The court concludes for the same reasons, that the ensuing-loss exception to the collapse exclusion could support coverage notwithstanding that exclusion.^[FN2]

Defendants moves for a summary judgment ruling that plaintiff acted in bad faith by violating the implied covenant of good faith and fair dealing and seeks punitive damages and attorney fees. (NYSCEF No. 59 at 19-20.) Plaintiff moves for summary judgment dismissing defendants' good-faith counterclaim. (NYSCEF No. 27 at 1.)

A breach of the implied covenant of good faith and fair dealing occurs "when a party to a contract acts in a manner that, although not expressly forbidden by any contractual provision, would deprive the other party to receive the benefits under their agreement." (Aventine Inv. Mgt., Inc. v Can. Imperial Bank of Commerce, 265 AD2d 513, 514 [2d Dept 1999].) Under the implied covenant of good faith and fair dealing, "[insurers] must investigate claims for coverage in good faith, must not manufacture factually incorrect reasons to deny insurance coverage, must not deviate from [their] own practices or from industry practices, and must not act with 'gross disregard of the insured's interests.'" (East Ramapo Cent. Sch. Dist. v New York Schs. Ins. Reciprocal, 199 AD3d 881, 884 [2d Dept 2021].)

According to plaintiff, defendants' claim fails to state a cause of action distinct from the breach-of-contract claim. (NYSCEF No. 70 at 13.) When "a cause of action for breach of the implied covenant of good faith and fair dealing is based on the same operative facts and seeks the same damages as a cause of action for breach of contract, the good faith claim is duplicative and should be dismissed." (AEA Middle Mkt. Debt Funding LLC v Marblegate Asset Mgt., LLC, 214 AD3d 111, 132—133 [1st Dept 2023].)

Defendants claim that plaintiff's bad-faith actions have deprived them of the benefits of their insurance policy. Defendants identify internal emails from plaintiff where plaintiff's employee states that the collapse is covered. (See NYSCEF No. 67 at 5.) According to defendants, plaintiff subsequently denied coverage only after learning that it could not pursue claims against defendants' contractor via subrogation. (NYSCEF No. 57 at 2; NYSCEF No. 59 at 7-8.) Defendants accuse plaintiff of inventing reasons to deny coverage to avoid liability for the [*7]damage. (Id.) If plaintiff behaved in the manner alleged by defendants, plaintiff would have violated the implied covenant of good faith and fair dealing. (East Ramapo Cent. Sch. Dist., 199 AD3d at 994). These allegations are factually distinct from the allegations underpinning defendants' breach-of-contract claim. Defendants' good-faith claim is therefore not duplicative of their breach-of-contract claim.

Defendants also seek distinct damages under their good-faith claim, requesting punitive damages and consequential damages in the form of attorney fees. (NYSCEF No. 59 at 20.) Plaintiff argues that these damages are unavailable and that these claims should be dismissed. According to plaintiff, punitive damages are not recoverable absent a showing of wanton negligence or recklessness. (NYSCEF No. 70 at 13-14.) Plaintiff also argues that, in the absence of a pertinent statutory or contractual provision, attorney fees are unavailable. (Id. at 14)

Plaintiff's arguments concerning damages are unavailing. The cases cited by plaintiff in support of its contention deal with punitive damages under General Business Law § 349 and attorney fees in an indemnification suit. (Wilner v Allstate Ins. Co., 71 AD3d 155, 167 [2d Dept 2010]; Chapel v Mitchell, 84 NY2d 345, 349 [1994].) At issue in this case is the implied covenant of good faith and fair dealing. And the Appellate Division has found that punitive damages and attorney fees may be recoverable on a claim for breach of the implied covenant.^[FN3] (See 25 Bay Terrace Assoc., L.P. v Pub. Serv. Mut. Ins. Co., 144 AD3d 665, 668 [2d Dept 2016]; Perlbinder v Vigilant Ins. Co., 190 AD3d 985, 989 [2d Dept 2021].) Because plaintiff has not shown that defendants' implied-covenant counterclaim necessarily fails as duplicative, plaintiff's summary-judgment motion is denied.

This is not to say that defendants have necessarily shown that a jury question exists on their implied-covenant counterclaim. There is room to doubt whether the emails on which defendants rely are sufficient, standing alone, to create a material dispute over plaintiff's alleged bad faith. However, it is possible that defendants could provide additional evidence to support their claim—particularly because the substance of defendants' implied-covenant counterclaim was not the focus of either parties' briefing on this motion. As a result, the court defers the question of whether bad faith presents a jury question, pending a later motion on a more-developed record.

For the above reasons, this court also denies defendants' motion for summary judgment on their good-faith claim.

Accordingly, it is

ORDERED that the branch of plaintiff's motion seeking summary judgment in its favor on plaintiff's claims is denied; and it is further

ORDERED that the branch of plaintiff's motion seeking summary judgment dismissing defendants' counterclaims is denied; and it is further

ORDERED that the branch of defendants' motion seeking summary judgment in their [*8]favor on defendants' counterclaims is denied; and it is further

ORDERED that the parties shall appear before this court for a telephonic preliminary conference on July 21, 2025.