Case Law Summaries

Roadmasters, Inc. v. Allstate Insurance, Co.

• Opinion Date: May 1, 2001
• Business Law
• E-Mail

CONTRACTS; GOOD FAITH—Where there is no enforceable covenant for one party to perform certain duties, the implied covenant of good faith and fair dealing will not create one.

An automobile body shop was an authorized repair facility in an insurance company’s “Priority Option Program.” It was one of a number of approved shops to which the insurance company would refer its insureds for automobile repair work. It was orally informed by representatives of the insurance company that repair referrals would continue absent theft, fraud, or unsatisfactory work. For over twenty years, this relationship with the insurance company was satisfactory. At the urging of the insurance company, the shop upgraded its computer system, acquired certain equipment, and changed its billing procedures. It also reassigned employees within its own facilities at the request of the insurance company. After about twenty years, an insurance company representative required that the shop sign a document that provided in part: “The following is a record of procedures and quotations which have been received from this repair facility. It is not a contract or binding agreement of any kind between this repair facility and [the insurance company]. The only agreement between [the insurance company] and this repair facility is that if and when this repair facility performs vehicle repair for which payment is made through [the insurance company] it will follow the procedure ... .” The insurance company’s insureds comprised approximately 30% of the repair shop’s business. A time came when an insurance company representative performed one of the many audits that the insurance company made over the years and, as a result of the audit, suspended the repair shop from the special program. Even though the automobile repair shop agreed immediately to respond to the concerns and attempted to cure the paperwork deficiencies, it was ultimately terminated from the insurance company’s program. The repair shop then learned that a relative of one of the insurance company’s employees had been hired by another shop and that much of the referral work that had been going to it was now being referred to a competitor. The lower court dismissed the repair shop’s allegations of breach of contract and breach of the covenant of good faith and fair dealing, and the Appellate Division affirmed. The Court conceded that an oral agreement to continue the repair shop as a participating automobile repair shop would be enforceable, but such a promise would rarely be interpreted as calling for perpetual performance. Nonetheless, “[i]n light of the clear language in the [agreement,]” the repair shop’s “claim that [the insurance company and its employee] reached an agreement to refer” insurance, the Court rejected the repair shop’s claim. It pointed out that the agreement only applied “if and when” the repair shop performed work; otherwise, the agreement did not apply. Further, the Court rejected the repair shop’s assertion that terminating it from the special program in order to further the self-interests of the insurance company’s employee and the competing repair shop violated an implied covenant of good faith and fair dealing. It pointed out that there was no agreement obligating the insurance company to make referrals. Therefore, it held that there could be no violation of the covenant of good faith and fair dealing.

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