Low, Ball & Lynch’s

WEEKLY LAW RESUME

April 6, 2026 Issue  By: Ray Coates

Bad Faith - Splitting Breach of Contract and Bad Faith Causes of Action

Lincoln Property Co., N.C., Inc. v. The Travelers Indemnity Co.

 (March 20, 2026)

Court of Appeal, First District

We have previously reported on cases which hold that a breach of the covenant of good faith and fair dealing cause of action cannot be brought without a finding of a breach of contract by an insurer. This case addressed the issue of whether a breach of the covenant cause of action can be filed in a separate action from the breach of contract cause of action.

Lincoln Property Company constructed Larkspur Court in a joint venture with Prudential Insurance of America. It entered into a painting contract with Krata, Inc. doing business as Five Star Services to paint and repair siding on 25 buildings in the Larkspur Court complex. Krata carried general liability insurance with Travelers Indemnity Company, and named the joint venture as an additional insured. On July 13, 1998, Michael Patton, a Krata employee, fell from the roof of a building. Mr. Patton filed an action against Lincoln, the joint venture, and Prudential to recover damages for the injuries he sustained. Lincoln tendered the defense of the Patton action to Krata and Travelers. Travelers initially did not respond to the tender. Lincoln also tendered to its own insurer, which accepted the tender, and began providing a defense. In that action, Lincoln filed a cross-complaint against Krata and Travelers for breach of the duty to defend and indemnify Lincoln. At that point, Travelers agreed to participate in Lincoln’s defense under a reservation of rights.

Lincoln filed a separate bad faith action against Travelers, alleging breach of the covenant of good faith and fair dealing. That action was stayed pending resolution of the Patton action.

The Patton action was eventually settled, with Travelers paying $1,000,000, and obtaining a general release. In addition, Travelers paid Lincoln for the costs it had incurred prior to the time it was defended by its own insurance company. At that point, Travelers moved for summary judgment on the cross-complaint, and the trial court granted the motion, finding there were no damages.

Travelers then demurred in the bad faith action. The trial court sustained the demurrer without leave to amend, concluding the bad faith cause of action should have been joined with the breach of contract action, and now was barred by reason of the final judgment in the Patton action. Lincoln appealed.

The Court of Appeal affirmed the trial court. Under California Civil Procedure, a cause of action is comprised of a primary right that gives rise to but a single cause of action. That primary right may give rise to multiple legal theories of liability and multiple remedies. However, the violation of a primary right gives rise to but one cause of action, which cannot be split into two separate law suits.

The claim for the breach of the covenant of good faith and fair dealing was part of the same primary right asserted in Lincoln’s prior action for breach of the duty to defend. The claim for the breach of contract was based upon a failure to defend. The claim for the breach of the covenant of good faith and fair dealing was based upon the same claim.

Lincoln attempted to argue that the bad faith lawsuit did not focus on the benefits provided by the insurance policy, but rather on the manner in which Lincoln was treated during the claims process. The Court noted that the covenant of good faith and fair dealing is implied in every contract as a supplement to the express contractual covenants. The primary right is to receive the benefits of the contract. The right to receive prompt benefits is an auxiliary benefit implied in the contract, and did not exist separately from the contractual obligation.

The insurer’s obligation to provide a defense was a provision of the contract, and the obligation to act reasonably in a timely manner was part of the implied covenant to do so in good faith. The same conduct gave rise to both causes of action and the damages claimed under each theory of liability. They both arose out of the same breach of the same primary right. The additional damages that Lincoln sought in the bad faith case should have been pursued in the prior litigation. Since the bad faith cause of action was dependent upon, and arose out of Travelers’ breach of the duty to defend, it was part of the same primary right, and thus was barred inasmuch as the prior action had been concluded.

The Court therefore affirmed the trial court.

COMMENT        

This case again exemplifies the rule that, without a breach of the contract, there cannot be a breach of the covenant of good faith and fair dealing. It further holds that both theories of liability and causes of action must be pursued in the same complaint.

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