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Note: Atlas Resources, Inc. (Insured) entered into a workman's compensation insurance contract with either Liberty Mutual Insurance Co. (Insurer) or an affiliate under which Insured/Applicant was required to provide a standby letter of credit in favor of Issuer/Beneficiary in relation to at least 800 different policies in multiple jurisdictions.

Disputes arose regarding handling of claims and Insurer/Beneficiary required that the amount of the standby be increased which Insured/Applicant refused to do. Insurer/Beneficiary drew on the standby and Insured/Applicant sued Insurer/ Beneficiary for improperly handling policy claims based on a variety of theories. One involved "independent tort claims based on Liberty Mutual's [Insurer/Beneficiary] behavior during the last few months regarding the Letter of Credit".

When Insurer/Beneficiary moved to dismiss this claim, the U.S. District Court of New Mexico, Johnson W., J. denied the motion. The Judge stated that "claims for breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing sound in both contract and tort, and as such, can be brought in addition to those claims arising solely out of the insurance contract". He observed that "New Mexico recognizes bad-faith punitive damages 'when the insurer's conduct was in reckless disregard for the interests of the [insured], or was based on a dishonest judgment, or was otherwise malicious, willful, or wanton'".

[JEB]

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