New York Court Erred In Dismissing Insured’s Consequential Damages Claim, Says Appellate Court
01.31.19
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(Article from Insurance Law Alert, January 2019)
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Reversing a New York trial court decision, an appellate court held that a policyholder had adequately pled a claim for consequential damages arising from the insurer’s alleged breach of contract and the duty of good faith and fair dealing. D.K. Property, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 2019 WL 237454 (N.Y. App. Div. 1st Dep’t Jan. 17, 2019).
A building owner sued its liability insurer, alleging breach of contract and bad faith based on the insurer’s intentional delay of payment of a property damage claim. The complaint alleged that the insurer made “unreasonable and increasingly burdensome information demands throughout the three year period since the property damage occurred” in order to “make the claim so expensive to pursue that plaintiff would abandon it altogether.” The owner sought consequential damages that reflected engineering costs, painting, repairs, monitoring and abatement costs and loss of rent, among other things. The trial court dismissed the consequential damages demand on the pleadings, and the appellate court reversed.
Under New York law, a policyholder may seek consequential damages resulting from an insurer’s failure to provide coverage if such damages “were foreseen or should have been foreseen when the contract was made.” The appellate court held that foreseeability should not be decided on a motion to dismiss because at that stage, “the inquiry is not whether plaintiff will be able to establish its claim, but whether plaintiff has stated a claim.” The court held that the policyholder adequately pled a consequential damages claim because the complaint alleged that the damages were foreseeable based on the policyholder’s contractual obligation to “take all reasonable steps to protect the covered property from further damage.” In so ruling, the court noted that there is no heightened pleading standard for consequential damages.