Are “consequential damages” available on contract claim against an insurer in an action brought by an insured for breach of a commercial liability policy? In D.K. Prop., Inc. v. National Union Fire Ins., a recent case out of the First Department, the answer is a resounding “yes”. There, the complaint alleged two causes of action, namely, breach of contract for failure to pay for covered losses and branch of the implied covenant of good faith and fair dealing. Plaintiff sought consequential damages on both claims, and attorney’s fees as to the “bad faith” claim.
The insurer argued that consequential damages were unavailable in a breach of contract claim against a carrier when the policy itself covers only “direct and physical loss” to the building. Indeed, as the complaint outlines, the insured is claiming damages for the carrier’s “unreasonable” and “burdensome” informational requests during the investigatory period which extended over a three-year period. Engineering costs, ,water abatement equipment because of delays in repairs, monitoring equipment and interim repairs were only a few of the “types” of damages alleged.
On a pre-answer motion to dismiss, the defendant insurer sought dismissal of the claim for consequential damages on the ground they did not state a claim, namely, that the pleading did not provide a detailed factual showing of why the damages, which do not flow directly from the breach, are recoverable. The motion court, the Hon. Robert Reed agreed, and dismissed the claim for consequential damages. On appeal, the First Department in an unanimous decision, reversed the dismissal and reinstated the claim for consequential damages, holding such claims are not subject to any degree of heightened pleading. The foreseeability of such damages is not for a motion to dismiss, but rather proof at trial. The court made clear that an insured has a claim against a carrier for consequential damages when a carrier doesn’t provide coverage “if such damages (“risks”) were foreseen or should have been foreseen when the contract was made.”
In one line, the court also rejected the insurer’s argument that a breach of contract claim and “bad faith” claim were duplicative: such claims can coexist, so long as the claims allege different conduct which they did here.
The Takeaway: “consequential” damages need not be particularized in your pleading in connection with contractual based claims (breach of contract or implied covenant). Don’t worry, neither CPLR 3015 (pleading particularity with respect to specific matters) nor 3016 (pleading particularity in specific actions) apply. A detailed pleading nevertheless should be alleged setting forth at least the types of damages sought that flow from the claimed breach.
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