ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Friday, March 7, 2008

Consequential Damages Welcome Here!

NyIn two cases decided on February 18, 2008, the New York Court of Appeals permitted the award of consequential damages despite contractual provisions in insurance policies excluding consequential loss, so long as the damages were the "foreseeable" and "natural and probable consequence" of a policy breach and were "within the contemplation of the parties" at the time the policy was issued.  So reports James W.. Carbin on the Duane Morris LLP website

The cases are Bi-Economy Market, Inc. v. Harleysville Ins. Co. of N.Y., 2008 WL 423451, 2008 N.Y. Slip. Op. 01418 (N.Y. Feb. 19, 2008) and Panasia Estates, Inc. v. Hudson Ins. Co., 2008 WL 420014, 2008 N.Y. Slip Op. 01419 (N.Y. Feb. 19, 2008) and both can be found here.  In both cases, the policies in question excluded coverage for consequential losses, but the Court of Appeals held the insurers liable where the consequential damages flowed not from the event insured against but from the insurer's failure to timely pay the claim.

According to Mr. Carbin, "[t]he Court of Appeals' decision in Bi-Economy is the first recognition that a policy insuring 'business interruption' proves the foreseeability required for an award of consequential damages stemming from an insurer's breach of the policy contract by failure to timely pay a claim, even where the policy contains an exclusion for 'consequential loss.'"  The Court applied the same rule in Panasia Estates but remanded the case for a determination of whether the consequential losses at issue were foreseeable.

[Jeremy Telman]

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