The New York Court of Appeals recently ruled that commercial property owners can seek “consequential damages” against their insurers who breach the policy. In reaching its decision, the Court relied, in part, on a decision by the Hawaii Court of Appeals, The Best Place, Inc. v. Penn Am. Ins. Co., 82 Haw. 120, 920 P.2d 334 (1996).
In the New York case, Bi-Economy Market, Inc. v. Harleysville Ins. Co. of New York, 2008 N.Y. LEXIS 278 (N. Y. Ct. App. Feb. 19, 2008), Bi-Economy suffered a major fire, causing heavy structural damage to the building and equipment. Bi-Economy submitted a claim to its insurer, Harleysville. The commercial property policy covered replacement cost on the building and business property. Further, the policy provided coverage for lost business income, or business interruption insurance, for up to one year from the date of the fire.
Harleysville disputed Bi-Economy’s claims for actual damages, and paid only $163,161. After submitting the dispute to alternative dispute resolution, Bi-Economy was awarded $407,181 a year later.
Bi-Economy sued, asserting causes of action for bad faith claims handling, tortious interference with business relations and breach of contract, seeking consequential damages for the complete demise of its business operation. Bi-Economy alleged that as a result of Harleysville’s breach of contract, its business collapsed. Therefore, liability for such consequential damages was reasonably foreseeable and contemplated by the parties at the time of contracting. The Supreme Court granted Harleysville’s Motion and the Appellate Division affirmed.
The Court of Appeals reversed. Relying on Best Place, the Court of Appeal noted insurance frequently is purchased not only to provide funds in case of loss, but also to provide peace of mind for the insured. Similarly, the purpose of business interruption coverage was to ensure Bi-Economy had the financial support necessary to sustain its business operation in the event disaster occurred. Further, the purpose of business interruption coverage would have made Harleysville aware that if it breached its obligations under the contract to investigate in good faith and pay covered claims, it would have to respond in damages to Bi-Economy for the loss of its business as a result of the breach.
Therefore, Bi-Economy’s claim for consequential damages including the demise of its business was reasonably foreseeable and contemplated by the parties.
