In Woodworth v. Erie Insurance Company, No. 05-CV-6344CJS (Jun. 12, 2009), the federal district court for the Western District of New York held that recovery of consequential damages under Bi-Economy Mkt., Inc. v. Harleysville Ins. Co. of NY, 10 N.Y. 3d 187 (2008), is not limited to commercial property insurance claims. The insurance policy at issue in Woodworth was a homeowners insurance policy covering sudden and accidental physical loss, including loss caused by fire. The plaintiffs in the case asserted a cause of action against their insurer for breach of contract, claiming that the insurer wrongfully failed to pay them the actual cash value of their destroyed home following a fire and also wrongfully failed to pay them their “additional living expenses” as defined under their policy.

Almost a year after the New York Court of Appeals issued its decision in February 2008 in Bi-Economy (click here), the plaintiffs in Woodworth sought to amend their complaint to request extra contractual consequential damages based upon the insurer's alleged breach of the policy’s implied covenant of good faith and fair dealing. The insurer argued that the court’s decision in Bi-Economy should be limited to commercial property insurance claims. The court, however, agreed with the plaintiffs and ruled that pursuant to Panasia Estates (click here), consequential damages may be asserted “in an insurance contract context” so long as they were reasonably foreseeable.

As part of its consequential damages, plaintiff sought to recover for emotional distress, attorney’s fees, and living expenses beyond the twelve-month period provided for in their policy. With respect to plaintiffs' claim for emotional distress damages, the court denied plaintiffs' motion to amend their complaint on timeliness grounds, holding that the defendant would be prejudiced by plaintiffs' belated amendment of its complaint where discovery had come to a close. With respect to the plaintiffs' claim for attorneys' fees, although the court noted that that claim will not likely entail additional discovery, it denied plaintiffs' motion on grounds that neither Bi-Economy nor post-Bi-Economy authority "suggests that the New York Court of Appeals intended through its Bi-Economy decision to alter in the insurance context the traditional American rule that each party should bear its own costs for attorney fees.” The court did, however, permit plaintiffs to amend their complaint to add a claim for extra-contractual living expenses because no additional discovery would be required in that regard and defendant would therefore not be prejudiced by the belated amendment, stating that “where plaintiffs have already asserted a claim to recover additional living expense damages under a theory different from that articulated in Bi-Economy, I conclude that they should be permitted to seek those same damages under the Bi-Economy holding.”

For a copy of the decision, please click here.