On December 15, 2009, New York's Appellate Division for the First Department held that an insured need not allege or prove that its insurer acted in bad faith in order to recover consequential damages stemming from the insurer's breach of the policy. Panasia Estates, Inc. v. Hudson Insurance Company, 2009 NY Slip. Op. 09284.
As previously reported in this blog (see, e.g., here and here), in the companion decisions of Panasia Estates, Inc. v. Hudson Insurance Company and Bi-Economy v. Harleysville, the New York Court of Appeals overturned longstanding precedent and held that an insured could, in limited circumstances, recover consequential damages as a result of the insurer’s breach of the policy.
Subsequent cases applied Panasia and Bi-Economy to other policies, including for example to disability insurance in Hoffman v. Unionmutual Stock Life Ins. Co., 857 N.Y.S.2d 680 (App. Div. 2d Dep’t 1008), a first party claim under a homeowner’s policy in Chaffee v. Farmers New Century Ins., No. 5:04-CV-1493 (N.D.N.Y., Sept. 24, 2008), a third party liability coverage in Silverman v. State Farm Fire & Cas. Co., 867 N.Y.S.2d 881 (N.Y. Sup. Ct. 2008), an environmental pollution liability policy in Handy & Harman v. AIG, 2008 WL 3999964 (N.Y. Sup. Ct. 2008), and to a no-fault insurance case in Laura Savino v. The Hartford, 2009 N.Y. Slip. Op. 30823 (Sup. Ct. Suffolk Co. Mar. 25, 2009). For a discussion of those cases, see here, here and here.
Despite the numerous decisions spawned by the Court of Appeals’ decisions in Panasia and Bi-Economy, however, the issue of whether an insured must allege and prove that its insurer acted in bad faith in denying coverage in order to recover consequential damages remained unclear—until now. Following the Court of Appeals’ decision in 2008, Panasia sought to amend its complaint to add a separate cause of action for consequential damages based on breach of contract. Although the trial court granted Panasia’s motion, it stated that "[t]hese type of damages are to be called consequential damages and are triggered solely by a breach of contract in bad faith." Both parties appealed that ruling to the Appellate Division for the First Department, which reversed the order of the trial court and denied Panasia’s motion for leave to amend its complaint, holding that “[p]laintiff is correct in arguing that the motion court erred by stating that consequential damages do not lie for breach of an insurance contract absent bad faith, since the determinative issue is whether such damages were ‘within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting’…. However, the motion to amend the complaint should not have been granted since the breach of contract claim that plaintiff sought to add was duplicative of its existing claim for breach of the implied covenant of good faith…. Furthermore, contrary to defendants' contention, plaintiff's claim for consequential damages in its cause of action for breach of the implied covenant of good faith was not insufficiently pled. The reference to such damages as ‘special’ in Bi-Economy…was not intended to establish a requirement of specificity in pleading.”
You can find the decision here.