In February 2008, the New York State Court of Appeals issued two companion rulings addressing the circumstances in which an insured can seek recovery of consequential damages resulting from an insurer’s breach of the covenant of good faith and fair dealing. We wrote about Bi-Economy Market Inc. v. Harleysville1 and Panasia Estates Inc. v. Hudson Ins. Co.2 and the implications of those cases, both authored by Judge Eugene F. Pigott, in our May 2008 Corporate Insurance Law column.3 Now, almost three years later, we revisit those rulings and review how the cases that have followed have interpreted them.

There are at least five important takeaways regarding claims for consequential damages in the context of an insurance dispute that can be gleaned from the Court of Appeals’ opinions in Bi-Economy and Panasia: (i) an insured may maintain a claim for consequential damages only where such damages were within the contemplation of the parties as to the probable result of a breach at the time the insurance contract was negotiated or issued; (ii) the claim is not a separate cause of action, but rather is a potential remedy for breach of the implied duty of good faith and fair dealing, which itself is part of a cause of action for breach of contract; (iii) a policy exclusion for consequential loss does not necessarily bar a claim for consequential damages; (iv) consequential damages may not be limited by a policy’s limit of liability; and (v) a claim for consequential damages is not a claim for punitive damages and the law on punitive damages was not altered by these decisions.

‘Bi-Economy’ and ‘Panasia’

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