Monday, May 12, 2008

And Another Bi-Economy Citing

Our election inspectors have just completed their examination of some hanging chads, and we must now declare a new second citing of the Bi-Economy holding. Hoffman (post below) falls to #3.

In Prince Seating Corp. v. QBE Ins. Co., (Sup.Ct., Kings Co., decided 5/2/2008), Justice Laura Lee Jacobson twice cited Bi-Economy in this DJ and breach of contract action. Prince Seating brought this action against its insurer, QBE Insurance Company, and insurance broker, Century Coverage Corp., after QBE disclaimed coverage for an underlying personal injury claim based on Prince Seating's alleged late notice of that occurrence. Prince Seating provided notice of the underlying occurrence to Century in August 2001, which in turn allegedly failed to timely pass along that notice to QBE. Prince Seating asserted that Century had instructed it to report all potential claims to it, and that Century would then forward the claims to QBE. For reasons not explained in the court's decision, the underlying personal injury claim went into suit in Virginia in April 2003 and resulted in a $1.4 million default judgment against Prince Seating in early 2005.

In seeking dismissal of the fourth cause of action of Prince Seating's complaint, Century argued that the gravamen of plaintiff's sole cause of action against it was actually a negligence claim, rather than a breach of contract claim, and thus was subject to a 3-year, not 6-year, statute of limitations. In support of its argument, Century asserted that plaintiff was seeking consequential damages that were not within the contemplanion of the parties as the probable result of a breach at the time of or prior to contracting. Century argued that the damages of a judgment for $1,400,000 in the Virginia action due to its failure to carry out an alleged agreement to inform QBE of the claim at issue could not have been contemplated by the parties at the time of their entry into such alleged agreement.

In disagreeing with Century's argument, the court held:
contrary to Century’s argument, the cost of the replacement of this service could not be a proper measure of contractual damages, and could not be the damages contemplated by the parties at the time of their entry into the alleged agreement. Instead, the recovery of the loss sustained by plaintiff in the Virginia action, as a direct result of an alleged breach of Century’s contractual obligation, is the proper measure of damages. These damages, which are the damages sought by plaintiff herein, were foreseeable and the natural and probable result of Century’s alleged breach and directly flow from such breach (see Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of N.Y., 10 NY3d 187, 192-193 [2008]; (other citations omitted)).
In the same vein, the court rejected Century's argument that plaintiff's fourth cause of action was deficient because it failed to plead contractual damages which were contemplated at the time the contract was executed:
This argument by Century must fail. Plaintiff seeks damages, which it alleges, were a direct and foreseeable result of Century’s breach of the agreement, namely, that if QBE is found not to have a duty to defend and indemnify it for the judgment in the Virginia action under the QBE policy, Century is liable to it and obligated to indemnify it for all damages arising out of the Virginia action. While Century asserts that it did not contemplate the default judgment rendered, this judgment was the natural consequence of the lack of a defense from QBE, which was allegedly caused by Century’s failure to notify QBE of the claim, resulting in QBE's disclaimer (see generally Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of N.Y., 10 NY3d 187, 192-193 [2008]; (other citations omitted)).
Notably, the words "bad faith" do not appear in this decision, and a careful reading of it reveals that the court cited Bi-Economy for the generally accepted and relatively longstanding proposition that consequential damages must have been foreseeable or within the contemplation of the parties at the time of contracting in order to be recoverable in a breach of contract action. Thus, these citations in this case add nothing particularly new to New York law and provide no indication of the future course or scope of the Bi-Economy and Panasia holdings in actions against insurers.

1 comment:

Heidi said...

"direct and forseeable result" - something to remember...and will be repeated in future decisions for sure...as well as allegations in future DJ complaints.