De Martino v. Harleysville Worcester Ins. Co.
(Sup. Ct., New York Co., decided 1/21/2010)
On June 20, 2006, plaintiff's building allegedly suffered substantial damage due to the demolition, excavation and construction work plaintiff's neighbor was performing on property adjacent to plaintiff's building. Plaintiff made a claim to her commercial property insurer, Harleysville Worcester Insurance Company, and a dispute arose over the value of plaintiff's covered loss. Plaintiff's initial complaint, filed on October 1, 2008, alleged that Harleysville both failed to respond to plaintiff's claims in a timely manner and undervalued plaintiff's loss.
Three motions were at issue in this matter: (1) by plaintiff to amend her complaint to assert a claim for consequential damages; (2) by plaintiff to compel the disclosure of certain email and fax communications between Harleysville and its contractor, and its attorneys and the contractor, withheld as privileged; and (3) by Harleysville to compel an appraisal of plaintiff's building loss.
By memorandum decision and order dated September 9, 2009, New York Supreme Court Justice Marilyn Shafer granted plaintiff's motion to amend her complaint to assert a claim for consequential damages allegedly caused by Harleysville's delay in adjusting and paying her building loss claim:
With respect to plaintiff's motion to compel disclosure of the pre-suit communications with Harleysville's damage-estimating contractor, the court held that motion in abeyance and directed that Harleysville submit the withheld documents for the court's in camera review. This decision followed that inspection and addressed Harleysville's motion to compel appraisal.Recent decisions of the Court of Appeals hold that a claim for consequential damages against an insurer may be asserted “so long as the damages were within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting [internal quotation marks and citation omitted]." Panasia Estates, Inc. v Hudson Insurance Company, 10 NY3d 200, 203 (2008). The fact that the parties contemplated that plaintiff would be insured for losses sustained by a delay in payment and repair to her premises is found in the policy's business interruption clauses."The purpose served by business interruption coverage cannot be clearer-to insure that [plaintiff] had the financial support necessary to sustain [her] business operation in the event disaster occurred. The purpose of business interruption insurance is to indemnify the insured against losses arising from inability to continue normal business operation and functions due to the damage sustained as a result of the hazard insured against [internal quotation marks and citations omitted] ."Bi-Economy Market, Inc. v Harleysville Insurance Company of New York, 10 NY3d 187, 194 (2008).
Because the proposed amendment is not palpably insufficient or patently devoid of merit, as supported by the reasoning in the above-quoted Court of Appeals cases, and the motion for leave to amend was made less than one year after the action commenced, there is no evidence that granting plaintiff's motion would prejudice or surprise defendant.
On plaintiff's request for clarification of the court's September 2009 decision and order, New York Supreme Court Justice Joan Kenney ruled that plaintiff's complaint "may be amended to include consequential damages for attorney’s fees and costs." Citing the Court of Appeals' decision in Panasia Estates, Justice Kenney held:
The decision does not specify whether the attorney's fees plaintiff sought were for other than the prosecution of this action. If they were not, the court's most recent decision in this case on attorney's fees ostensibly conflicts with the courts' rulings in Panasia Estates, especially New York County Supreme Court Justice Karen Smith's initial decision and order in that case, which granted Hudson's motion only to the extent of precluding plaintiff Panasia Estates from asserting any claims for legal fees incurred in the prosecution of its action. See, also, Authelet v Nationwide Mut. Ins. Co., 2008 NY Slip Op 32929(U) (Sup. Ct., Suffolk Co., decided 10/24/2008)("The Court further notes, to the extent that the plaintiff seeks consequential damages for 'having been compelled to * * * retain legal counsel to seek redress,' that an insured may not recover attorney’s fees or other legal expenses incurred in bringing an action against an insurer, as here, to determine its rights under a policy (citations omitted). Hence, any consequential damages to which the plaintiff may ultimately be entitled shall be exclusive of such expenses."); and Grinshpun v. Travelers Cas. Co. of Conn., 23 Misc 3d 1111(A) (Sup. Ct., Kings Co., decided 3/11/2009)("In the case at bar, Plaintiffs do not allege that they suffered any damages as a consequence of Defendant's bad faith refusal to pay their claims other than the costs associated with having to commence a legal action to enforce their claims. Such damages are not consequential damages that were contemplated by the policy as in the situations in Bi-Economy and Panasia.")Defendant only argued against inclusion of consequential damages because it asserted that plaintiff could not support the claim. In the instant matter, there are conflicting facts as to the manner in which the claim was handled, so that it cannot be determined at this juncture whether or not any alleged delays were reasonable under the circumstances, or which party caused such delays. However, the allegations are sufficient to place the matter before the trier of fact.
The decision of this court dated September 9, 2009, ordered that the complaint be amended in the proposed form annexed to the moving papers, which included the consequential damages plaintiff seeks. The discussion in that decision was directed only to plaintiff's claim for loss of business, because that was all that was argued by the parties in their papers at that time.
After having reviewed the communications submitted for an in camera review, the court ruled that Harleysville's attorneys' pre-suit fax to Harleysville's damage-estimating contractor regarding building estimates, the attorneys' pre-suit email on this same subject, and the contractor's pre-suit email response to Harleysville's attorneys were not immune from disclosure based on the attorney-client and attorney work-product privileges, ostensibly finding that those communications were not made for the purpose of facilitating the rendition of legal advice or services, and were not prepared by counsel acting as such and did not otherwise uniquely reflect a lawyer's learning and professional skills.
In denying Harleysville's motion to compel an appraisal of plaintiff's building loss, Justice Kenney ruled, in effect, that Harleysville had waited too long to demand an appraisal under the policy, not having formally done so until nearly three years after the reported loss date and eight months after plaintiff had commenced this suit:
I'd hazard a guess that 79-year-old insureds on an allegedly fixed or limited income win more often than their insurers on motions such as these. Although there are several reported decisions relating to the 9/11 World Trade Center tragedy in which insurers successfully invoked their right of appraisal after suit was commenced, the better practice, from an enforceability standpoint, would be to invoke the appraisal option or mechanism as soon as possible and prior to the insured's commencement of suit.In the case at bar, the court agrees with plaintiff that the first written demand for an appraisal, as mandated by the provisions of the policy, was not made until May 29, 2009, several years after the occurrence and more than nine months after the initiation of the lawsuit. Defendant's letter of May 2 , 2008, only references the appraisal provision of the policy, which is non-obligatory and is only triggered by a written demand. The May 2, 2008, letter does not indicate that, at that time, defendant is demanding an appraisal; the letter merely implies that it may demand an appraisal if the parties cannot reach agreement.
Defendant's instant motion was made only after the lawsuit was filed and some discovery had taken placed. The plaintiff in this action is a 79-year old woman whose only source of income, allegedly, is revenue from the subject building. At this point, halting these proceedings for an appraisal would unduly delay a determination of the matter, and, therefore, is denied.
Neither the September 2009 decision nor this one indicates whether: (1) there were or are any coverage disputes affecting the parties' respective positions; (2) Harleysville issued any partial declinations of coverage; or (3) Harleysville made any payment of what it believed it owed for the loss to plaintiff. What these decisions underscore, however, is that the Court of Appeals' February 2008 decisions in Bi-Economy Market and Panasia Estates will continue to be cited in support of insureds' claims of consequential damages against their property insurers whenever there is a denial of coverage or delay in paying a claim, and regardless of whether the insurance contract at issue contemplated such consequential damages. As we approach the two-year anniversary of those decisions, the state of the case law in New York on the issue of consequential damages against insurers is:
- consequential damages have not been limited only to claims arising under commercial property policies;
- they have not been limited only to policies that afford business interruption or business income loss coverage;
- an allegation of "bad faith" conduct by the insurer is not needed to state a claim for consequential damages; and
- in all but one reported decision since Bi-Economy and Panasia Estates were decided, New York courts have granted plaintiffs leave to amend their complaints to state claims for consequential damages against their insurers.