Monday, January 21, 2019

Cause of Action for Consequential Damages Found Allegationally Sufficient and Reinstated

DK Prop., Inc. v. National Union Fire Ins. Co. of Pittsburgh
(1st Dept., 1/17/2019)

Must, at the pleading stage, a claim for consequential damages arising from the insurer's processing of the insured's insurance claim requires a detailed, factual description or explanation for why such damages, which do not directly flow from the breach, are also recoverable?

Answer of the First Department:
No.  A cause of action for consequential damages is sufficiently pled by specifying the types of consequential damages claimed and alleging that such damages were reasonably contemplated by the parties prior to contracting.

The complaint in this case alleged that rather than pay the claim, defendant made unreasonable and increasingly burdensome information demands throughout the three-year period since the property damage occurred. Plaintiff contended that this was a tactic by defendant to make the claim so expensive to pursue that plaintiff would abandon it altogether. Plaintiff contended defendant's investigatory process has taken so long and become so attenuated that the structural damage to the building has worsened. Among the consequential damages alleged were engineering costs, painting, repairs, monitoring equipment, and moisture abatement to address water intrusion, loss of rents, and other expenses attributable to mitigating further damage to the property.

In REVERSING Supreme Court's dismissal of and reinstating the complaint's second, bad faith cause of action, the First Department held:
Here, plaintiff's allegations meet the pleading requirements of the CPLR with respect to consequential damages, whether in connection with the first cause of action or the second cause of action for breach of the covenant of good faith and fair dealing in the context of an insurance contract (id.). Contrary to defendant's claim, there is no heightened pleading standard requiring plaintiff to explain or describe how and why the "specific" categories of consequential damages alleged were reasonable and foreseeable at the time of contract. There is no heightened pleading requirement for consequential damages (Panasia Estates Inc. v Hudson Ins. Co., 68 AD3d 530, 530 [1st Dept 2009], affd 10 NY3d 200 [2008], citing Bi-Economy 10 NY3d at 192). Furthermore, an insured's obligation to "take all reasonable steps to protect the covered property from further damage by a covered cause of loss" supports plaintiff's allegation that some or all the alleged damages were foreseeable (Benjamin Shapiro Realty Co. v Agricultural Ins. Co., 287 AD2d 389, 389-390 [1st Dept 2001]).
As noted by the Court of Appeals in Bi-Economy, a claim for breach of contract and one for bad faith handling of an insurance claim are not necessarily duplicative (id. at 191). The first and second causes of action plead different conduct by defendant and, in any event, defendant did not cross-appeal with respect to Supreme Court's denial of its motion to dismiss the bad faith claim on the basis of duplication.
Nothing else to see here.  Move on.

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