tag:blogger.com,1999:blog-4754540220266106237.post5105677834465284083..comments2024-03-17T16:43:50.668-04:00Comments on Coverage Counsel: Consequential DamagesRoy A. Murahttp://www.blogger.com/profile/06367888044845855898noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-4754540220266106237.post-56350255132644157412008-04-28T14:15:00.000-04:002008-04-28T14:15:00.000-04:00Good questions, Heidi. Hudson Insurance Company t...Good questions, Heidi. Hudson Insurance Company thought Panasia Estates loss was not covered and denied the claim, yet found itself subsequently confronted with a consequential damages claim.<BR/><BR/>A premise of the Bi-Economy ruling seems to be that the insured alleged "bad faith claims handling" by Harleysville. Unfortunately, as Judge Smith pointed out in his dissent, what previously had been a fairly bright line in New York of what must be alleged to assert a "bad faith" claim against insurers for punitive damages has now been significantly blurred, if not erased, with these decisions. Two factors, however, give me hope that the Bi-Economy ruling is and will be limited in its future application: <BR/><BR/>(1) the New York case decisions upon which the majority relied are not "bad faith" cases -- they are merely breach of contract cases; and <BR/><BR/>(2) the majority's opinion endorses the pre-existing rule that "to determine whether consequential damages were reasonably contemplated by the parties, courts must look to 'the nature, purpose and particular circumstances of the contract known by the parties... as well as 'what liability the [insurer] defendant fairly may be supposed to have assumed consciously, or to have warranted the [insured] plaintiff reasonably to suppose that it assumed, when the contract was made'". A commercial property policy that affords BI coverage arguable contemplates the loss or demise of the insured's business. Personal lines policies, such as homeowners or auto policies, do not.<BR/><BR/>That being said, the majority's opinion contains this troubling statement: "When an insured in such a situation suffers additional damages as a result of an insurer's excessive delay or improper denial, the insurance company should stand liable for these damages." Is an "improper denial" merely one that subsequently is litigated and upset? We all know that judges and juries don't always get it right, and erroneously reject perfectly sound and legitimate coverage denials. <BR/><BR/>To me, the core test must, therefore, be the foreseeability of the alleged consequential damages, rather than on the insurer's conduct in not paying or denying the policy proceeds. If the alleged consequential damages cannot be said to have been within the contemplation of the parties at the time of the policy's inception -- given the policy's "nature, purpose and particular circumstances" -- the consequential damages claim <B>should</B> be amenable to summary judgment. Under the Bi-Economy ruling, however, it is unlikely that defense counsel will any longer be able to make successful CPLR 3211 motions to dismiss such claims for facial insufficiency.<BR/><BR/>So what's an insurer to do in a claim situation in which it has not yet determined coverage? Ask and document what negative impact a loss has had and will likely have on an insured even during the period of time it takes the insurer to make that determination. Other than that -- and continuing to act in good faith, of course -- there's little an insurer will proactively be able to do to prevent a claim for consequential damages from being made against it following a coverage denial. In the scenario you described, the extra 3-4 months of ALE or LOR coverage that may be "tacked on" will not be consequential damages, but contractual damages awarded in the event your coverage denial is rejected. Insurers always risk -- and stand potentially liable to pay -- contractual damages under their policies. It's the extracontractual, consequential damages award that now seems more viable with the Court of Appeals' rulings in <I>Bi-Economy Market</I> and <I>Panasia Estates</I>. <BR/><BR/>Although Bi-Economy is now two and a half months old, no case I have been able to find has cited to it yet. I've created an alert in LexisNexis for any such citation and will report any citing cases on this blawg. <BR/><BR/>An ounce of prevention is worth a pound of cure. The glass is half full.Roy A. Murahttps://www.blogger.com/profile/06367888044845855898noreply@blogger.comtag:blogger.com,1999:blog-4754540220266106237.post-25634483581928933272008-04-28T11:58:00.000-04:002008-04-28T11:58:00.000-04:00At the end of your article, you list things insure...At the end of your article, you list things insurers should do to avoid the consequential damages allegations. I believe most companies were doing this before the Harleysville case. I realize that in this case, this was a covered loss and the insurer believes it to be covered. My concern, what if the insurer believes the loss is not covered? What if coverage is questionable, and it takes 3-4 months of investigation to determine coverage? Will we be forced to tack on 3-4 months of additional loss of income or loss of rents coverage as "consequential damages"? <BR/>What if the insurer denies the loss, is sued by the insured and a jury finds that the loss is covered then? In the meantime, because the insurer denied the loss, the insured went out of business? Just something I have been thinking about.Anonymousnoreply@blogger.com