Consequential damages for breach of an insurance policy can be "reasonably foreseeable and contemplated by the parties." In 2008 the New York Court of Appeals held: "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. Bi-Econ. Mkt., Inc. v. Harleysville Ins. Co. of New York, 10 N.Y.3d 187, 195, 886 N.E.2d 127, 132 (2008)."
Gutierrez v. Government Employees Ins. Co., (2016 NY Slip Op 01292) was decided on February 24, 2016 by the Appellate Division, Second Department and involved a claim for supplementary uninsured/underinsured motorist (SUM) benefits where the plaintiff opted to file a direct suit against the insurance carrier rather than proceed to arbitration before the American Arbitration Association. In July 2014, the plaintiff commenced suit asserting three causes of action. The first cause of action, sounded in a breach of contract, demanded payment of the SUM benefits. The second cause of action sought damages in tort for GEICO's alleged breach of "its duty to act in good faith" by unreasonably withholding payment of SUM benefits. The third cause of action alleged that GEICO "breached its contract and/or policy, and absolute duties and obligations to the Plaintiff and its insureds."
GEICO moved pursuant to CPLR 3211(a)(7) to dismiss the second and third causes of action in the complaint for failure to state a cause of action. It argued, inter alia, that if the second and third causes of action sounded in breach of the implied covenant of good faith and fair dealing, that covenant was implicit in every contract, and therefore those causes of action were duplicative of the cause of action sounding in breach of contract. In the order appealed from, the Supreme Court denied GEICO's motion on the ground, inter alia, that the second and third causes of action were not duplicative of the cause of action sounding in breach of contract.
The Appellate Division refused to dismiss the claim for consequential damages noting: "An insurance carrier has a duty to investigate in good faith and pay covered claims." (Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of N.Y., 10 NY3d 187, 195). Damages for breach of that duty include both the value of the claim, and consequential damages, which may exceed the limits of the policy, for failure to pay the claim within a reasonable time (see Panasia Estates v Hudson Ins. Co., 10 NY3d 200, 203; Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of N.Y., 10 NY3d at 195). Such a cause of action is not duplicative of a cause of action sounding in breach of contract to recover the amount of the claim (see Michaan v Gazebo Hort., Inc., 117 AD3d 692; Genovese v State Farm Mut. Auto. Ins. Co., 106 AD3d 866, 868). Such consequential damages may include loss of earnings not directly caused by the covered loss, but caused, instead, by the breach of the implied covenant of good faith and fair dealing (see Mutual Assn. Adm'rs, Inc. v National Union Fire Ins. Co. of Pittsburgh, PA, 118 AD3d 856). The second cause of action states a claim for consequential damages for breach of the implied covenant of good faith and fair dealing. Therefore, that branch of GEICO's motion which was to dismiss that cause of action was properly denied."
Read the decision here.