PANASIA ESTATES INC v. HUDSON INSURANCE COMPANY (2008)

  OPINION OF THE COURT

Panasia Estates is the owner of commercial rental property located at 33 West 19th Street in Manhattan.   Panasia had a commercial property insurance policy with Hudson Insurance Company which included “Builders' Risk Coverage,” covering damage to its property while undergoing renovation.   During the policy period, the roof of its building was opened in order to perform construction work.   Inclement weather caused rain to enter the building through the roof opening, resulting in extensive damage to the property.^*

Shortly after the occurrence, Panasia claimed it promptly notified Hudson of the loss.   According to Panasia, however, Hudson failed to investigate or adjust the claim until several weeks later.   Hudson then denied the claim three months after that, stating that Panasia's loss was the result of repeated water infiltration over time and wear and tear rather than from a risk covered under the builders risk policy provision.

Panasia commenced this action against Hudson, alleging that it breached the insurance contract by failing to properly investigate the loss and denying the loss as not covered under the policy.   Panasia sought both direct and consequential damages that it claimed stemmed from Hudson's breach.

 Hudson moved for partial summary judgment “dismissing all of [Panasia's] bad faith allegations and all prayers for consequential, extra-contractual, or incidental damages or attorneys [sic ] fees.” Hudson argued, among other things, that a contractual exclusion for “[a]ny other consequential loss” precluded Panasia's request for consequential damages.

As pertinent here, Supreme Court denied that part of Hudson's motion to dismiss Panasia's claims for consequential damages.   The Appellate Division affirmed, stating that “[a]n insured may recover foreseeable damages, beyond the limits of its policy, for breach of a duty to investigate, bargain for and settle claims in good faith” (39 A.D.3d 343, 835 N.Y.S.2d 49 [2007], citing Acquista v. New York Life Ins. Co., 285 A.D.2d 73, 730 N.Y.S.2d 272 [1st Dept.2001] ).   In addition, the court concluded that Hudson failed to show that the contractual exclusion for “ ‘consequential loss' ” applied to Panasia's claim, rejecting Hudson's argument that “consequential loss” and “consequential damages” were synonymous (id.).

The Appellate Division granted Hudson leave to appeal to this Court, certifying the question:  “Was the order of the Supreme Court, as affirmed by this Court, properly made?”   We conclude that it was.

 The courts below properly rejected Hudson's contention that it was entitled to judgment as a matter of law because consequential damages are not recoverable in a claim for breach of an insurance contract.   As we explained in Bi-Economy Mkt., Inc. v. Harleysville Ins. Co. of N.Y., 10 N.Y.3d 187, 856 N.Y.S.2d 505, 886 N.E.2d 127 (2008) (decided today), consequential damages resulting from a breach of the covenant of good faith and fair dealing may be asserted in an insurance contract context, 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’ ” (at 192, 856 N.Y.S.2d at 508, 886 N.E.2d at 130, quoting Kenford Co. v. County of Erie, 73 N.Y.2d 312, 319, 540 N.Y.S.2d 1, 537 N.E.2d 176 [1989] ).   Here, the courts below failed to consider whether the specific damages sought by Panasia were foreseeable damages as the result of Hudson's breach.   Because the record before us is not fully developed on that issue, such claim must be considered by Supreme Court.

 Lastly, as the Appellate Division correctly concluded, the contractual exclusion for consequential loss does not bar the recovery of consequential damages (see Bi-Economy at 196, 856 N.Y.S.2d at 510-11, 886 N.E.2d at 132-33).

 Accordingly, the order of the Appellate Division should be affirmed, with costs, and certified question answered in the affirmative.

Order affirmed, etc.

FOOTNOTES

FOOTNOTE.   As this is an appeal from a summary judgment motion, we view the facts in the light most favorable to Panasia, the nonmoving party.

PIGOTT, J.