The plaintiff in D.K. Prop., Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA., No. 650733/17, 2019 WL 237454 (N.Y. App. Div. Jan. 17, 2019) claimed that its building began to shift and exhibit structural damage, including cracks, after construction work began in an adjoining building. Plaintiff filed a claim with National Union for the "direct physical loss [and] damage." National Union did not pay or deny the claim; instead, over the course of three years, it sent regular demands for additional information, keeping its investigation open.
Plaintiff sued National Union for (1) breach of contract for failure to pay covered losses and (2) breach of the implied contract of good faith and fair dealing and sought consequential damages in connection with both claims. In particular, plaintiff alleged that the damage to its property worsened over the course of National Union’s lengthy investigation and claimed as consequential damages engineering costs, painting, repairs, monitoring equipment, moisture abatement, loss of rents, other expenses attributable to mitigating further damage, and legal fees incurred when National Union intervened as plaintiff’s subrogor in a case against the owner of the other building.
National Union moved to dismiss the demand for consequential damages, arguing that the insured could not meet the applicable heightened pleading standard. The lower court agreed, dismissing the insured's claims for consequential damages.
On appeal, the court first noted that, under New York law, an insured may seek consequential damages for an insurer's failure to provide coverage if the damage that occurred was "foreseen or should have been foreseen when the contract was made." The court went on to explain, however, that the issue of foreseeability should not be resolved on a motion to dismiss because it depends on a fully developed factual record. In other words, the only question on a motion to dismiss is whether the plaintiff stated a claim for consequential damages.
With respect to the insured's complaint, the court found that the allegations were sufficient to survive a motion to dismiss. In so holding, the court notably clarified that there is no heightened pleading standard requiring an insured to explain or describe how and why the specific categories of consequential damages alleged were reasonable and foreseeable at the time of contract.
In sum, though the question of the foreseeability of plaintiff's claimed damages would merit a review of a fully developed record, the insured was able to state a claim for consequential damages as a result of National Union's significant delay in disclaiming or providing coverage for an arguably covered property under its commercial liability policy.
