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Bi-Economy Mkt., Inc. v. Harleysville Ins. Co. of N.Y. - 2008 NY Slip Op 1418, 10 N.Y.3d 187, 856 N.Y.S.2d 505, 886 N.E.2d 127


In breach of contract actions, the nonbreaching party may recover general damages which are the natural and probable consequence of the breach. Special or consequential damages, which do not so directly flow from the breach, are also recoverable in limited circumstances. In order to impose on the defaulting party a further liability than for damages which naturally and directly flow from the breach, i.e., in the ordinary course of things, arising from a breach of contract, such unusual or extraordinary damages must have been brought within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting. The party breaching the contract is liable for those risks foreseen or which should have been foreseen at the time the contract was made. It is not necessary for the breaching party to have foreseen the breach itself or the particular way the loss occurred; rather, it is only necessary that loss from a breach is foreseeable and probable.


Plaintiff Bi-Economy Market, a family-owned wholesale and retail meat market located in New York, suffered a major fire in 2002, resulting in the complete loss of food inventory and heavy structural damage to the building and business-related equipment. At the time of the fire, Bi-Economy was insured by the defendant Harleysville Insurance Company under a "Deluxe Business Owners" policy that provided replacement cost coverage on the building as well as business property or "contents" loss coverage. The policy also provided coverage for lost business income, what is commonly referred to as "business interruption insurance," for up to one year from the date of the fire. Following the fire, Bi-Economy submitted a claim to Harleysville pursuant to the terms of the contract. Harleysville disputed Bi-Economy's claim for actual damages, and advanced only the sum of $163,161.92. More than a year later, following submission of their dispute to alternative dispute resolution, Bi-Economy was awarded the additional sum of $244,019.88. During all this time, Harleysville offered to pay only seven months of Bi-Economy's claim for lost business income, despite the fact that the policy provided for a full 12 months. Bi-Economy never resumed business operations.

Thereafter, Bi-economy commenced the present action against Harleysville, asserting causes of action for bad faith claims handling, tortious interference with business relations and breach of contract, seeking consequential damages for "the complete demise of its business operation in an amount to be proved at trial." Bi-Economy alleged that Harleysville improperly delayed payment for its building and contents damage and failed to timely pay the full amount of its lost business income claim. Bi-Economy further alleged that, as a result of Harleysville's breach of contract, its business collapsed, and that liability for such consequential damages was reasonably foreseeable and contemplated by the parties at the time of contracting. Harleysville answered, and subsequently moved for leave to amend its answer to raise the defense that the contract excluded consequential damages and for partial summary judgment dismissing Bi-Economy's breach of contract cause of action. The trial court granted the motion, which the Appellate Division affirmed. Consequently, Bi-Economy challenged the decision.


Did the contract between Bi-Economy and Harleysville exclude consequential damages?




The Court determined that the insured Bi-Economy could properly seek consequential damages for the collapse of its business as the insurer Harleysville should have been aware that any breach of its obligations to investigate in good faith and pay covered claims promptly would result in payment of damages to the insured for the loss of its business as a result of the breach. The Court reversed the appellate division's order and denied 's motion Harleysville's leave to amend its answer and for partial summary judgment, concluding that the claim for consequential damages was reasonably foreseeable and contemplated by the parties.

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