The New York Court of Appeals denied a motion for rehearing in the Bi-Economy Market, Inc. v. Harleysville Insurance Company of New York case, thereby leaving intact its February 2008 decision allowing insureds  to recover “consequential damages” for improper denial of coverage.  The Court’s denial was made without comment.

In Bi-Economy v. Harleysville, 2008 N.Y. Slip Op. 01418 (Feb. 19, 2008), as reported here, the New York Court of Appeals reversed the lower court’s entry of summary judgment for the insurer.  The lower court had granted the insurer summary judgment on the insured’s claim for consequential damages based on the fact that consequential damages were specifically excluded from the contract.  According to the Court of Appeals, however, the insurer’s refusal to pay the full claim for lost business income undercut the very purpose of the business interruption coverage contained in the contract. The Court of Appeals went on to hold that, when an insured suffers additional damages, such as the total failure of their business, “as a result of an insurer’s excessive delay or improper denial, the insurance company should stand liable for these damages.”

At the time, the dissent argued that the Court’s decision effectively allowed punitive damages in improper denial  of coverage cases.  According to the dissent, true consequential damages are triggered by a breach of contract while the majority’s decision was only intended to punish a bad faith breach.