## Facts

- Bi-Economy Market, Inc., a family-owned meat market in Rochester, New York, purchased a commercial property policy that included replacement-cost coverage and business-income (business interruption) coverage for up to 12 months.
- In October 2002, a fire caused a complete loss of food inventory and heavy structural damage to the building and business equipment, forcing a suspension of operations.
- Bi-Economy submitted a claim under the policy, which promised payment for actual loss of business income during the “period of restoration” (from the date of loss until repair/rebuild should be completed with reasonable speed and similar quality).
- Harleysville disputed the amount of loss, initially advanced $163,161.92 for building and contents, and—after more than a year and an ADR proceeding—paid a total of $407,181.
- Harleysville offered to pay only seven months of claimed business-income loss, despite the policy’s 12-month business-income coverage period.
- Bi-Economy alleged that the delay and partial payments prevented it from meeting obligations to creditors, resulting in the complete failure of the business, which never resumed operations.

## Issues

1. Whether an insured may recover consequential damages (beyond policy benefits) for an insurer’s breach of a commercial property insurance contract, where the alleged damages include the collapse of the insured’s business.
2. Whether a policy exclusion for “consequential loss” bars recovery of consequential damages as a remedy for the insurer’s alleged breach.

## Decision

- The New York Court of Appeals reversed the Appellate Division and reinstated Bi-Economy’s breach-of-contract claim seeking consequential damages.
- The court held that consequential damages are available in an action for breach of an insurance contract when the damages were foreseeable and within the parties’ contemplation at contract formation.
- The court held that the policy’s exclusion for “consequential loss” did not, as a matter of law, preclude consequential damages arising from the insurer’s own breach.
- The court concluded that dismissal on partial summary judgment was improper because Bi-Economy’s alleged business collapse was not too remote as a matter of law and required fact development on foreseeability and contemplation.

## Legal Principles

- In contract, a breaching party is liable for damages that are the natural and probable consequence of the breach and were within the parties’ contemplation when the contract was made.
- Consequential (special) damages may be recovered for breach of an insurance policy when the insured proves foreseeability and contemplation at the time of contracting; there is no categorical insurance-contract bar to such damages.
- Business-interruption coverage is designed to provide financial support to sustain ongoing operations after a covered disaster; given that purpose, it may be foreseeable that delayed or inadequate claim payment can cause business failure.
- A coverage exclusion for “consequential loss” limits covered losses under the policy but does not automatically eliminate contract remedies for consequential damages caused by the insurer’s breach, absent clear and unmistakable language doing so.
- An insurer’s contractual performance includes obligations to investigate and pay covered claims in good faith; unreasonable delay or underpayment may support contract damages if causation and foreseeability are proven.

## Conclusion

The court held that an insured may pursue consequential damages for an insurer’s breach of a commercial property policy, including damages tied to business collapse, when those damages were foreseeable and within the parties’ contemplation at contracting, and that a “consequential loss” exclusion does not automatically bar such breach-based consequential damages.


Bi-Economy Mkt., Inc. v. Harleysville Ins. Co. of N.Y., 10 N.Y.3d 187 (N.Y. 2008)