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Condominium May Be Awarded Consequential Damages Against Insurer Whose Delay in Covering Storm Damage Caused Further Deterioration

A condominium building in Brooklyn suffered damage caused by Superstorm Sandy in 2012. The condominium submitted an initial claim to its insurance carrier, which was paid. Almost two years later, the condominium submitted a supplemental claim seeking reimbursement for additional losses which it asserted were also caused by the storm.  The carrier denied coverage for the supplemental claim.

The condominium sued the carrier. In addition to asserting a breach of contract claim based upon the carrier’s failure to pay the supplemental claim, the condominium asserted a claim for “consequential damages for breach of the implied covenant of good faith and fair dealing based upon the defendant’s refusal to pay the [condominium’s] supplemental claim.”  In Tiffany Tower Condominium, LLC v. Insurance Co. of the Greater N.Y., 2018 N.Y. App. Div. LEXIS 5783, 2018 N.Y. Slip Op. 5886 (2d Dep’t Aug. 22, 2018), the court refused to dismiss this cause of action.

The court relied on precedent holding that “[a]s in all contracts, implicit in contracts of insurance is a covenant of good faith and fair dealing, such that a reasonable insured would understand that the insurer promises to investigate in good faith and pay covered claims.”  Moreover, “[b]reach of that duty can result in recoverable consequential damages, which may exceed the limits of the policy.”

Under this standard, the condominium “stated a viable cause of action to recover consequential damages based on the [insurer’s] refusal to pay the supplemental claim by alleging, among other things, that [the insurer] did not have the financial resources to repair the damages to the building and that the [insurer’s] delay in paying the supplemental claim caused the building to continue to deteriorate.” The Condominium had identified with specificity the nature of the consequential damages it had allegedly suffered, “including damage to fireproofing and additional water damage.”

However, the court dismissed the condominium’s claim insofar as it asserted that the insurance carrier failed to properly investigate the original claim. The evidence established that the Condominium submitted the original claim in November 2012 and that the carrier paid the claim in December 2012.  Once the carrier paid the claim, there was nothing further for it to investigate.  It was not the carrier’s responsibility to investigate the possibility of additional damage that was not reported by the insured.