Policy Exclusion No Bar to Recovery of Consequential Damages

Plaintiff, a family-owned meat market, purchased an insurance policy which provided for replacement coverage on the business’ building and property. The policy also provided for one year of business interruption coverage. A fire destroyed the business’ inventory and badly damaged the building. When plaintiff submitted a claim, defendant, the insurance company, disputed the actual damages and paid slightly more than $163,000, and refused to pay more than seven months of business interruption losses. Following arbitration, plaintiff was awarded more than $407,000. Thereafter, plaintiff sued the insurance company for, among other things, consequential damages for the insurance company’s refusal to promptly pay under the policy, claiming that such refusal to pay under the policy, caused plaintiff’s business to collapse. The insurance company responded by pointing to the policy’s exclusion for consequential damages. Reversing the lower courts, the Court of Appeals held that the insurance company’s unreasonable refusal to pay under the policy caused plaintiff’s business to fail. Consequential damages are normally recoverable where they are reasonably contemplated between the parties. In this case, the Court held that business interruption coverage was in place to allow plaintiff’s business to continue in the face of a disaster. When defendant refused to promptly and properly investigate and pay for this loss, it knew the effect it would have on plaintiff. As such, the insurance company played a role in the ultimate loss and is liable, and the consequential damages that plaintiff sought was foreseeable and recoverable. The policy bar on consequential loss was inapplicable because such loss contemplated action by third-parties, not the insurance company.