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Breach of Covenant of Good Faith (Settlement) Can Give Rise to Consequential Damages (Loss of Earnings) Even Where Policy Excludes Loss of Earnings with Respect to the Events Covered by the Policy

The Second Department noted that consequential damages resulting from a breach of the covenant of good faith and fair dealing (loss of earnings) may be asserted in the context of the breach of an insurance contract, even where the policy excludes loss of earnings as damages related to the events covered by the policy:

“[C]onsequential damages resulting from a breach of the covenant of good faith and fair dealing may be asserted in an insurance contract context, so long as the damages were within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting” … .

Here [the insurer] failed to establish, prima facie, that it acted in good faith in recommending that the plaintiff accept a settlement offer, and then discontinuing the payment of defense costs once the plaintiff rejected the offer … . Moreover, although the subject insurance policy contains a provision excluding coverage for “loss of earnings,” this provision plainly only applies to loss of earnings caused by a covered event under the policy, and does not preclude the recovery of consequential damages caused by [the insurer’s] alleged breach of contract … . Mutual Assn Adm’rs Inc v National Union Fire Ins Co of Pittsburgh PA, 2014 NY Slip Op 04470, 2nd Dept 6-18-14

 

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