On appeal, the Supreme Court of New York, Appellate Division discussed that under New York law in order for an insured to seek consequential damages for an insurer's failure to provide coverage, the damage that occurred must have been foreseen or should have been foreseen when the contract was drafted. The court explained that it was inappropriate for the only question on the motion to dismiss was whether the plaintiff had stated a claim for consequential damages because determining the outcome is based on a fully developed factual record. The court found that the allegations were enough to survive the motion to dismiss, and clarified that there is no heightened pleading standard requiring the insured to explain or describe how and why the specific categories of consequential damages alleged were reasonable and foreseeable when the contract was drafted.

Editors Note: In order to make a determination of whether or not the consequential damages were foreseen or could have been foreseen, the fully developed record would have to be reviewed. Although the court decided that D.K. Property had enough to claim consequential damages at the pleading stage, there was little clarification to the level of proof that D.K. Property would need to win on this claim at trial. While this decision might help these types of claims get to trial, there is still a very high standard to prove in order for a plaintiff to prove they are entitled to consequential damages at trial. Policyholders should take the potential recovery of consequential damages into consideration when analyzing claim resolution.