In Mutual Association Administrators, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, a New York appellate court affirmed a lower court order denying summary dismissal of a claim for consequential damages against an insurer arising from an alleged breach of the insurer’s obligation to defend and indemnify its policyholder in an underlying ERISA action. The insurer sought summary dismissal of the policyholder’s claim seeking consequential damages for “the demise of [the plaintiff] as an operating business” and “loss of income by [the plaintiff],” allegedly resulting from the breach. Acknowledging prior holdings that “consequential 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,” the appellate court found that the insurer had “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.” The court also held that an exclusion in the policy barring “loss of earnings,” which applied only to otherwise covered losses, did not apply to consequential damages for alleged breach of contract. The decision follows two New York high court decisions recognizing that consequential damages may be recoverable for breach of an insurance contract, Panasia Estates, Inc. v Hudson Ins. Co., 10 NY3d 200 (2008) and Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of N.Y., 10 NY3d 187 (2008) (discussed here).