Compensatory Damages - Breach or Repudiation by Payor

Case: Inchaustegui v. 666 5th Ave Limited Partnership (2001, NY) [pp. 924-926]

Facts: Lease agreement for commercial property said that sub-tenant required to
get general public liability insurance, with the landlord as additional insureds.
Inchaustegui was injured on the premises, and sued the landlord. Landlord then
brought a 3rd party claim against sub-tenant for failure to comply with lease
provision that required the landlord to be an additional insured under the policy.
Landlord moved for summary judgment, requesting damages to be indemnity, money
damages, plus the costs incurred in the defense of the lawsuit. Lower court
granted summary judgment, but damages were only the cost of maintaining and
securing an independent policy of insurance. Landlord appealed.

Issue: Whether a landlord's recovery is limited to cost of procuring and

maintaining an insurance plan, where a tenant's insurance policy fails to include
coverage for the benefit of the landlord, in breach of lease agreement, but the
landlord has obtained his own insurance. -Yes.

Holding: Affirmed, damages awarded modified slightly.

Reasoning:
○ The K law principle is that if the tenant fails to procure the necessary
insurance, they are liable for consequential damages to the landlord (b/c they
should expect that this may result in economic injury to the landlord).
○ However, if the landlord purchased insurance equivalent to that which the
tenant was contractually obligated to do, regardless of whether or not its
purchase was motivated by the knowledge that the tenant had breached the insurance
procurement provision of the lease, the landlord's only damages are contract
damages, equivalent to the costs of procuring the insurance policy.
§ The Court modified the damages of the lower court to include any
other expenses that were not covered by the insurance policy landlord had, that
resulted directly from the breach.
Dissent argues that this conclusion contravenes the collateral source rule .
§ Purpose of rule - to punish wrongful conduct
§ Distinction - this is a contract case, while collateral source rule
generally for torts cases
□ The collateral source rule is punitive in nature and has no
place in contract law, where the purpose is to place an individual in as good a
position as he would have been had the other party performed.

RULE: In contract law, any compensation a plaintiff may get from another source
(like insurance) is deducted from damages, because the purpose of contract damages
is to place the plaintiff in as good a position as if there were no breach. There
are no punitive damages awarded for breach of contract.