First Department Holds Consequential Damages Waiver Does Not Reach Owner’s Direct Damages

Posted: September 14, 2026 / Written by: Jeffrey M. Eilender, Thomas A. Kissane, Samuel L. Butt, Joshua Wurtzel, Channing J. Turner / Categories Breach of Contract, Contract Interpretation, Damages, Motion to Dismiss

First Department Holds Consequential Damages Waiver Does Not Reach Owner’s Direct Damages

On September 10, 2026, in Gamma USA, Inc. v. Pavarini McGovern, LLC, Index No. 655472/23, Case No. 2025-01311, the Appellate Division, First Department, unanimously modified an order of Justice Melissa A. Crane of the New York County Commercial Division that had limited a counterclaim to a $3.6 million liquidated damages cap.

On a construction project, the general contractor asserted a counterclaim against a subcontractor as a “pass-through” claim on behalf of the project’s owner, which lacked privity with the subcontractor. The owner’s agreement with the general contractor waived claims for consequential damages, and the subcontract separately capped the subcontractor’s liability for liquidated delay damages at $3.6 million. Supreme Court read the waiver as an agreement by the owner to give up every form of damages other than liquidated damages, and so limited the entire counterclaim to $3.6 million. The First Department modified, holding that the waiver surrendered only consequential damages, and that the owner’s direct damages therefore remained recoverable. The Court explained:

While Supreme Court properly acknowledged that the CMA applied, the court’s interpretation exceeded the intended scope of the prescribed damages waived in the CMA. Specifically, Supreme Court concluded that the “Owner expressly waived its rights to recover any damages other than liquidated damages from defendant [General Contractor], including consequential delay damages” in the CMA (emphasis added). However, the CMA did not waive all damages as between the Owner and the General Contractor, but only claims for “consequential damages arising of [sic] and relating to the Contract.” Consequential damages are meant to compensate for indirect losses, and are but a small subset of permissible damages under a contract (see e.g. Bi-Economy Market, Inc. v Harleysville Ins. Co. of N.Y., 10 NY3d 187, 192-193 [2008]; see also American List Corp. v U.S. News & World Report, 75 NY2d 38, 43 [1989]).

Thus, nothing in either the Subcontract or the CMA limits the Owner’s ability (vis-à-vis the General Contractor) to pursue direct damages from the Subcontractor, so long as they are not consequential damages or delay damages in excess of the $3.6 million cap.

The attorneys at Schlam Stone & Dolan LLP have extensive experience litigating complex commercial contract disputes. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.

To read more about the scope of a contractual waiver of consequential damages, see Schlam Stone & Dolan’s related Commercial Division Blog posts on a decision holding that a distributor’s lost resale profits were general damages and so fell outside a contractual bar on consequential damages, and a decision striking a landlord’s consequential damages demand under a mutual waiver in the lease while sustaining its breach of contract claim.