1. Whether a landlord's recovery is limited to out-of-pocket costs where a tenant's insurance policy fails to include coverage for the benefit of the landlord, but the landlord has obtained his own insurance.

2. Whether the common law collateral source rule applies to damages in contract cases.

1. Yes. The separate insurance obtained by a landlord limits his damages, the full amount of settlement and defense costs, to out-of-pocket costs.

2. No. The common law 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.

Plaintiff Inchaustegui, the tenant's employee, was injured on the premises and sued Defendant, the landlord, in tort for damages. Defendant impleaded Petrofin, the tenant, as a third-party defendant arguing that Petrofin breached the parties' agreement. The parties' agreement stated that Petrofin would obtain liability insurance and add the landlord as an additional insured.

The Supreme Court granted Defendant's summary judgment motion holding that Petrofin breached the agreement. However, the court limited Defendant's damages to the cost of "maintaining and securing" the insurance policy because Defendant had his own liability insurance. The Appellate Division majority modified Defendant's damages to include out-of-pocket costs. The dissent argued that the common law collateral source rule applied, meaning Defendant's insurance policy did not limit the recoverable damages.

The Court of Appeals granted leave to resolve the measure of damages disagreement. The Court affirmed stating that Defendant's recovery is limited to out-of-pocket costs. Generally, a landlord can recover the full amount of the tort liability and defense costs from the tenant, where the tenant fails to acquire the agreed upon insurance. However, in this case Defendant had their own liability insurance and sustained no loss beyond its out-of-pocket costs.

The Court also held that the common law collateral source rule, applied by the dissenters in the Appellate Division, does not apply in contract cases because the rule is a tort concept and thus punitive in nature. Contract law's main concern is placing a party in as good a position as that party would have been had the other party performed.