Unfair Business Practices Allegation May Be Maintained Where An Insurer’s Conduct Is Deceptive Or Misleading And Has A Broad Impact On Consumers At Large
April, 2010
New York General Business Law § 349 prohibits deceptive and misleading business practices. General Business Law § 349 on its face applies to virtually all economic activity, and its application has been correspondingly broad. The reach of this statute provides needed authority to cope with the numerous, ever-changing types of false and deceptive business practices which plague consumers in New York. When a plaintiff-insured brings a lawsuit against its Insurer for breach of contract, it typically asserts a § 349 cause of action. Such claims have proven difficult to maintain. However, in Wilner v. Allstate Insurance Company, 2010 NY Slip Op 248; 893 N.Y.S.2d 208 (N.Y. App. Div., 2010), New York’s Appellate Division stated that when an insurer’s alleged wrongful conduct has a broad impact on consumers at large, the allegations are sufficient to state a claim under § 349.
In Wilner, Plaintiffs commenced an action alleging that they bought a home owner's insurance policy from Defendant to insure their real property. Id. at 211. The policy was to be effective from April 19, 2005, through April 19, 2006. Id. On or about October 8, 2005, a storm allegedly caused a hillside on Plaintiffs' property to collapse, destroying their retaining wall, knocking down several trees, and causing other damage. Id.
In one of its three alleged causes of action, Plaintiffs claimed that Defendant violated General Business Law § 349. Id. Specifically, Plaintiffs alleged that a provision of their Allstate Deluxe Plus Homeowners Policy required them to protect the insurer/defendant's subrogation interest by instituting an action against a potentially liable third-party before the statute of limitations expired. Id. The provision allegedly requiring the insured to protect the insurer/defendant's subrogation rights provided, in pertinent part:
When we pay for any loss, an insured person's right to recover from anyone else becomes ours up to the amount we have paid. An insured person must protect these rights and help us enforce them. You may waive your rights to recover against another person for loss involving the property covered by this policy. This waiver must be in writing prior to the date of loss. Id.
According to Plaintiffs, Defendant purposely refused to reach a timely decision on coverage, thereby compelling Plaintiffs to comply with that provision and sue the third-party tortfeasor at their own expense. Id. Plaintiffs alleged that Defendant's actions were part of a pattern and practice to force claimants to litigate their claims. Id. at 217. Plaintiffs alleged that this practice forced policyholders of Allstate Deluxe Plus Homeowners Policies to incur the costs and expenses of hiring an attorney in order to prevent forfeiture of coverage for a covered loss. Therefore, Plaintiffs alleged Allstate’s conduct caused injury and potential to harm the public at large because every Allstate Deluxe Plus Homeowners' Policy contains the provision requiring its insureds to protect Allstate's right to subrogate.
Plaintiffs sought actual damages, punitive damages and attorney's fees pursuant to General Business Law § 349. Id. New York case law regarding proving a cause of action to recover damages for a violation of General Business Law § 349 is fairly straightforward. Id. at 214; see also Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, 85 N.Y.2d 20, 25, 647 N.E.2d 741, 623 N.Y.S.2d 529 (1995). It should identify consumer-oriented misconduct which is deceptive and materially misleading to a reasonable consumer, and which causes actual damages. Wilner at 214. An intent to defraud and justifiable reliance by the plaintiff are not elements of the statutory claim. Id.; see also Small v Lorillard Tobacco Co., 94 N.Y.2d 43, 55, 720 N.E.2d 892, 698 N.Y.S.2d 615 (1999). However, proof that a materially deceptive act or practice caused actual harm is required to impose compensatory damages. Wilner at 214.
Based on the aforementioned requirements to maintain a § 349 cause of action, Defendant moved to dismiss Plaintiffs' § 349 cause of action, including its demand for punitive damages and attorney's fees. Id. at 211. Defendant argued that Plaintiffs failed to allege: consumer-oriented conduct, that any act by Defendant was deceptive or misleading in a material way, and that Plaintiffs were injured as a result of an allegedly deceptive act. Id. In addition, Defendant asserted that the insurance policy did not require an insured to file a lawsuit against anyone, and that no reasonable policy holder would conclude that it did. Id.
The Court found that, contrary to Defendant's contentions, Plaintiffs' allegations were sufficient to state a cause of action pursuant to General Business Law § 349. Id. at 218. It held that, among other things, the conduct complained of had a broad impact on consumers at large and was thus consumer-oriented for purposes of § 349. Id. at 215. Further, the language of the subrogation provision was ambiguous, in that it did not explain how the insureds were to protect the insurer's rights, and that the reasonableness of the insureds' belief as to their responsibilities under the policy was a fact question. Id. at 217. Thus, the Court held that the insureds/plaintiffs' allegations were sufficient to state a claim under § 349. Id. at 219.
Learning Point
Pursuant to New York General Business Law § 349, an insurer can be held liable for damages caused by its “unfair business practices” if it engages in conduct that is: (1) deceptive or misleading in a material way; (2) has a broad impact on consumers at large; and (3) causes actual damages.
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