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Posted: January 15, 2018

New York Insurance Law Does Not Preempt Claim Against Insurer for “Deceptive Practices” under Section 349 of the General Business Law

On November 8, 2017, the Second Circuit issued a decision in Nick’s Garage, Inc. v. Progressive Casualty Ins. Co., Case No. 15-1426-cv, holding that Section 2601(a) of the New York Insurance Law, which prohibits insurers from “engag[ing] in unfair claim settlement practices,” but provides no private right of action, does not preempt a claim against an insurer for “deceptive acts or practices” under Section 349 of the General Business Law.

In Nick’s Garage, a car repair shop (the “Garage”) brought suit against an automobile insurer as assignee of certain claims for repairs to damaged vehicles that the insureds brought to the Garage to be fixed. Among other things, the Garage alleged that the insurer engaged in “deceptive acts in handling the claims”, including by “falsely representing . . . that it was willing to pay prevailing competitive labor rates” for the repairs.

Unlike many other states, New York does not recognize a tort claim for bad faith claims handling. Section 2601 of the Insurance Law expressly forbids certain specified “unfair claim settlement practices,” including “knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverages at issue”, which would seem to cover the Garage’s theory in this case. However, the Court of Appeals has held that there is no private cause of action for violations of this statute. See Rocanova v. Equitable Life Assurance Soc’y of the U.S., 83 N.Y.2d 603, 614 (1994).

The plaintiff in Nick’s Garage found another way to bring the claim, alleging that the insurer’s misrepresentations about “prevailing wages” were “deceptive acts” prohibited by GBL § 349, a consumer protection statute that allows a prevailing plaintiff to recover treble damages and attorneys’ fees. The insurance company argued that this claim was an improper attempt to work an end-run around Section 2601, which prohibits the same conduct, but does not provide for a private right of action. The district court agreed and dismissed the claim on preemption grounds.

However, the Second Circuit reversed, explaining:

In [Riordan v. Nationwide Mut. Fire Ins. Co., 977 F.2d 47, 51 (2d Cir. 1992)], an insurer argued to us that § 2601, forming part of a “pervasive statutory scheme regulating unfair and deceptive acts and practice by insurance companies,” precludes a private claim against insurance companies under GBL § 349. We rejected the argument, observing that it “ignores the plain language of GBL § 349(g), which states that ‘[t]his section shall apply to all deceptive acts or practices declared to be unlawful, whether or not subject to any other law of this state.'” Id. at 52. The New York courts agree. See New York Univ. v. Cont’l Ins. Co., 87 N.Y.2d 308, 321 (1995) (“[R]elief under [GBL § 349] is not necessarily foreclosed by the fact that the transaction involved an insurance policy . . . .” (citing Riordan)); see also Joannou v. Blue Ridge Ins. Co., 289 A.D.2d 531, 532 (2d Dep’t 2001) (“An insurance carrier’s failure to pay benefits allegedly due its insured under the terms of a standard insurance policy can constitute a violation of General Business Law § 349.”).

In this case, GBL § 349 proved to be an effective vehicle for asserting a tort claim against an insurance carrier. But this statute has its own limitations. A GBL claim must be based on “conduct that is consumer oriented,” and “[p]rivate contract disputes unique to the parties . . . would not fall within the ambit of the statute.” New York University v. Continental Ins. Co., 87 N.Y.2d 308, 320 (1995) (citations omitted). Thus, a GBL § 349 claim will only work if the insured has evidence of conduct by the insurer directed to consumers generally.

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