425 Broadhollow Road
Suite 416
Melville, NY 11747

631.282.8985
Freiberger Haber LLP
420 Lexington Avenue
Suite 300
New York, NY 10170

212.209.1005

Court of Appeals Resolves Split Among the Appellate Divisions Concerning the Availability of Punitive Damages Under General Business Law § 349

Print Article
  • Posted on: Jan 15 2025

By: Jeffrey M. Haber

In Hobish v. AXA Equit. Life Ins. Co., 2025 N.Y. Slip Op. 00183 (Jan. 14, 2025) (here), the New York Court of Appeals addressed the question of whether punitive damages can be awarded to a successful party under General Business Law (“GBL”) § 349. Answering the question in the negative, the Court, in an opinion written by Judge Shirley Troutman, resolved a split among the appellate divisions.

GBL § 349 applies to virtually all economic activity, and its “application has been correspondingly broad.”[1] Initially, Section 349 allowed for enforcement solely by the Attorney General, with restitution and injunctive relief the only available remedies.[2] In 1980, the legislature added a private right to the act “[t]o ensure the broadest enforcement of the statute.”[3] In do so, the legislature also added a provision (GBL § 349(h)) that gives the court discretion to “increase the award of damages to an amount not to exceed three times the actual damages up to one thousand dollars, if the court finds the defendant willfully or knowingly violated this section” and “award reasonable attorney’s fees to a prevailing plaintiff.”[4]

To state a claim under GBL § 349, “a plaintiff must allege that a defendant has engaged in (1) consumer-oriented conduct, that is (2) materially misleading, and that (3) the plaintiff suffered injury as a result of the allegedly deceptive act or practice.[5] A claim under GBL § 349 does not lie when the plaintiff alleges only “a private contract dispute over policy coverage and the processing of a claim which is unique to the[] parties, not conduct which affects the consuming public at large.”[6] Thus, a plaintiff claiming the benefit of Section 349 “must charge conduct of the defendant that is consumer-oriented” or, stated differently, “demonstrate that the acts or practices have a broader impact on consumers at large.”[7]

Notably, the deceptive practice does not have to rise to “the level of common-law fraud to be actionable under section 349.”[8] In fact, “[a]lthough General Business Law § 349 claims have been aptly characterized as similar to fraud claims, they are critically different.”[9] For example, while reliance is an element of a fraud claim, it is not an element of a GBL § 349 claim.[10]

Nevertheless, a plaintiff must allege the existence of a materially misleading act or advertisement to state a cause of action under GBL § 349.[11] The test for both a deceptive act or deceptive advertisement is whether the act or advertisement is “likely to mislead a reasonable consumer acting reasonably under the circumstances.”[12] Whether a particular act or advertisement is materially misleading may be made by a reviewing court as a matter of law.[13]

In addition, a plaintiff must prove “actual” injury to recover under the statutes, though not necessarily pecuniary harm.[14] And, the plaintiff must prove the deceptive act caused the injury.[15]

While the statute covers deceptive and fraudulent acts,[16] as discussed herein, claims under GBL § 349 are nevertheless “creature[s] of statute based on broad consumer-protection concerns.”[17] Accordingly, in determining whether punitive damages are available to a private plaintiff bringing a General Business Law § 349 claim, the Court “look[s] to the statute—not to whether the nature of the wrong alleged would permit recovery under traditional concepts of punitive damages in tort law.”[18]

As noted, there is a split among the appellate divisions regarding the availability of punitive damages under GBL § 349. The First Department has concluded that a court cannot award damages beyond the “limited punitive damages” set forth in GBL § 349.[19] The Second Department has taken the opposite view, allowing a claim for punitive damages to proceed without reference to the statutory cap in GBL § 349.[20]The Fourth Department has taken internally divergent positions on the question.[21] Federal courts applying New York have also taken divergent positions.[22]

In Hobish, the Court resolved the split of authority, holding that “punitive damages for section 349 (h) claims are limited to the treble damages provided by the statute.”[23]

Hobish v. AXA Equitable Life Insurance Company

Hobish involved a claim for breach of contract and a claim for violation of GBL § 349 against defendant AXA Equitable Life Insurance Company in connection with the purchase of a universal life insurance policy in 2007 and defendant’s decision to increase the effective cost of that policy in 2015.

In early 2007, the Hobish Irrevocable Trust purchased an Athena Universal Life Insurance II (AULII) life insurance policy from defendant to insure Toby Hobish, then 82 years old. The policy provided for a $2 million death benefit if the policy remained in effect at the time of Ms. Hobish’’s death.

Upon purchase of such a policy, an AULII policyholder opened a “Policy Account” with defendant and could make flexible premium payments into the account at their discretion. Defendant deducted a monthly charge, known as a “COI charge” (cost of insurance), from the account. The account accrued interest, and the COI charge applicable to the account would increase as the balance decreased, creating incentives for the policyholder to make premium payments in sums higher than the minimum necessary to pay the COI charge on a month-to-month basis. While the policy imposed no mandatory scheduled premium payment, the account would enter a grace period before ultimately lapsing if the account balance became insufficient to meet the monthly COI charge. At that point, the policyholder would become ineligible to receive the death benefit upon the insured’s death.

The policy did not allow the Trust to withdraw money deposited into the Policy Account at will. Rather, upon Ms. Hobish’s death, any money remaining in the Policy Account would revert to defendant. While defendant also sold AULII policies pursuant to which any money remaining in the account would revert to the policyholder upon death but imposed a higher monthly COI charge, the Trust chose the option with a lower COI charge. During the insured’s lifetime, the policyholder could surrender the Policy Account, at which point defendant would return the account balance to the policyholder, less a surrender fee, and terminate the policy.

The monthly COI charges were determined by a formula known as the “COI Rate Scale.” The rate scale in effect when the Trust purchased the policy in 2007 had been set by defendant in 2004. The terms of the policy expressly provided that defendant maintained the right to alter the COI Rate Scale and increase COI charges, but provided that any such increase must be “equitable to all policyholders of a given class.” The policy also included a cap on monthly COI charges, which was linked to the insured’s age.

In late 2015, defendant announced plans to change the COI Rate Scale that would apply to two groups of policies: those with death benefits above $1 million where the insured was 70-79 years old at the time of inception, and those above the same death benefit threshold where the insured was 80 or older at the time of inception. Defendant alleged that under the new scale, the COI charges applicable to the Trust’s Policy Account would increase from approximately $7,000 to approximately $10,500 per month. Plaintiffs claimed that this change would result in a drastic increase in the annual premium payments necessary to keep the policy in force. Plaintiffs did not contend, however, that the new COI Rate Scale exceeded the policy’s cap on monthly charges.

Defendant began applying the new COI Rate Scale to the Trust’s account in March 2016. After COI charges were imposed for four successive months, the Trust elected to surrender the policy “under protest.” Pursuant to the terms of the policy, $412,688.01 was returned to the Trust, representing the remaining account balance less a $35,586.49 surrender fee.

In 2017, plaintiffs commenced the action, alleging that defendant had breached the contract and violated GBL § 349. In connection with the GBL § 349 claim, plaintiffs alleged that defendant had specifically marketed and sold AULII policies to elderly consumers with a representation that the likelihood of a COI Rate Scale change was minimal, all the while intending to raise COI charges in the future. Plaintiffs sought actual damages, attorney’s fees, and punitive damages on their section 349 claim.

Supreme Court denied each party’s motions for summary judgment on liability. On the GBL § 349 claim, the court held that plaintiffs had sufficiently alleged they were affected by a deceptive business practice.

Supreme Court rejected various damages theories that plaintiffs had asserted as to both causes of action. Relevant to this article, the court rejected plaintiffs’ claim for actual damages (i.e., the full value of the policy’s $2 million death benefit, minus the surrender value) under GBL § 349. Plaintiffs also sought approximately $250,000 in restitutionary damages under section 349, which Supreme Court found was a speculative calculation as to what would have been left on the Policy Account upon Ms. Hobish’s hypothetical death and was thus unavailable to plaintiffs. Finally, Supreme Court held that plaintiffs’ allegations were insufficient as a matter of law to establish the availability of punitive damages for either claim, noting that plaintiffs had not pointed to any evidence of AXA’s scienter or evidence of actions intended to defeat the contract.

Plaintiffs appealed, and the Appellate Division affirmed. With respect to punitive damages under GBL § 349(h), the court held that the statute only allowed for “limited punitive damages” of three times actual damages. The Appellate Division granted leave to appeal, and the Court of Appeals affirmed.

Looking at the text of GBL § 349(h), the Court noted that the provision provided for layered damages, but not punitive damages:

The statute provides for layered damages: actual damages, or fifty dollars, whichever is greater; discretionary treble damages up to a cap of $1,000; and attorney’s fees (see General Business Law § 349 [h]). There is no reference to “punitive damages” in the statute, although treble damages are viewed as having some punitive effect.[24]

The foregoing damages scheme, said the Court, reflected a legislative process by which a private right of action was added to complement the Attorney General’s enforcement power, but which limited the range of available damages to private litigants.[25] “In the 44 years since the private right of action was added to the statute,” noted the Court, “the legislature ha[d] not altered that balance, leaving the provisions in section 349 (h), including the monetary caps, unchanged.”[26]

The Court observed that although the legislature has adopted new provisions and updated the penalties under the statute, the legislature did not increase or adjust the “remedies available under section 349 (h), despite numerous proposals to do so.”[27]

Having concluded that “the legislature carefully calibrated damages at the time section 349 (h) was enacted,” the Court “decline[d] to alter that balance by making available a remedy that goes far beyond what the legislature contemplated.”[28] Therefore, the Court concluded that “punitive damages in addition to the treble damages delineated in section 349 (h) are unavailable.”[29]

Judge Caitlin J. Halligan wrote a concurring opinion based only on the result. Judge Halligan took issue with the “majority’s insistence on deciding an important question of statutory interpretation,” especially since “neither side offer[ed] more than a glancing analysis of th[e] question.”[30] Though agreeing with the majority in the result, Judge Halligan would have decided the issue on the grounds that “plaintiffs simply [had] not raised a triable issue of fact as to the type of egregious, deliberate conduct that ha[d] long been the hallmark of punitive damages.”[31] As such, Judge Halligan concluded that the ruling should have “foreclose[d the issue of] punitive damages, period—whether for plaintiff’s breach of contract claim, section 349 claim, or any other claim that might give rise to such damages.”[32]

_______________________________

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.


[1] Karlin v. IVF Am., 93 NY2d 282, 290 (1999).

[2]  L. 1970, ch. 43, § 2.

[3] Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP v. Matthew Bender & Co., Inc., 37 N.Y.3d 169, 176 (2021).

[4] L. 1980, ch. 346, § 1.

[5] Koch v. Acker, Merrall & Condit Co., 18 N.Y.3d 940, 941 (2012); Goshen v. Mutual Life Ins. Co. of N.Y., 98 N.Y.2d 314, 324 n.1 (2002).

[6] New York Univ. v Continental Ins. Co., 87 N.Y.2d 308, 321 (1995) (internal quotation marks omitted).

[7] Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 25 (1995).

[8] Boule v. Hutton, 328 F.3d 84, 94 (2d Cir. 2003) (citing Gaidon v. Guardian Life Ins. Co., 94 N.Y.2d 330, 343 (1999)).

[9] Gaidon v. Guardian Life Ins. Co. of Am., 96 N.Y.2d 201, 209 (2001).

[10] Stutman v. Chemical Bank, 95 N.Y.2d 24, 29 (2000); Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 55-56 (1999).

[11] See Himmelstein, 37 N.Y.3d at 176; Andre Strishak & Assocs., P.C. v. Hewlett Packard Co., 300 A.D.2d 608, 609 (2d Dept. 2002).

[12]  Oswego, 85 N.Y.2d at 26. See also Andre Strishak, 300 A.D.2d at 609; Himmelstein, 37 N.Y.3d at 178.

[13] Id.

[14] Stuntman, 95 N.Y.2d at 29; Oswego, 85 N.Y.2d at 26.

[15] Id.; Oswego, 85 N.Y.2d at 26.

[16] Gaidon, 96 N.Y.2d at 209.

[17] Id. at 343; see also Matter of Motor Veh. Acc. Indem. Corp. v. Aetna Cas. & Sur. Co., 89 N.Y.2d 214, 220-221 (1996) (distinguishing between claims with a common-law source codified by statute and claims that “would not exist but for the statute”); Oswego, 85 N.Y.2d at 24-25.

[18] Thoreson v Penthouse Intl., 80 N.Y.2d 490, 496 (1992).

[19] Hobish v. AXA Equit. Life Ins. Co., 225 A.D. 3d 487 (1st Dept. 2024).

[20] Wilner v. Allstate Ins. Co., 71 A.D.3d 155 (2d Dept. 2010).

[21] Compare Bristol Harbour Assoc. v. Home Ins. Co., 244 A.D.2d 885, 885-886 (4th Dept. 1997), with JD & K Assoc., LLC v. Selective Ins. Grp., Inc., 118 A.D.3d 1402, 1403-1404 (4th Dept. 2014).

[22] Compare Guzman v. Mel S. Harris & Assocs., LLC, 2018 WL 1665252, at *13, 2018 US Dist LEXIS 49622, at *31 (S.D.N.Y. Mar. 22, 2018) (“Plaintiff’s punitive damages on [his General Business Law § 349] claim are limited to $1,000”), and Bristol Vil., Inc. v. Louisiana-Pacific Corp., 916 F. Supp. 2d 357, 370 (W.D.N.Y. 2013), with Koch v. Greenberg, 14 F. Supp. 3d 247, 278-279 (S.D.N.Y. 2014) (“[I]t is clear that in New York the GBL’s treble damages provision does not proscribe an additional award of punitive damages”) (citation omitted).

[23] Slip Op. at *3.

[24] Id. at *4 (citations omitted).

[25] Id.

[26] Id. at *4-*5.

[27] Id. Among other things, the proposed amendments would have “specifically allowed for punitive damages, proposing that ‘[t]he court may … award punitive damages in an amount not to exceed three times the actual damages.” Id. at *5.

[28] Id.

[29] Id.

[30] Id. at *5.

[31] Id. at *6.

[32] Id.

legal500
bnechmark
superlawyers
AVVO
Freiberger Haber LLP
Copyright ©2022 Freiberger Haber LLP | Disclaimer
Attorney advertisement | Prior results do not guarantee a similar outcome.
425 Broadhollow Road, Suite 416, Melville, NY 11747 | (631) 574-4454
420 Lexington Avenue, Suite 300, New York, NY 10017 | (212) 209-1005
Attorney Website by Omnizant