New York Court of Appeals Reaffirms that Claims Under GBL 349 and 350 Must Have A Broader Impact On Consumers At LargePrint Article
- Posted on: Mar 25 2020
On March 24, 2020, the New York Court of Appeals decided Plavin v. Group Health Inc., 2020 N.Y. Slip Op. 02025 (Mar. 24, 2020) (here), a case in which the Court was asked by the United States Court of Appeals for the Third Circuit to decide whether an insurance company’s alleged misstatements and omissions about its insurance plan, made to over 600,000 current and former New York City employees and retirees, sufficed to satisfy the consumer-oriented element of a claim under General Business Law §§ 349 and 350. As discussed below, the Court found that the claim did not involve a contract dispute between the parties over policy coverage; instead, the claim concerned consumer-oriented conduct. Consequently, the Court answered the certified questions in the affirmative.
A Primer on General Business Law §§ 349 and 350
In 1970, the New York Legislature enacted General Business Law § 349, which made unlawful any “[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state.” GBL § 349 (a). Seven years earlier, the New York Legislature enacted GBL § 350, which made unlawful “[f]alse advertising in the conduct of any business, trade or commerce or in the furnishing of any service in this state.” These consumer protection statutes were enacted to “strik[e] down all forms of deceptive acts and practices.” Slip Op. at *6 (internal quotation marks and citations omitted).
Initially, only the Attorney General could sue to enforce these laws. However, the Legislature subsequently amended both Section 349 and Section 350 to add a private right of action for “any person who has been injured by reason of any violation of th[ese] section[s],” allowing injunctive relief and damages, as well as reasonable attorney’s fees. GBL § 349(h) and GBL § 350-e(3).
To state a claim under GBL §§ 349 and 350, “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. Koch v. Acker, Merrall & Condit Co., 18 N.Y.3d 940, 941 (2012); see Goshen v. Mutual Life Ins. Co. of N.Y., 98 N.Y.2d 314, 324 n.1 (2002). A claim under these statutes 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.” New York Univ. v Continental Ins. Co., 87 N.Y.2d 308, 321 (1995) (internal quotation marks omitted). Thus, a plaintiff claiming the benefit of either Section 349 or Section 350 “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.” Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 25 (1995).
Notably, the deceptive practice does not have to rise to “the level of common-law fraud to be actionable under section 349.” 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)). In fact, “[a]lthough General Business Law § 349 claims have been aptly characterized as similar to fraud claims, they are critically different.” Gaidon, 94 N.Y.2d at 343. For example, while reliance is an element of a fraud claim, it is not an element of a GBL § 349 claim. Stutman v. Chemical Bank, 95 N.Y.2d 24, 29 (2000); Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 55-56 (1999).
In addition, a plaintiff must prove “actual” injury to recover under the statutes, though not necessarily pecuniary harm. Stuntman, 95 N.Y.2d at 29; Oswego, 85 N.Y.2d at 26. And, the plaintiff must prove the deceptive act caused the injury. Id.; Oswego, 85 N.Y.2d at 26.
Plavin v. Group Health Inc.
Plaintiff is a retired New York City police officer, who received health insurance coverage through the health care plan of defendant Group Health Incorporated (“GHI”). GHI offered City employees a “Comprehensive Benefits Plan,” which provided in-network coverage and partial reimbursement for out-of-network services (the “GHI Plan” or “Plan”).
Plaintiff alleged that the GHI Plan was among 11 plans the City offered to approximately 600,000 employees and retirees on an annual or biannual basis. The terms of these plans were negotiated between the City, the insurance vendors, and the New York City Municipal Labor Committee, which was comprised of various employee unions.
Prior to an open enrollment period, the New York City Office of Labor Relations, on behalf of the City, assembled and distributed to employees and retirees a summary program description, which contained health plan descriptions prepared by each insurer. Plaintiff alleged that this document was the only one distributed to City employees and retirees regarding the GHI Plan before they were required to select a plan. In addition, GHI created its own online summary of benefits and coverage, which was available on its website. If an employee or retiree selected the GHI Plan, the City sponsored and paid the entire cost of the premiums therefor.
Plaintiff alleged that the summary program description and online summary (collectively, the “summary materials”) represented the GHI Plan as furnishing its members with extensive out-of-network coverage subject to deductibles and coinsurance, and “the freedom to choose any provider worldwide.” Further, the summary materials stated that the GHI Plan contained “additional Catastrophic Coverage” for “100% of the Catastrophic Allowed Charge as determined by GHI” if a member’s out-of-network expenses for predominantly in-hospital care exceeded $1,500, and also represented that the Plan offered its members an optional rider, at an additional cost, that would provide enhanced coverage for certain services, increasing out-of-network reimbursements “on average, by 75%.”
Plaintiff further alleged that, beginning in 1984, he annually selected the GHI Plan and optional rider as his family’s health insurance plan. From 2014 through 2015, plaintiff’s wife received numerous medical services, which GHI determined were out-of-network. As a result, contrary to plaintiff’s expectations based on the summary materials provided or available to him, GHI covered only a modicum of the medical claims, leaving plaintiff responsible for payment of the balance.
The Federal Court Proceedings
Plaintiff commenced the action in the United States District Court for the Middle District of Pennsylvania claiming, among other things, violations of GBL §§ 349 and 350 based on GHI’s allegedly misleading representations to City employees and retirees about the terms of its Plan. Plaintiff alleged that GHI made misleading statements and omissions in its summary materials regarding the Plan’s out-of-network reimbursement rates, how often the reimbursement rate schedule was updated, the catastrophic coverage reimbursement rate, and the breadth of coverage of the optional rider – in order to induce plaintiff, and others similarly situated, to select the GHI Plan.
GHI moved to dismiss the complaint for failure to state a claim. The District Court concluded that plaintiff did not adequately allege that, among other things, GHI’s conduct was consumer oriented. See 323 F. Supp. 3d 684, 695-698 (M.D. Pa. 2018).
Initially, the court rejected plaintiff’s argument that GHI’s alleged misconduct was consumer-oriented simply because it affected numerous City employees and retirees, reasoning that “the fact that a large class of members is affected [did] not automatically transform the plan into something that has a broader impact on consumers at large.” Id. at 696 (quoting Oswego, 85 N.Y.2d at 25 (internal quotations omitted)). The court opined that “the alleged deception [arose] out of a private contract negotiated between” GHI and the City – “two sophisticated institutions” (id.) – and, comparing the case to NYU, supra., concluded that plaintiff was “not a mere consumer of the public” because the City had contracted with GHI on behalf of its employees and, therefore, “[t]he contract was aimed to benefit only a circumscribed class of individuals.” Id. Thus, the court held that “[b]ecause there is no indication in the [c]omplaint that the plan would have been available to anyone who was not an employee of the City of New York, and because it is undisputed that [plaintiff’s] receipt of benefits from [GHI] arises from a contractual policy, [plaintiff’s General Business Law] claims fail to plead consumer-oriented conduct.” Id. at 698.
Plaintiff appealed. The Third Circuit determined that the dispositive issue was whether GHI had engaged in consumer-oriented conduct. Because, in its view, existing New York law did not clearly dictate the outcome of the issue, the Third Circuit certified the following questions:
Where a contract of insurance is negotiated by sophisticated parties such as the City of New York and an insurance company, and where hundreds of thousands of City employees and retirees are third-party beneficiaries of that contract, and where the insurance company’s policy created pursuant to the contract is one of several health insurance policies from which employees and retirees can select, has the insurance company engaged in consumer-oriented conduct under the GBL when:
(1) The insurance company drafts summary plan information that allegedly contains materially misleading misrepresentations and/or omissions about the coverage and benefits of the insurance policy and sends these summary materials to the City, and the City does not check or edit these materials before sending them on to the City employees and retirees; OR
(2) The insurance company directs City employees and retirees to information on the insurance company’s website that allegedly contains materially misleading misrepresentations and/or omissions about the coverage and benefits of the insurance policy?
The Court accepted the foregoing questions (33 N.Y.3d 998 (2019), and, as noted, answered them in the affirmative.
The Court’s Decision
The Court noted that although there was an underlying insurance contract negotiated by sophisticated entities neither plaintiff, nor any of the other hundreds of thousands of employees and retirees who participated in the GHI Plan, were participants in its negotiation. Slip Op. at *8. “[C]ritically,” said the Court, “that negotiation was followed by an open enrollment period, which exposed City employees and retirees to marketing resembling a traditional consumer sales environment.” Id. It was during the enrollment period that City employees and retirees were exposed to GHI’s alleged misstatements and omissions. Id. Thus, “it was the allegedly misleading summary materials” that plaintiff complained about, “not the contract between the City and GHI, which purportedly was never provided to City employees and retirees.” Id.
The Court explained that the conduct of which plaintiff complained was the type that the GBL was “intended to address.”
Plaintiff alleged that GHI created misleading benefit and coverage summaries, which it published on its website and caused to be distributed by the City to all similarly situated employees and retirees, and that this marketing was critical to GHI’s effort to induce City employees and retirees to select its Plan. Plaintiff asserted that GHI collected premiums only for its Plan, and it was, therefore, in GHI’s financial interest for individual City employees and retirees to choose its Plan over the other available options. Simply put, plaintiff alleged that GHI was incentivized by the competition created during the open enrollment period to leverage its information advantage in order to gain the business of the employees and retirees over other insurers. In that manner, the open enrollment period resembles the sort of sales marketplace – characterized by groups of similarly-situated consumers subjected to the competitive tactics of a relatively more powerful business – that GBL claims were intended to address.
To underscore the consumer-oriented nature of the complaint, the Court explained that plaintiff’s claims “arose from the allegedly deceptive marketing materials distributed to plaintiff and the other City employees in order to induce them to select the GHI Plan over the other options available to them, as well as to pay additional premiums for the allegedly worthless out-of-network rider.” Id. at *8-*9. Such information, disseminated to hundreds of thousands of City employees “in order to solicit their selection of its plan ‘is precisely the sort of consumer-oriented conduct that is targeted by General Business Law §§ 349 and 350.’” Id. at *9 (quoting Karlin, 93 N.Y.2d at 293). Thus, “[u]nder these circumstances, ‘plaintiff ha[s] satisfied the threshold test’ [GBL §§ 349 and 350] by alleging that [GHI’s] marketing actions ‘are consumer-oriented in the sense that they potentially affect similarly situated consumers.’” Id. (quoting Oswego, 85 NY2d at 26-27.
Finally, and perhaps most significantly, the Court explained that “the General Business Law provisions at issue do not impose a requirement that consumer-oriented conduct be directed to all members of the public.” Slip Op. at *9 (orig’l emphasis). Indeed, said the Court, “we have never implied that such a requirement exists.” Id. It is enough that the conduct reach consumers as whole.
GBL §§ 349 and 350 are broad in scope and prohibit deceptive and misleading business practices. To state a cognizable claim under Section 349 and Section 350, a plaintiff must identify consumer-oriented misconduct, which is deceptive and materially misleading to a reasonable consumer, and which causes actual damages. In many cases, the plaintiff fails to satisfy one or more of the elements of the claim because the conduct is not deceptive or not recurring. In Plavin, however, the claim at issue had all the attributes of a GBL §§ 349 and 350 cause of action: it had deceptive conduct, which was consumer oriented.Plavin is important because of its clarification about who must be the target of consumer-oriented conduct. In this regard, the Court made it clear that “the General Business Law provisions at issue do not impose a requirement that consumer-oriented conduct be directed to all members of the public.” Slip Op. at *9 (orig’l emphasis). It is sufficient for the conduct to be directed to some members of the public, or, as in Plavin, a discrete group of consumers (i.e., 600,000 employees and retirees of the City of New York). See Oswego, 85 N.Y.2d at 25 (the conduct must have an “impact on consumers at large.”).