The New York Court of Appeals answered the following two certified questions from the US Court of Appeals for the Third Circuit concerning General Business Law sec. 349 in Plavin v Group Health Inc.:
"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 benefits of the insurance policy?"
The Court answered both certified questions in the affirmative. The decision is helpful because the Court analyzes important General Business Law sec. 349 precedent -- e.g., Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, Gaidon v Guardian Life Ins. Co. of Am., and New York Univ. v Continental Ins. Co. (NYU). It is also helpful because the Court explains the boundaries of the first allegation a plaintiff must set forth to state a claim under GBL 349 -- i.e., a defendant has engaged in consumer-oriented conduct.
The plaintiff alleged that the defendant, a health insurance company, made materially misleading misrepresentations to City of New York employees and retirees about the terms of its insurance plan to induce them to select its plan over several other health insurance plans that were available to more than 600,000 current and former City employees. The alleged deception was targeted to a defined group of consumers -- the current and former City employees -- and was not consumer-oriented conduct to all members of the public. The Court concluded that the statute does not require deceptive conduct directed to all members of the public and noted that its precedent does not imply that such requirement exists.
The Court also discussed the difference between a private contract dispute and a dispute arising from a contract negotiated by sophisticated entities that impacts third-party beneficiaries. It recognized that neither the plaintiff nor the other hundreds of thousands of employees and retirees participated in the contract negotiations between the defendant and the City of New York. In concluding that the City employees and retirees were exposed to marketing resembling a traditional consumer sales environment GBL sec. 349 contemplates, the Court noted that the contract negotiation followed an open enrollment period that exposed the City employees and retirees to misleading information about insurance benefits and coverage summaries. The Court's conclusion places the conduct in a different category than single-shot transactions like, for example, insurance coverage disputes between insurer and insured (see New York Univ.).
The Court's decision in Plavin adds helpful guidance on allegations pursuant to GBL sec. 349, a statute that plaintiffs frequently try to expand and defendants frequently try to narrow in their respective lawsuits.
Finally, it is also nice to see a court other than the Second Circuit certify questions to the New York Court of Appeals.
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