Summary Judgment Granted to Commercial Property Insurer on New York General Business Law § 349 Deceptive Acts and Practices Claim

COMMERCIAL PROPERTY – WATER DAMAGE – BROADENED WATER-DIRECT DAMAGE COVERAGE EXTENSION – ENGINEERING EXPERT – GENERAL BUSINESS LAW § 349 DECEPTIVE ACTS AND PRACTICES CLAIM
JD&K Assocs. LLC v. Selective Ins. Group, Inc.
(4th Dept., decided 10/07/2016)

During last month's NYSBA Law School for Insurance Professionals' Interactive Presentation with an Expert Engineer: Homeowners Insurance topic I reminded those attending about the importance of vetting the insurer's expert.

In this case, Selective had been sued, in part, for its allegedly deceptive act and practice of commissioning and using in the making its coverage decisions "Investigative Engineering Analysis Report[s]" that had been prepared and signed by someone who was not an engineer.  The plaintiff insured alleged that this was a general practice of Selective that violated New York General Business Law § 349.  Why add a GBL § 349 claim to a breach of contract action?  To recover treble damages and one's attorneys' fees for prosecuting the action if successful.

In June 2014, the Appellate Division, Fourth Department, agreed with Selective that Supreme Court had erred in denying its motion for summary judgment dismissing plaintiff's bad faith, misrepresentation and fraud cause of action, but affirmed the lower court's denial of Selective's dispositive motion to dismiss the complaint's GBL § 349 deceptive acts and practices cause of action because discovery relating to that cause of action was not yet complete, holding:

The court also properly denied that part of defendants' motion seeking summary judgment dismissing the fourth cause of action, alleging deceptive acts and practices under General Business Law § 349.  Plaintiff alleged that the Vallas employee who investigated the loss and prepared the Vallas Report was not an engineer, and that defendants misrepresented his credentials to plaintiff. Plaintiff further alleges that defendants' conduct was deceptive and part of a pattern of conduct that was not unique to plaintiff, but was directed at their policyholders generally. Certain discovery relevant to the General Business Law § 349 cause of action remains outstanding, and thus the court properly concluded that summary judgment with respect to that cause of action would be premature (see Skibinsky v State Farm Fire & Cas. Co., 6 AD3d 975, 976 [2004]; see generally Colombini v Westchester County Healthcare Corp., 24 AD3d 712, 715 [2005]). Inasmuch as punitive damages may be available under General Business Law § 349 (see Ural v Encompass Ins. Co. of Am., 97 AD3d 562, 565 [2012]; Wilner v Allstate Ins. Co., 71 AD3d 155, 167 [2010]), the court properly concluded that dismissal of plaintiff's claim for punitive damages would also be premature.

After discovery was complete, Selective again moved for summary judgment on the GBL § 349 cause of action, and Supreme Court again denied that motion, instead granting plaintiff's cross motion to amend that cause of action.  Selective appealed and the Fourth Department unanimously REVERSED Supreme Court's order, finding that Selective had established as a matter of law that its conduct in this case was not consumer-oriented (the first of the three required elements of a GBL § 349 claim) and that, in any event, plaintiff was not injured as a result of the allegedly deceptive act or practice (the third of the three required prima facie elements).  The Fourth Department explained: 

We agree with defendants that they met their initial burden of establishing as a matter of law that their conduct was not consumer-oriented. It is well settled that, although the conduct need not be repetitive or recurring to qualify as consumer-oriented, a plaintiff "must demonstrate that the acts or practices have a broader impact on consumers at large" and, thus, "[p]rivate contract disputes, unique to the parties, . . . [do] not fall within the ambit of the statute" (Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20, 25; see New York Univ. v Continental Ins. Co., 87 NY2d 308, 321). Defendants established that the conflict here stems from "a private' contract dispute over policy coverage and the processing of a claim which is unique to these parties, not conduct which affects the consuming public at large" (New York Univ., 87 NY2d at 321). Indeed, the record establishes that defendants' decision to disclaim coverage was based on the particular facts concerning the nature of plaintiff's property damage and the language in the policy (see Security Mut. Life Ins. Co. of N.Y. v DiPasquale, 283 AD2d 182, 182, lv dismissed 97 NY2d 653, 700), and that the alleged deceptive practice here, i.e., defendants' use of the report from a non-engineer in disclaiming coverage, had the potential to affect only a single commercial property loss claim between plaintiff and defendants (see Canario v Gunn, 300 AD2d 332, 333). Contrary to plaintiff's contention, the information concerning defendants' prior use of Vallas' investigative services contained in the affidavit of defendants' in-house complex claims counsel, which was based upon his personal knowledge, established that defendants had not implemented any type of practice of hiring an unqualified site investigator and then misrepresenting his or her qualifications to render an investigative report as a method of deceiving unsuspecting policyholders and improperly disclaiming coverage. We further conclude that the fact that defendants may have disclaimed coverage based in part on reports drafted by Vallas in a few commercial property cases closed within the last 15 years is insufficient to raise a material issue of fact whether the allegedly deceptive practice was standard or routine such that it potentially affected similarly situated consumers (cf. Oswego Laborers' Local 214 Pension Fund, 85 NY2d at 26-27; North State Autobahn, Inc. v Progressive Ins. Group Co., 102 AD3d 5, 14), or whether the alleged conduct had a broad impact on consumers at large as contemplated by the statute (see Anesthesia Assoc. of Mount Kisco, LLP v Northern Westchester Hosp. Ctr., 59 AD3d 473, 479-480). Furthermore, we reject plaintiff's contention that the court properly determined that the investigator's deposition testimony indicating that he prepared a significant number of engineering analysis reports for defendants in the past raises a material issue of fact whether the allegedly deceptive conduct impacted consumers at large. The underlying inference supporting that determination is that, if the investigator had prepared other reports for defendants, then defendants must have also misrepresented the investigator as an engineer to other policyholders, and such an inference is purely speculative and unsupported by the evidence in the record (see generally Edelman v O'Toole-Ewald Art Assoc., Inc., 28 AD3d 250, 251, lv denied 7 NY3d 706; Drepaul v Allstate Ins. Co., 299 AD2d 391, 392-393; Teller v Bill Hayes, Ltd., 213 AD2d 141, 149, lv dismissed in part and denied in part 87 NY2d 937). 

Even assuming, arguendo, that there is an issue of fact whether defendants' conduct was materially misleading, we nonetheless further agree with defendants that the record establishes that plaintiff was not injured as a result of the allegedly deceptive act or practice. "[W]hile the statute does not require proof of justifiable reliance, a plaintiff seeking compensatory damages must show that the defendant engaged in a material deceptive act or practice that caused actual, although not necessarily pecuniary, harm" (Oswego Laborers' Local 214 Pension Fund, 85 NY2d at 26; see generally Small v Lorillard Tobacco Co., 94 NY2d 43, 55-56). Here, the submissions establish as a matter of law that the alleged misrepresentation of the investigator's credentials, and/or any reliance on the conclusions set forth in the report, did not cause actual harm to plaintiff. With respect to the claimed injury arising from the disclaimer of coverage, the record establishes that defendants' decision was based upon the factual observations contained in the report, i.e., that the depressions in the concrete slab were caused by settling of the fill with water discharge from a drain pipe as a contributing factor, coupled with defendants' interpretation of the policy exclusions as applied to those facts. The disclaimer was wholly unrelated to any misrepresentation made by defendants to plaintiff regarding the investigator's credentials. That conclusion is further supported by the fact that defendants erroneously continued to disclaim coverage even after the policy extension applicable to certain water damage was brought to their attention (see JD&K Assoc., LLC, 118 AD3d at 1402-1403). To the extent that plaintiff contends that it suffered actual harm because it was compelled to retain a professional engineer to investigate the cause of the property damage, that decision resulted from defendants' adherence to the disclaimer given its interpretation of the policy despite the investigator's factual observations that supported coverage under the applicable policy extension (see id.). We note that the factual findings in the report are not challenged by plaintiff and are essentially indistinguishable from the findings made by plaintiff's professional engineer. We thus conclude that plaintiff's alleged injuries were caused by a disclaimer made on the basis of the undisputed factual circumstances of the property damage and defendants' adherence to its erroneous interpretation of the policy language, and did not result from any misrepresentation to plaintiff about the investigator's credentials (see Amalfitano v NBTY, Inc., 128 AD3d 743, 746, lv denied 26 NY3d 913).

Important case.  Be sure to read it through if your job includes the oversight or direct handling of litigated first-party property coverage disputes.