Coverage Pointers - Volume I, No. 13
For those interested in following HOT CASES from other jurisdictions covering a broad range of legal issues, visit the HOT CASES section of the Federation of Insurance and Corporate Counsel website: www.thefederation.org.
12/20/99: GAIDON v. THE
GUARDIAN LIFE INS. CO. OF AMERICA
In this consolidated appeal involving two actions (Gaidon and Goshen), plaintiffs were policyholders who brought class actions against insurance companies in connection with "vanishing premium" whole and universal life insurance polices. Plaintiffs alleged in both cases that they purchased insurance policies based on the insurers’ false representations that out-of-pocket premium payments would vanish within a stated period of time when, in fact, premiums never vanished and payments beyond depicted vanishing dates were necessary to keep policies in force. Both actions alleged claims for fraudulent inducement and deceptive marketing and sales practices (General Business Law § 349).
On motions to dismiss (Gaidon action) and for summary judgment (Goshen action), the insurers argued that marketing illustrations depicting premium "vanishing dates" were not deceptive because the policies contained "merger clauses", which confine their representations to the four corners of the policies (the policies did not contain the marketing illustrations depicting "vanishing dates"). They also pointed to disclaimer language stating that illustrated dividend/interest rates were neither guarantees nor estimates of future results. Supreme Court dismissed both actions and the dismissals were affirmed on appeal.
The Court of Appeals reversed, in part, holding that both actions stated claims for deceptive business practices under General Business Law § 349. Distinguishing such claims from common law fraud, the Court held that GBL § 349 contemplates actionable conduct that does not necessarily rise to the level of fraud. Instead, the claims are predicated on consumer oriented deceptive acts or practices (defined as representations or omissions "likely to mislead a reasonable consumer acting reasonable under the circumstances"). Here, allegations that insurers lured them into purchasing policies by using illustrations that depicted unrealistic expectations about premium vanishing dates were sufficient to state claims under GBL § 349, despite policy merger clauses and disclaimers. The Court concluded, however, that neither action stated claims for fraud because the disclaimers, although insufficient to defeat claims for deceptive business practices, were sufficient to absolve the insurers of fraud.
12/22/99: MAHLER v. NEW
ENGLAND MUTUAL LIFE INS. CO.
The insured was issued a disability insurance policy that contained a two-year incontestability clause. The policy further provided that the two-year period would be tolled if the insured was under "the regular and personal care of a physician…for the condition causing the disability." The insured suffered from multiple sclerosis, the disability-causing condition, and there was some showing that the condition had manifested before the policy’s effective date. The insured made a claim for disability more than two years after the policy’s inception. The insurer attempted to rescind the policy or deny the claim by claiming that the two-year incontestability clause was tolled because the insured was treating for the condition. The insurer, however, failed to demonstrate this fact. While the insurer showed that the insured was treated for various conditions, it did not show that any treatment was for the multiple sclerosis – the disability causing condition.
12/21/99: SZABO v. XYZ
TWO WAY RADIO TAXI ASSOC., INC.
In this action for injuries sustained in an automobile accident, the plaintiff failed to establish that she sustained a "serious injury" within the meaning of Insurance Law § 5102(d). Plaintiff asserted that she suffered a "medically determined injury or impairment of a non-permanent nature which prevent[ed her] from performing substantially all of the material acts which constitute [her] usual and customary daily activities" for more than 90 days during the 180 days immediately following her accident. While plaintiff was absent from work on a full time basis for two weeks following the accident, she did return to work half days. In addition, claims that she was limited in her ability to do "detailed computer work" and to "hold things like she used to" did not meet the "substantially all" standard of § 5102(d), which requires a showing that plaintiff’s activities have been restricted "to a great extent rather than some slight curtailment." Further, the court concluded that plaintiff was not disabled for more than 90 days during the first 180 days, which is a necessary condition to the application of the statute.
12/20/99: MATTER OF
ALLSTATE INS. CO. v. MORRISON
Claimant was injured by a third-party tortfeasor while a passenger in his wife’s vehicle on August 27, 1991. After obtaining a default judgment against the tortfeasor, claimant demanded payment from the third-party’s carrier, who disclaimed coverage on the ground that no policy existed on the date of the accident. On July 2, 1998, claimant served the insurer of his wife’s vehicle with a demand for arbitration. In this proceeding to permanently stay arbitration of the uninsured motorist claim, the court held that a demand for arbitration is subject to the six-year statute of limitations, which runs from the date of the accident or from the time when subsequent events render the offending vehicle uninsured. In the absence of proof that a later accrual date applies, or that claimant exercised due diligence in ascertaining the insurance status of the offending vehicle, a permanent stay of arbitration was properly granted.
Mutual Insurance Company V. Vivas
Vivas was in a car accident and sued the owner of the car in which she was riding to recover for her injuries. She also filed a claim for supplementary uninsured/underinsured motorist (SUM) benefits under a policy issued by Nationwide. That policy required, as a condition of payment of SUM benefits, that "[i]f the insured . . . brings any lawsuit against any person or organization legally responsible for the use of a motor vehicle involved in the accident, a copy of the summons and complaint or other process served in connection with the lawsuit shall be forwarded immediately to us by the insured or the insured’s legal representative". Since Vivas did not comply with that provision, she breached the policy and lost her right to recover SUM benefits. The carrier’s application to stay arbitration of respondent’s claim for supplementary uninsured motorist benefits was properly granted. Vivas offered no excuse for her failure to comply with the notice provision and, absent a valid excuse, failure to satisfy the notice requirement vitiates the coverage. The insurer need not show prejudice before it can assert the defense of noncompliance.
INSURANCE COMPANY v. BARSKY
The insured was a passenger in a vehicle driven by Barsky and was injured in an auto accident while traveling through Pennsylvania. Both the insured and Barsky were New York residents and the vehicle had been rented from National Car Rental System, Inc., in New York City. The insurer commenced this action against Barsky and National to recover payments to its insured for basic economic loss and optional basic economic loss. National argued that recovery was precluded by Insurance Law § 5104(a), which bars recovery for basic economic loss when, in actions between "covered persons", the "personal injuries aris[e] out of negligence in the use or operation of a motor vehicle in this state". National contended the statute applied here because both the insured and Barsky were New York residents, the car was rented in New York, and the car and its occupants were returning to New York. The court rejected National’s argument, holding that the statute, which abrogates a common-law right, must be strictly construed, and so construed "does not purport to regulate actions for personal injury arising out of the negligent use or operation of a motor vehicle outside this state".
From time to time we highlight significant cases of interest from other jurisdictions. This week offer two decisions from Massachusetts.
12/22/99: ATLAS TACK CORPORATION
v. LIBERTY MUTUAL INS. CO.
The insured property owner’s general liability policy contained a "voluntary payment" clause, which provided that "[t]he insured shall not, except at his own cost, voluntarily make any payment, assume any obligation or incur any expense other than for such immediate medical and surgical relief to others as shall be imperative at the time of the accident." The insured property owner, under threat from federal and Commonwealth environmental agencies, agreed to a clean-up plan without notifying Liberty of the impending consent judgment or of the events preceding it, "much less" obtaining Liberty's approval. In terms of having committed itself before the insurer could assess the situation or attempt to negotiate the claims, the assumption of liability by Atlas Tack reached EPA’s and Commonwealth’s demands. Because Atlas Tack’s voluntary assumption of liability for site cleanup violated the "voluntary payment" clause of the insurance contract, Liberty was not bound to defend Atlas Tack against EPA’s and Commonwealth’s claims.
The plaintiff recovered a judgment in an underlying action after she had been assaulted and raped while staying at a motel. The plaintiff filed this action against the motel's liability carrier seeking to reach and apply its policy proceeds to satisfy the judgment against the motel. The plaintiff's motion for summary judgment was allowed as to the portion of her damages attributable to the rape, and the insurer appealed. It argued that there was no coverage for the damages attributable to the rape because of the unambiguous language of the policy's assault and battery exclusion, absolute liquor exclusion, or illegal acts exclusion. The court concluded that the illegal acts exclusion bars coverage of the plaintiff's damages for the rape and did not reach the other issues. The court rejected arguments that the exclusion should not apply because (a) the illegal acts weren't committed by the defendant; (b) the claim against the motel was for common law negligence; and, (c) an "illegal act" exclusion would make coverage illusory. The exclusion provided:
AND IN DEFENSE . . .
We periodically include selected New York cases bearing on the defense of tort actions. This week we offer a long-awaited decision from New York’s highest court on the application of tolling provisions during infancy.
12/20/99: HENRY v. CITY
OF NEW YORK
Plaintiff discovered in February 1993 that her three-year-old son had been exposed to lead paint and later received confirmation that her other minor son had also been exposed. Plaintiff hired an attorney and timely filed notices of claim, (as required by General Municipal Law § 50-e), alleging that her children had ingested lead paint chips while living in their City-owned apartment. This action was commenced against the City in January 1995, and the City moved to dismiss the action because it had not been commenced within the one year and ninety day limitations period set forth in General Municipal Law § 50-i. The City argued that CPLR § 208, which tolls statutes of limitations while persons are "under a disability because of infancy", did not apply because 1974 amendments to the statute eliminated use of age to define infancy and added instead the phrase "disability because of infancy". Since the minors’ mother and legal representative had pursued their claims by timely filing notices of claim, the City argued that the minors were not under a disability due to their age. In other words, the City argued that the disability ends once someone acts on the minor’s behalf. Supreme Court rejected this contention, but the Appellate Division reversed, holding that the minor plaintiffs no longer suffered a "disability because of infancy" because their mother and counsel protected their legal interests. The Court of Appeals disagreed, finding no indication that the Legislature intended the 1974 amendment to change application of the infancy toll. The Court held that CPLR § 208 tolls statutes of limitations for the period of infancy, and the toll is not terminated by the acts of a guardian or legal representative in taking steps to pursue the infant’s claim.
Ho! Ho! Ho!
THE SANTA SUIT
We knew you were curious, this being Christmas time, whether Santa has ever been involved in tort or coverage litigation in New York. Well, it shouldn’t come as a surprise that he has. In Crist v. Art Metal Works, 230 A.D. 114 (1st Dept. 1930), the defendant manufactured toy revolvers for use by children. Plaintiff, dressed in Santa Claus costume, was injured when flames when the revolver ignited the material used as Santa Claus' whiskers and the soft cotton forming part of the costume. The court said: "The manufacturer must be deemed to have known that children during the Christmas season, in portrayals of Santa Claus or at other times in the production of plays or pageants, or in attendance at gatherings, would probably be garbed in inflammable material and that to place a pistol of this character in the hands of a child might result in damage."
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Order and judgment (one paper), Supreme Court, New York County (Harold Tompkins, J.), entered on or about April 15, 1998, which granted the application of petitioner insurer Nationwide Mutual Insurance Company to permanently stay arbitration of respondent insured Vivas’s claim for supplementary uninsured motorist benefits, unanimously affirmed, without costs.
In the aftermath of an automobile accident in which she was allegedly injured, respondent Vivas commenced an action to recover for her injuries against the owner of the car in which she was riding at the time of the accident and the owner and driver of the other vehicle involved in the accident. Respondent, as an insured, also filed a claim for supplementary uninsured motorist benefits under a policy issued by petitioner insurer. The subject policy, however, required as a condition of payment of supplementary uninsured motorist benefits that "[i]f the insured . . . brings any lawsuit against any person or organization legally responsible for the use of a motor vehicle involved in the accident, a copy of the summons and complaint or other process served in connection with the lawsuit shall be forwarded immediately to us by the insured or the insured’s legal representative". As it is clear both that this proviso is devoid of ambiguity and that it was not complied with, petitioner insurer’s application to stay arbitration of respondent’s claim for supplementary uninsured motorist benefits was properly granted. Respondent has offered no excuse for her failure to comply with the notice provision and "[a]bsent a valid excuse, a failure to satisfy the notice requirement vitiates the policy [citations omitted], and the insurer need not show prejudice before it can assert the defense of noncompliance" Security Mut. Ins. Co. of New York v Acker-Fitzsimons Corp., 31 NY2d 436, 440). We have reviewed respondent’s remaining arguments and find them to be unavailing.
In an action by an insurer to recover payments made to its insured under a theory of subrogation, the defendants Helen Walker Barsky, as executor of the estate of David Barsky, and National Car Rental System, Inc., appeal, as limited by their brief, from stated portions of an order of the Supreme Court, Kings County (Huttner, J.), entered October 2, 1998, which , inter alia, granted that branch of the motion of the plaintiff Federal Insurance Company which was to strike the second affirmative defense of the defendant National Car Rental System, Inc., alleging that the complaint failed to state a cause of action.
ORDERED that the appeal by the defendant Helen Walker Barsky from so much of the order as granted that branch of the motion of the plaintiff Federal Insurance Company which was to strike the second affirmative defense of the defendant National Car Rental Systems, Inc., is dismissed, as the defendant Helen Walker Barsky is not aggrieved by that portion of the order (see, CPLR 5511); and it is further,
ORDERED that the order is affirmed insofar as reviewed; and it is further,
ORDERED that one bill of costs is awarded to the respondent.
Michael Orio, a New York resident, was a passenger in a car driven by the decedent, David Barsky, also a New York resident, and was injured in an automobile accident while traveling through Pennsylvania. The car driven by Barsky had been rented in New York City from the defendant National Car Rental System, Inc. (hereinafter National). The plaintiff Federal Insurance Company (hereinafter Federal), as the subrogee of Orio, commenced this action against the defendant Helen Walker Barsky, as executor of the estate of David Barsky, and National, to recover the money it paid to Orio under its policy. The only losses for which recovery is sought herein are for basic economic loss and optional basic economic loss.
National contends that Federal is not entitled to recover for basic economic loss and optional basic economic loss because Orio and Barsky were New York residents, the car was rented in New York, and the car and its occupants were returning to New York. That contention is without merit. Insurance Law § 5104(a) precludes recovery for, inter alia, basic economic loss when, in an action between "covered persons", the "personal injuries aris[e] out of negligence in the use or operation of a motor vehicle in this state" (emphasis added). The statute, on its face, applies only to actions to recover damages for personal injuries "arising out of negligence in the use or operation of a motor vehicle in this state" ( Morgan v Bisorni, 100 AD2d 956 [emphasis in original]). Since the statute abrogates a common-law right, it must be strictly construed, "and as so construed, the section does not purport to regulate actions for personal injury arising out of the negligent use or operation of a vehicle outside this state " (Morgan v Bisorni, supra, at 956; see also, Matter of McHenry v State Ins. Fund, 236 AD2d 89, 91; Sheldon v PHH Corp., US Dist Ct, SD NY, 96 Civ. 1666, affd 135 F3d 848).
BRACKEN, J.P., KRAUSMAN, McGINITY, and SCHMIDT, JJ., concur.
In both appeals before us, plaintiffs are policyholders who have brought actions against insurance companies in connection with "vanishing premium" life insurance policies. They allege, in essence, that they purchased their insurance policies based on defendants' false representations that out-of-pocket premium payments would vanish within a stated period of time. Plaintiffs have asserted several theories of liability, two of which merit our review. One is based on plaintiffs' claims that defendants violated General Business Law § 349 by engaging in deceptive marketing and sales practices; the other is based on common law fraud.
Facts and Procedural History
A. The Gaidon-Guardian Action
In the mid-1980s, plaintiff representatives of a purported class each purchased a life insurance policy from defendant Guardian Life Insurance Company of America.1 Each policy was a "Whole Life Policy With Specified Premium Period." The policies contained provisions setting forth the periods for which premiums were to be paid. These periods varied from policy to policy and ranged from ten years to life.
Plaintiffs allege that they bought their policies on the strength of false representations made to them by a Guardian sales agent. They assert that as part of the company's standard marketing presentation, the agent prepared a personalized "vanishing premium" illustration for each plaintiff. Using this device, the agent allegedly represented to each plaintiff that he or she would have to pay annual premiums out-of-pocket for only the first eight years of the policy, assuring each of them that the policy's dividends would thereafter cover the premium costs. Plaintiffs contend that the illustrations were premised on dividend projections that Guardian knew or should have known were untenable. Specifically, they allege that Guardian, in the mid-1980s, artificially inflated its current dividend rates despite waning profits because it wanted to continue depicting competitive vanishing dates.
On a separate page, accompanying each illustration, however, limitations such as the following appeared:
"Figures depending on dividends are neither estimated nor guaranteed, but are based on the [current year's] dividend scale.& quot;
"The [current year's] dividend scale reflects current company claims, expense and investment experience * * * and taxes under current laws. Actual future dividends may be higher or lower than those illustrated depending on the company's actual future experience."
After deciding to purchase the policy each plaintiff signed an application. Several weeks later Guardian delivered the policies. Each policy contained the following provisions:
(1) "[a] participating policy shares in Guardian's divisible surplus. The policy's share , if any, is determined yearly by Guardian"; and
(2) "[t]he dividend will reflect Guardian's mortality, expense, and investment experience ."
Moreover, the policies contained several integration or merger clauses stating, in words or substance, that only the actual policy provisions controlled. 2
In 1995, eight years after the sale of the policies, Guardian informed each plaintiff that his or her premiums would, in fact, not vanish and that if the policies were to remain in force, plaintiffs would have to continue out-of-pocket premium payments. 3 Plaintiffs brought this purported class action suit against Guardian in 1996. 4
In its pre-answer motion, Guardian moved to dismiss. Supreme Court granted the motion and dismissed the complaint for reasons that varied with the particular plaintiff .5 The Appellate Division affirmed but made no distinction among plaintiffs , holding that, among others, the fraudulent inducement and General Business Law § 349 claims failed as a matter of law ( Gaidon v Guardian Life Ins. Co. of America, 255 AD2d 101, 101-02).
B. The Goshen-MONY Action
Plaintiffs' assertions against defendants Mutual Life Insurance Company of New York and MONY Life Insurance Company of America (collectively "MONY") mirror those in the Gaidon/Guardian case. In essence, they allege fraudulent representations and a deceptive marketing scheme, both based on untenable dividend projections.
Plaintiffs (members of certified class) purchased whole and universal life insurance policies in the mid-1980s from MONY . The MONY policies, like Guardian's, set forth premium payment schedules covering a stated number of years. MONY pre-sale illustrations were accompanied by "Limitations" pages similar to those in Guardian:
"This illustration shows the surrender of values dependent in whole or in part on dividends paid by the Company. These values are not guaranteed."
"Dividends shown and amounts dependent on them are based on the current illustrative formula. They are neither guarantees nor estimates of future results."
Each prospective policyholder submitted an application and, several weeks later, received a policy containing generally worded integration clauses.6
In 1 995, MONY began informing plaintiffs that if they wished to keep their policies in force they would be required to pay additional premium payments beyond the depicted vanishing date. Employing theories similar to those in the companion case, plaintiffs commenced this action against MONY. 7
Supreme Court certified the class to include
"all persons or entities * * * who have, or at the time of the policy's termination had, an ownership interest in one or more whole life or universal life insurance policies issued by [MONY] * * * and were harmed due to [MONY's] alleged wrongful conduct with respect to the sale of Policies on an alleged 'vanishing premium' basis * * * during the period from January 1, 1982 through and including December 31, 1995." 8
Following discovery, Supreme Court granted MONY summary judgment on all claims, including those for fraudulent inducement and violation of General Business Law § 349. The Appellate Division, citing its decision in Gaidon, affirmed without opinion.
Vanishing Premium Life Insurance: The Background
The cases before us are not unique. They involve allegations and practices of a national scope that have generated industry-wide litigation (see, 7 Holmes, Appleman on Insurance 2d § 49.19). In resolving this case, we consider the various types of cash value life insurance that are marketed, and the import of "vanishing premiums" in that setting.
All the policies in the appeals before us provide "whole life" or "universal life" ; insurance -- each a form of "cash value" life insurance. Cash value life insurance combines "pure" life insurance with an investment component that creates a potential accumulation of money in the policy (Downes & Goodman, Dictionary of Finance and Investment Terms at 81 [4th ed]; see also, Black & Skipper, Life Insurance at 177-78 [12th ed] [discussing "dual nature" of cash value life insurance]). In a cash value policy, the carrier typically invests accumulated money and pays returns to the policyholder in the form of dividends or interest (Downes & Goodman, supra, at 81).
When cash value insurance first emerged , insurance companies invested accumulated money exclusively in conservative securities with fixed interest rates, such as municipal and corporate bonds (see, Fischel & Stillman, The Law and Economics of Vanishing Premium Life Insurance, 22 Del J Corp L 1, 4 ). Commentators point out that because interest rates "soared" in the late 1970s and early 1980s, the economics of these cash value life insurance policies became unattractive to investors who sought to take advantage of the high interest rates (see, Fischel & Stillman , op. cit., at 5; Multi-State Life Insurance Task Force and Multi-State Market Conduct Examination of The Prudential Insurance Company of America, Executive Summary, http://www.naic .org/presum.htm). In the mid-1980s, the life insurance industry reacted to its diminishing market share by designing policies, like the ones here at issue, in which policyholders' accumulated money is tied to the current rate of interest (see, Fischel & Stillman, op. cit., at 5).
Carriers marketed interest rate-sensitive insurance under a host of premium payment options, including the "vanishing premium" plan (Fischel & Stillman, op. cit., at 6). Under this plan, the policyholder pays higher-than-normal premiums in the early years of the policy, resulting in a quicker accumulation of premium dollars for investment purposes (Fischel & ; Stillman, op. cit., at 6-7; Black & Skipper, op. cit., at 112). These policies are marketed on the premise that enough cash value will accumulate so that at a fixed date future administrative and insurance costs will be covered and the policyholder relieved of any further out-of-pocket premium obligations (Fischel & Stillman, op. cit., at 6-7).
In the late 1980s, however , sharply declining interest rates "upset the economics" of these widely marketed policies (Fischel & Stillman, op. cit., at 7). Accumulated cash values became insufficient to pay expected future insurance and administrative costs. By the early 1990s, many consumers who purchased such policies were required to continue out-of-pocket payments to keep their policies in force (Fischel & Stillman, op. cit., at 7). And the lawsuits followed.
General Business Law § 349 As Compared With Common Law Fraudulent Inducement
A. General Business Law § 349
In addressing the primary issues in these appeals , we must examine the components of both General Business Law § 349 and common law fraudulent inducement. Although a person's actions may at once implicate both, General Business Law § 349 contemplates actionable conduct that does not necessarily rise to the level of fraud. In contrast to common law fraud, General Business Law § 349 is a creature of statute based on broad consumer-protection concerns (see, Oswego Laborers Local 214 Pension Fund v Marine Midland Bank, NA, 85 NY2d 20, 24-25). Although General Business Law § 349 claims have been aptly characterized as similar to fraud claims, ( e.g., Dornberger v Metropolitan Life Ins. Co., 961 F Supp 506, 549 [SDNY 1997]), they are critically different in ways illustrated by the cases at bar.
As this Court noted in Oswego (supra, 85 NY2d, at 24), General Business Law § 349 was enacted initially to give the Attorney General enforcement power to curtail deceptive acts and practices -- willful or otherwise -- directed at the consuming public. Owing to the "ever-changing types of false and deceptive business practices which plague consumers in our State," the Governor signed the measure into law (NY Dept of Law, Mem to Governor, Bill Jacket, L 1963, ch 813). In 19 80, the Legislature took a significant step to expand the statute's enforcement scheme by allowing a private cause of action ( General Business Law § 349[h]).
As a threshold matter, plaintiffs' claims under General Business Law § 349 must be predicated on a deceptive act or practice that is "consumer oriented" ( Oswego, supra, 85 NY2d at 24-25). We hold that they are. In contrast to a private contract dispute as to policy coverage (e.g., New York Univ. v Continental Ins. Co., 83 NY2d 308), the practices before us involved an extensive marketing scheme that "had a broader impact on consumers at large" (e.g., Oswego , supra, at 25).
Turning to the other components of § 349, "a plaintiff must allege that defendant has engaged 'in an act or practice that is deceptive or misleading in a material way and that plaintiff has been injured by reason thereof'" (Small v Lorillard Tobacco Co, -- NY2d --, No 154, 1999 NY LEXIS 3441, at *12 [Oct 26, 1999] [quoting Oswego, supra, at 25]). This Court has defined a "deceptive act or practice" as a representation or omission "'likely to mislead a reasonable consumer acting reasonably under the circumstances'" ( Karlin v IVF America, Inc., 93 NY2d 282, 294 [quoting Oswego, supra, at 26]). We hold that plaintiffs have adequately alleged that defendants violated the statute.
Plaintiffs have alleged, in essence, that defendants lured them into purchasing policies by using illustrations that created unrealistic expectations as to the prospects of premium disappearance upon a strategically chosen "vanishing date." This vanishing date, plaintiffs allege, was misleading , as based on the premise that interest rates would continue at a high, unprecedented rate for, in some cases, twenty or more years -- a premise that defendants allegedly knew to be unlikely.
Plaintiffs' argument is supported by the Attorney General, who has submitted an amicus brief asserting that the lower courts' interpretation of section 349 was too restrictive. He urges that a matter-of- law finding that the practices were not deceptive or misleading would undermine the State's power to redress consumer practices that do not rise to the level of common law fraud.
In seeking to uphold the dismissal of the section 349 claims, defendants argue, in substance, that the illustrated vanishing dates were not deceptive. They have directed our attention to the policies' merger clauses , which seek to confine their representations to the four corners of the policies. They also point to the above-quoted disclaimer language stating that illustrated dividend/interest rates "are neither guarantees nor estimates of future results" or that such rates may be "higher or lower * * * depending on the company's actual future experience." Defendants' contentions are compelling when resisting plaintiffs' claims of fraud, but they cannot, on this record, justify dismissal of plaintiffs ' section 349 claims.
To begin with, the merger provisions -- for whatever other importance they may carry -- are not determinative of plaintiffs' § 349 claims, which are based on deceptive business practices, not on deceptive contracts. Moreover, the disclaimers, though more particularized than the merger provisions, do not speak to the true, unrevealed relationship between dividend/interest rates and the vanishing dates as represented. Consumers vary in their level of sophistication and their ability to perceive the connection between a fluctuation in dividend/interest rates and a vanishing date, or to make the necessary arithmetic adjustments. The issue before us is not whether, as a matter of law, reasonable consumers would be misled in a material way, but whether that prospect is enough to create a question of fact in the Goshen appeal, or to state a claim in Gaidon. It is , in both cases, for a number of reasons.
Defendants made vanishing dates the centerpiece of their sales presentations. They allegedly marketed vanishing premium policies by tying depicted vanishing dates to a milestone in the policyholder's near future (such as the policyholder's proposed retirement age or the year when a child was expected to go to college), and thereby created the expectation of a firm, personalized timetable. The very goal of the marketing scheme was to convince prospective purchasers that the vanishing date would in fact conform to the individualized projections. Plaintiffs allege that the defendants were aware that the premiums were unlikely to vanish as projected because they allegedly knew or should have known that the opposite was true: dividend/interest rates were not sustainable at the illustrated level. In the face of that unlikelihood, defendants created these expectations with illustrations that were based on the unrealistic dividend/interest forecasts and no disclosure or disclaimer revealing that fact.9
Further, and in spite of this alleged knowledge, defendants allegedly trained sales agents to make presentations in ways that would arguably deceive and mislead prospective policyholders. The record contains a sales training videotape that is revealing. It instructs agents how to "cause the vanish to occur whenever your client wants to see it." Also, vanishing premium policies were marketed with slogans such as "Pay one and done," "4 Pay/No Pay," "Pay One Vanish," "Accelerated Vanish,& quot; and "How to get lifetime insurance protection with payments that are . . . GOING , GOING, GONE."
The Gaidon action was determined solely on the pleadings . Plaintiffs have alleged that Guardian was aware of the unlikelihood that the then current dividend rate could be maintained. This awareness, plaintiff alleges, was based not only on the general state of the economy, but on Guardian's transactions and on its heightened knowledge of its own financial condition.
In Goshen, plaintiffs also have produced affidavits averring that the company's current dividend rate, as depicted at the time of the illustration, was based in part on non-recurring transactions that skewed any projection of MONY's ability to maintain the then current dividend/interest rates.
Insisting that they have engaged in no deceptive conduct, defendants have challenged plaintiffs' allegations. Defendant MONY, for example, asserts that " ;[t]he regulatory * * * repercussions of engaging in the sort of pervasive misconduct to which plaintiffs allude would be swift and severe." In this context we note that in 1997 and 1998 the New York State Superintendent of Insurance issued several regulations aimed directly at the marketing scheme before us. One regulation banned outright the use of "vanishing premium" language:
"When using an illustration in the sale of a life insurance policy , an insurer * * * shall not * * * use the term 'vanish' or 'vanishing premium' or a similar term that implies the policy becomes paid up, to describe a plan for using non-guaranteed elements to pay a portion of future premiums." (see, 11 NYCRR 53-3.2[b]).
Further, sub-part 53-3.3 (13) provides that where pre-sale illustrations depict reinvestment of non-guaranteed dividend/interest to pay off premiums,
"the illustration must clearly disclose that a charge continues to be required and that, depending on actual results, the premium payer may need to continue or resume premium outlays. Similar disclosure shall be made for premium outlay of lesser amounts or shorter durations than the contract premium. If a contract premium is due, the premium outlay display shall not be left blank or show zero unless accompanied by an asterisk or similar mark to draw attention to the fact that the policy is not paid up ( 11 NYCRR 53-3.3 [emphasis added]).
Most pointedly, the Superintendent of Insurance has required carriers to dispel any false impression that dividend/interest rates would continue for all the years shown in a life insurance illustration. The regulation is designed to insure that prospective purchasers, during high interest eras, will no longer be led or misled to believe that their out-of-pocket obligations will be reduced or eliminated. Sub- part 53-3.3(b)(5) thus requires pre-sale illustrations to include the following statement:
"This illustration assumes that the currently illustrated non- guaranteed elements will continue unchanged for all years shown. This is not likely to occur , and actual results may be more or less favorable than those shown" ( 11 NYCRR 53-3.3[b][emphasis added]).10
Contrary to the suggestions of our dissenting colleague, the actions of the Superintendent of Insurance are independent of our conclusion that plaintiffs have pleaded a valid § 349 claim.11 They merely match and fortify our determination.
In all, we conclude that plaintiffs in the Gaidon action have adequately pleaded a General Business Law § 349 cause of action and that plaintiffs in Goshen have presented sworn assertions sufficient to raise a question of fact as to a General Business Law § 349 deceptive practice.
B. Common Law Fraudulent Inducement
A practice may carry the capacity to mislead or deceive a reasonable person but not be fraudulent. That distinction separates plaintiffs' fraud claims from their § 349 claims. Fraud is wrongful enough to occupy a civil classification just short of criminal conduct, and over the years has generally been defined by behavior involving intentional, false representations and other connotations of scienter such as willfulness, knowledge, design and bad faith (see, e.g, Channel Master Corp. v Aluminum Ltd. Sales, Inc., 4 NY2d 403, 407-08; Reno v Bull, 226 NY 144, 145).
To state a claim for fraudulent inducement in an insurance context, plaintiffs must allege a "misrepresentation or material omission" by defendants that induced plaintiffs to purchase the policies, as well as scienter, reliance and injury ( New York Univ. v Continental Ins. Co., supra, 83 NY2d 308, 318; see also Small v Lorillard Tobacco Co, supra, __ NY2d __, No 154, 1999 NY LEXIS 3441, at *9 [Oct 26, 1999]).
The parties' arguments for and against plaintiffs' fraud claims mirror those made in connection with section 349. Notably, plaintiffs stress that the illustrations were one-sided misrepresentations designed to deceive and mislead purchasers by projecting only the brighter prospects while concealing predictably bleaker ones. They assert that they have met the "misrepresentation or material omission" threshold for fraud, alleging that the illustrations painted a purposefully distorted landscape using false, untenable interest rate projections and further, that defendants intentionally diverted funds to conceal the artificially inflated nature of the dividend picture.
Defendants argue that plaintiffs' assertion that they intentionally and artificially inflated dividends is largely conclusory and incompatible with the constraints of a highly regulated industry. Contending further that there was no misrepresentation or falsification that could give rise to a fraud claim, defendants submit that the dividend/interest rates projected in the illustration tables were, in fact, those being paid out to policyholders at the time of the sales presentations. Additionally, defendants claim that the projections were illustrations only, that they were based on the continuation of an existing state of affairs and cannot be construed or characterized as guarantees. They also argue, in substance , that any claim of fraudulent concealment or omission is necessarily defeated by the disclaimer language in the illustrations.
We recognize that a number of courts have gone so far as to sustain fraud charges as adequately pleaded in vanishing premium cases (see, e.g., Greenberg v Life Ins. Co. of Virginia, 177 F3d 507 [6th Cir 1999]; Myers v Guardian Life Ins. Co. of Am., 5 F Supp2d 423 [ND Miss 1998]; Nepomoceno v Knights of Columbus, supra, No 96 C 4789, 1999 US Dist LEXIS 1366 [ND Ill Feb 8, 1999]; Grove v Principal Mutual Life Ins. Co., 14 F Supp2d 1101 [SD Iowa 1998]; Force v ITT Hartford Life & Annuity Ins. Co., supra, 4 F Supp2d 843 [D Minn 199 8]; Chain v General Am. Life Ins. Co., No 4:96CV96-B-B, 1996 US Dist LEXIS 21505 [ND Miss Sept 30, 1996]; In re Prudential Ins. Co. of Am. Sales Practices Litig., 975 F Supp 584 [DNJ 1996]; Mentis v Delaware Am. Life Ins. Co., CA No 98C-12-023 WTQ, 1999 Del Super LEXIS 419 [July 28, 1999]; but see, Frith v Guardian Life Ins. Co. of Am., 9 F Supp2d 744 [SD Tex 1998]; Solomon v Guardian Life Ins. Co. of Am., No 96-1597, 1996 US Dist LEXIS 18342 [ED Pa Dec 11, 1996], aff'd 162 F3d 1152 [3d Cir 1998] [unpublished table decision]).
We conclude, however, that defendants' disclaimers, although insufficient to defeat plaintiffs' § 349 claims, are sufficient to absolve them of fraud. Defendants are correct in asserting that plaintiffs have not met the threshold element to support a fraud claim -- "misrepresentation or material omission." The elements for fraud are narrowly defined, requiring proof by clear and convincing evidence (cf., Vermeer Owners, Inc. v Guterman, 78 NY2d 1114, 1116). Not every misrepresentation or omission rises to the level of fraud.12 An omission or misrepresentation may be so trifling as to be legally inconsequential or so egregious as to be fraudulent, or even criminal. Or it may fall somewhere in between, as it does here.
By stating that the illustrated dividend/interest rates are not guaranteed and that they may be higher or lower than depicted, defendants made a partial disclosure. They revealed the possibility of a dividend/interest rate decline, but did not reveal its practical implications to the policyholder. Although they did not guarantee that interest rates would remain constant, they failed to reveal that the illustrated vanishing dates were wholly unrealistic.
We conclude that although defendants' sales practice, as pleaded, falls within the purview of General Business Law § 349, it does not constitute a "misrepresentation or material omission " necessary to sustain a cause of action for fraud.
Because the Appellate Division dismissed the entire Gaidon/Guardian complaint on the merits, it is now necessary for that court to consider which plaintiffs would be legally entitled to bring a claim under General Business Law § 349. Accordingly, in Gaidon, the order of the Appellate Division should be modified, without costs, by reinstating the General Business Law § 349 cause of action, and remitting the case to that court for consideration of issues raised but not determined on the appeal to that court. As so modified, the order should be affirmed.
In Goshen, the order of the Appellate Division should be modified, without costs, by reinstating the General Business Law § 349 cause of action and remitting the case to Supreme Court for further proceedings consistent with this opinion and, as so modified, affirmed.
1. Named plaintiffs are Frank Gaidon, Frank DeHamer, Nicholas DeHamer and Kathleen Warner, along with Allen Glass and Barbara Gaidon, as trustees of two different trust funds that at different times owned the life insurance policy on Frank Gaidon's life. Frank Gaidon, himself , never owned the policy.
Guardian moved to dismiss in a pre-answer motion, made before plaintiffs sought class certification.
2. These clauses typically stated that "[t]he actual provisions set forth the full details and conditions of this policy; only the actual provisions will control."
3. Guardian allegedly informed Frank Gaidon that he would be required to pay premiums for the rest of his life.
4. The complaint included causes of action for fraud, fraudulent inducement, breach of fiduciary duty, breach of contract, negligence, negligent misrepresentation, unjust enrichment and imposition of a constructive trust, declaratory and injunctive relief, reformation, violation of General Business Law § 349 and violation of Insurance Law §§ 2123 and 4226.
5. Supreme Court held that, with the exception of the Gaidon trustees, all plaintiffs lacked standing to assert any claims against Guardian . Specifically, the court determined Frank Gaidon lacked standing because his policy was owned by trusts and not Gaidon himself. The court further ruled that Frank and Nicholas DeHamer and Kathleen Warner lacked standing because they signed releases as part of forms Guardian required them to sign to cancel their policies. Supreme Court then dismissed the Gaidon trustees' fraudulent inducement claims and General Business Law § 349 claims, holding that Guardian did not make the alleged misleading or fraudulent representations directly to the trustees; rather, that its sales agents interacted only with and made representations to Frank Gaidon himself.
6. MONY policies provide that "[t]he policy and the application is the entire contract."
7. Plaintiffs asserted causes of action for fraudulent concealment and deceit, negligent misrepresentation , reckless, wanton and/or negligent supervision, breach of contract, breach of fiduciary duty, fraudulent inducement, violations of Insurance Law §§ 4226 and 2123 and violations of General Business Law § 349.
8. The propriety of the class certification is not before us on this appeal.
9. We are not persuaded by the assertion in the dissent that defendants are, as a matter of law, relieved of General Business Law § 349 liability for having based their illustrations on the then "current dividend scale" (see, Dissent, at 8 [discussing 11 NYCRR 219.4(n)]). Rule 219.4(n) was promulgated to preclude insurance companies from depicting speculative interest rates above those currently paid by the carrier. It certainly does not mandate that a carrier project a premium payment plan that it allegedly knows to be unsustainable, while revealing nothing as to the improbability of the projection.
10. We note also that 25 states have adopted measures similar to these regulations expressly aimed at combating alleged deception caused by "vanishing premium" illustrations (see, e.g., Cal Ins Code § 10509.955; 40 Penn Stat § 625-8; RI Gen Laws § 27-62-5; Ala Ins Reg 114, § 6; 3 Alaska Admin Code 28.815; Colo Ins Reg 4-1-8, § VI; Conn State Agencies Regs § 38a-819-61 ; Code of Del Regs 50-000-062; 50 Ill Admin Code 1406.70; 191 Iowa Admin Code 14.6, 15.3[507B]; Maine Bureau of Ins Rule Ch 910, § 6; Miss Dep't of Ins Regs 98-2; 210 Neb Admin Code § 72-006; Nev Admin Code 686A.4785; NJ Admin Code § 11:4-41.2-4; 11 NC Admin Code 4.0504; ND Admin Code § 45-04-01.1-04; Ohio Admin Code Ann 3901-6-04; Okla Admin Code 365:10-3-54; Oregon Admin Rules § 836-051-0540; SC Code Regs 69-40; Ann Rules of South Dakota § 20:06:38:05; Texas Admin Code § 21.2206; Utah Admin Code R590-177-6; Code of Vermont Rules 21-020-042, § 6; Wisc Admin Code Ins 2.17).
11. We further note that courts in other jurisdictions have sustained deceptive trade practice causes of action under statutes similar to New York's (see , e.g., Nepomoceno v Knights of Columbus, No Civ A 96 C 4789, 1999 US Dist LEXIS 1 366 [ND Ill Feb 8, 1999]; Force v ITT Hartford Life & Annuity Ins. Co., 4 F Supp2d 843 [D Minn 1998]; Parkhill v Minnesota Mutual Life Ins. Co., 995 F Supp 983 [D Minn 1998]).
12. See generally, 2 Harper & James, Law of Torts, § 7.14 (2d ed 1986); Prosser & Keeton, Law of Torts, § 106 (5th ed 1984).
BELLACOSA, J. (dissenting in part).
My dissent is respectfully tendered solely with regard to the revival and reinstatement of the General Business Law § 349 claims. I agree with the lower courts, including their rulings that these particular claims are no more sustainable or cognizable on these records than any of the other standard claims.
I dissent also because the precedential implications of the Majority holding , as proposed, are beyond the intent, enactment and interpretation of this remedial statute. In particular , I conclude that no deceptive act or practice, which would mislead a reasonable consumer, has been alleged in these cases under this statute. I would therefore affirm the Appellate Division orders outright .
In the Gaidon action, defendant's motion to dismiss pursuant to CPLR 3211 was granted, dismissing plaintiffs' complaint containing their causes of action for violations of General Business Law § 349. The standard applied in this case is whether a pleading and its factual allegations manifest any cause of action "cognizable at law" ( Guggenheimer v Ginzburg, 43 NY2d 268, 275). Dismissal is appropriate when evidentiary material is considered where an alleged material fact "is not a fact at all and * * * no significant dispute exists regarding it" (id.).
Here, the complaint must sufficiently set forth a "forbidden type of deception" (id.). While the failure to disclose information may be found "less than candid, it cannot, as a matter of law, be found deceitful" when there is no evidence in the record to refute defendant's assertions (see, St. Patrick's Home for the Aged and Infirm v Laticrete Intl., Inc., __AD2d__, 696 NYS2d 117, 12 2). The failure of a pleading to present a deceptive act or practice, under the sweep and provenance of General Business Law § 349, should render the asserted claims deficient on the face of, and at the outset of, the dispute brought to a court (see, id.).
Defendants moved in the Goshen action for summary judgment. Thus, reviewing the pleadings as well as the evidentiary materials, plaintiffs must present a triable issue of fact to defeat the motion. I conclude, as did the courts below, that no genuine triable issue of fact is presented on this record, and summary judgment was appropriately granted to defendants.
In the instant cases, plaintiffs essentially charge that the use of illustrations by defendants' sales agents, depicting time lines at which premium payments might "vanish," misled the consumers within the meaning of the statute. Additionally , in Goshen, plaintiffs claim that defendant MONY knew the use of the "vanishing premium " sales promotion was not viable and that the company attempted to conceal this awareness from the plaintiff class. The Goshen plaintiffs submitted affidavits purporting that the dividends illustrated by MONY were not sustainable. In my view, on these records, the allegations do not measure up to cognizable causes of action necessitating a trial on the General Business Law § 349 claims.
In 1970, the Legislature enacted section 349 of the General Business Law to "strengthen the consumer protection powers of the Attorney General by enabling him to obtain injunctions against all deceptive and fraudulent practices affecting consumers and by clarifying his powers to obtain restitution for defrauded consumers in such proceedings " (Governor's Mem approving L 1970, of chs 43 & 44, 1970 NY Legis Ann, at 472). Consumers were given a protection for an "honest market place" enforceable by the Attorney General (id.). Section 349 tracked the actions of the FTC with respect to interpretation and enforcement of the Federal Trade Commission Act (15 USC 45), in that agency's effort to eradicate or penalize deceptive acts and practices (see generally, Lefkowitz v Colorado State Christian Coll. of the Church of Inner Power, Inc., 76 Misc 2d 50, 54 ).
In 1980, the New York Legislature enhanced this State's protective mechanism . It gave a private right of action to allegedly wronged consumers to pursue consumer fraud claims personally ( General Business Law § 349[h]). This powerful tool was to "supplement the activities of the Attorney General in the prosecution of consumer fraud complaints" (Governor's Mem approving L 1 980, ch 346, 1980 NY Legis Ann, at 147). Moreover, the enactment of this statutory remedy was not to deprive plaintiffs of any common law remedies (see generally, Schuster v City of NY, 5 NY2d 75, 85 [statutory remedy is "merely cumulative"]).
I am not persuaded that support exists to justify a further enhancement of General Business Law § 349 to make it a "catch-all" remedy. It should not be construed as providing all-encompassing redress. To interpose such a procedural and remedial disincentive against aggrieved persons pursuing longstanding traditional remedies at common law, as well as other statutory and regulatory measures affecting a gigantic industry like insurance -- and precedentially all others -- is a remarkable step and development that I do not believe is warranted or intended.
Section 349, unlike other states' deceptive practice statutes, does not supply a definition of "deceptive acts or practices." Noting the undeniable remedial nature of section 349, this Court proportionately recognized the potential for overbreadth inherent in the interpretation and application of the statute. Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank (85 NY2d 20) announced the test which should determine whether defendants here violated section 349. The standard is whether "defendant is engaging in an act or practice that is deceptive or misleading in a material way" and whether "plaintiff has been injured by reason thereof" (id., at 25). While I agree with the Majority's acknowledgment of the appropriate test, my application of it results in an affirmance and resolution against the groundbreaking availability of New York's General Business Law § 349. Based on the Majority's holding, a wide expansion of the theory underlying this statutory remedy will henceforth be operative.
Yet, to avoid the possibility of "excessive litigation" (class or individual) under General Business Law § 349, this Court evoked "'an objective definition of deceptive acts and practices, whether representations or omissions, limited to those likely to mislead a reasonable consumer acting reasonably under the circumstances'" ( Karlin v IVF America, Inc., 93 NY2d 282, 294, quoting Oswego, supra, 85 NY2d, at 26; contrast, Note, New York Creates a Private Right of Action to Combat Consumer Fraud: Caveat Venditor, 48 Brooklyn L Rev 509, 548).
The judicial framework and resolution can be determined as a matter of law or fact ( Oswego, supra, 85 NY2d, at 26). Particularly in omissions cases, the statute does not require businesses to "guarantee that each consumer has all relevant information specific to its situation. The scenario is quite different, however, where the business alone possesses material information that is relevant to the consumer and fails to provide this information" (id.).
The capacity and potential of the material to qualify as a misleading act that deceives must be assessed in individual cases and circumstances. The determination of the deceptiveness of the conduct that bears on the reasonableness of the consumer should not be bifurcated between the sales materials and the contract policies themselves, as the Majority's analysis does. That is a commercially unrealistic segmentation that artificially skews the statutory reach.
Deception requires a misrepresentation of fact under the whole set of dealings of the parties (see generally, State of New York v Unique Ideas, 85 Misc 2d 258, affd & modified as to damages 56 AD2d 295, affd & modified as to damages 44 NY2d 345). The language of the policies, which included statements that premiums are regularly due, cannot be so facilely cast aside in determining whether a misrepresentation of fact was alleged which would mislead a reasonable consumer, acting reasonably, into buying that policy. The reasonableness of the consumer viewpoint in my judgment of the statute, ought to be evaluated in light of all the facts before the consumers -- the sales promotion, the written illustrations expressing no guarantees , and the policies excluding extraneous facets from the sales transaction and agreement. In other words , the integrated transaction determines the availability of the statute, not just the initial contact , sales pitch or some predicate facet.
Thus, application of Oswego 's standards to plaintiffs' General Business Law § 349 claims demonstrates, as a matter of cogent, even compelling, record dealings , that plaintiffs fail to propound cognizable claims or a triable issue of fact under the statute. The complaints, and the accompanying submissions in Goshen, simply do not allege a sustainable basis or theory that plaintiffs were materially deceived and harmed by defendants' actions -- that is, by the entire array of interrelated steps leading to the purchase of the policies.
In Gaidon, the asserted deceptive act is that defendant Guardian, through its sales presentations and policy illustrations, misrepresented that payment of premiums only during the first several years of the policy would suffice to carry out the cost of the policy for the life of the insured. Plaintiffs allege that this illustrative sales promotion induced purchase of the policies and falls within the limitless statute. Yet, the express terms of the policy plainly indicate the duration of the required premium payments; and the written policy illustrations used by defendant Guardian specifically stated they were neither part of the actual insurance policy, nor that the dividends were guaranteed.
Moreover, to the extent that plaintiffs in Gaidon argue that they pled a cognizable section 349 claim based on defendant Guardian's use of misleading dividend scales in its illustrations , plaintiffs' argument is baseless. The illustrations accord with applicable official regulations which require that "[i]f dividends are illustrated, they must be based on the insurer's current dividend scale and the illustration must contain a statement to the effect that they are not to be construed as guarantees or estimates of dividends to be paid in the future" ( 11 NYCRR 219.4[n]). The Majority's conclusion -- that the use of standard, officially approved and authorized illustrations amounts to a deceptive practice under General Business Law § 349 -- is a breakaway proposition with troubling precedential implications and a fundamental unfairness by changing the rules of trade after the fact.
Similarly , in Goshen, the certified class members sought to recover under General Business Law § 349 based on their understanding of written policy illustrations that premium payments would only have to be paid for a limited number of years. Defendant MONY utilized different versions of the written illustrations. All illustrations, however, included statements that they were not valid without a "Limitations and Definitions" form, which, at minimum, cautioned any potential purchaser that only the policy itself with the application is the entire contract. The policies then repeated the same admonition that they alone constituted the entire agreement of the parties. To wholly sideline these pervasively employed integration clauses in these circumstances is a discretely portentous precedential development. That alone justifies my dissenting expression as fair notice to the Bench and Bar, and as an incentive for legislative consideration of some reasonable limitations on the sweep of the law.
As an additional argument, the plaintiff class in Goshen urges that MONY executives knew that the "vanishing premium" concept was not viable, given inevitably uncertain predictions about future economic conditions. But that unpredictability is a known constant to the world at large, not just to insurance executives.
Oswego Laborers' Local 214 Pension Fund further teaches another axiom: MONY was not required to "guarantee that each consumer has all relevant information specific to its situation." The sales nomenclature of " ;vanishing premium" does not even denote a type of life insurance policy (see, Fischel & Stillman, The Law and Economics of Vanishing Premium Life Insurance, 22 Del J Corp L, 1, 7). Rather, the "vanishing premium" notion is a marketing technique and advertising device based on a proposed financing spread sheet which provides "a vanishing-premium option or rider to the basic life insurance policy" (Fischel & Stillman, supra, at 7). The illustrations "are based on projections of certain economic factors which may or may not come true" (Fischel & Stillman, supra, at 7 [emphasis added]). Consumers know as a matter of common sense and knowledge, or ought to be reasonably charged with knowing that truism. Besides , they were informed of this very point in writing -- twice at least. The illustration materials themselves and the actual policies so declare. They are unassailable documentary proofs, not wispy disappointment claims that the deals did not turn out as hoped for or expected.
The point at which the premium payment obligation "vanishes," as advertised through the illustrations, does not imply, moreover, that the policyholder will never again have an obligation to pay premiums. Rather, the illustrations project that the policy may be "self-perpetuating," at a point when future premium payments should be paid up using the generated policy dividends (Fischel & Stillman, supra, at 7). Reasonable consumers should not be allowed to infer -- by operation of law through interpretive judicial rulings, statutes and regulations -- that external economic factors would remain static and that the cessation of cash premium payments would be a certainty, for lack of which statutory liability is primed. That consequence defies history and fair dealing on a common sense landscape.
Plaintiffs' allegations that they were deceived into believing that the premium payments would inevitably cease at a fixed point in time is, moreover, contradicted by all the available documentation . Courts should not ignore the explicit language of the insurance contracts and the reasonable understanding and expectation concerning the ineffability of extrinsic economic and market forces. Everyone should be charged with the plain fact that only the unknowable future could ultimately shape and control these matters.
Next, the use of interest rate assumptions in the policy illustrations should not be deemed realistically to have the capacity to mislead prospective policyholders. That is a too far-out legal fiction. The probable level of future interest rates is, again, most certainly and most commonly known and appreciated as something not solely within an insurance company's or anyone else' s ability to forecast (see, Fischel & Stillman, supra, at 14). Even Allan Greenspan and the Federal Reserve Board hedge their "bets" and just do their best. Furthermore, any general information defendants had involving market projections was the type of information plaintiffs , indeed anyone, "could reasonably have obtained" ( Oswego, supra, 85 NY2d, at 27), on their own, through financial advisors or via the & quot;Internet".
Plaintiffs argue -- and the Majority adopts -- the proposition that defendants created a misleading impression of these policies by not revealing their potential downsides. This aspect, as that syllogism sets the stage for the future, helps to drive the General Business Law § 349 claims in these cases. My simple answer is that the entire insurance industry, by its nature, insures many things. But to derive an insurance obligation out of this new "pros and cons" balancing technique is a far-reaching concept and legal responsibility, bound to confound any rate or risk underwriter. Risk projections and re-allocation on this basis constitute a major shift for any type of sales-oriented business. By court decree instead of market forces they must, when emphasizing the positive aspects of their policies or products, also provide minimizing features and negatives (contrast, Fischel & Stillman, supra, at 15).
To hold, even in part, that giving a product its best sales "face," even with some " ;puffery" and artfully spun advertising, is actionable under General Business Law § 349 pushes this consumer protection statute into uncharted and un-intended territories. "Puffing" defenses -- a seller's claim that no reasonable person would believe some sales promotion to be literally true -- should have some reasonable place in the General Business Law § 349 universe as to who bears the risk of the bargain (see generally , Pitofsky, Beyond Nader: Consumer Protection and the Regulation of Advertising, 90 Harv L Rev 661, 677). If not, this statute launches limitless liability.
Reasonable consumers acting reasonably recognize sales pitches and ordinarily discount them accordingly. In addition, to acknowledge that consumers understand that future interest rates will affect their future premium rates is reasonable and even respectful of individual intelligence, personal accountability and good common sense (see, Fischel & Stillman, supra, at 16).
Based on the records of these cases, I agree with the lower courts that plaintiffs failed to show that defendants engaged in materially misleading or deceptive acts or practices. The alleged representations made by defendants were not "likely to mislead a reasonable consumer acting reasonably" (Oswego, supra , at 26). Prospective market forces predominantly control here, and a remedial rescue by statute or judicial gloss on a statute -- after the economic facts inexorably unfold under their own power - - ought not become the benevolent standard for shifting fault, reallocating risk and relieving individuals of some measure of reasonable responsibility and private accountability.
In sum, I would wholly affirm the orders of the Appellate Division in the actions entitled under Gaidon and Goshen. While I agree with the Majority rationale and result on plaintiffs' common law fraud claims, I respectfully dissent for the reasons given and conclude that plaintiffs have not propounded cognizable or triable General Business Law § 349 claims.
Case No. 173: Order modified, without costs, by reinstating the General Business Law § 349 cause of action and remitting to the Appellate Division, First Department , for consideration of issues raised but not determined on the appeal to that court and, as so modified , affirmed. Opinion by Judge Rosenblatt. Chief Judge Kaye and Judges Levine, Ciparick and Wesley concur . Judge Bellacosa dissents in part and votes to affirm in an opinion. Judge Smith took no part.
Case No. 174: Order modified, without costs, by reinstating the General Business Law § 349 cause of action and remitting to Supreme Court, New York County, for further proceedings in accordance with the opinion herein and, as so modified, affirmed. Opinion by Judge Rosenblatt. Chief Judge Kaye and Judges Levine, Ciparick and Wesley concur. Judge Bellacosa dissents in part and votes to affirm in an opinion. Judge Smith took no part.
Order and judgment (one paper), Supreme Court, New York County (Beatrice Shainswit, J.), entered September 11, 1998, which, in an action on a disability insurance policy, upon the parties’ respective motions for summary judgment, inter alia, declared that the policy’s two-year incontestability clause bars defendant insurer from rescinding the policy or denying plaintiff insured’s claim, and that plaintiff is not entitled to attorneys’ fees, unanimously affirmed, without costs.
No issue of fact exists as to whether the two-year incontestability clause was tolled. Such a toll requires that plaintiff be "disabled" during the incontestability period, which, under the policy’s definitions , means that the insured must be, among other things, under "the regular and personal care of a physician ... for the condition causing the disability". Here, while defendant shows that plaintiff had been treated for various conditions prior to the effective date of the policy, no showing is made that any such treatments were for multiple sclerosis, the disability-causing condition. Defendant’s other argument that an incontestability clause like the one in issue does not bar a defense of noncoverage where the disability-causing condition had manifested itself before the policy’s effective date was recently raised by defendant and rejected by the Court of Appeals in New England Mut. Life Ins. Co. v Doe (93 NY2d 122). We note that defendant’s brief in this case is dated before the Court of Appeals’ decision in Doe, and find that defendant’s rejection of plaintiff’s claim was not undertaken in bad faith (see, Sukup v State of New York, 19 NY2d 519, 522), and that plaintiff is not otherwise entitled to attorneys’ fees (see, Mighty Midgets v Centennial Ins. Co., 47 NY2d 12, 21-22).
Order, Supreme Court, New York County (Lorraine Miller, J. ), entered January 28, 1999, denying defendant's motion for summary judgment dismissing the complaint , unanimously reversed, on the law, without costs or disbursements, and the motion granted. The Clerk is directed to enter judgment in favor of defendant-appellant dismissing the complaint as against it.
At a compliance conference on July 30, 1998 in this personal injury action involving a pedestrian knockdown, defendants' deadline to move for summary judgment was fixed by court order as "within 60 days of note of issue." Plaintiff filed a note of issue and statement of readiness on August 27 and served defendant on that date by mail. The next day, on August 28, 1998, plaintiff filed a corrected note of issue, which was served that same day by mail. Defendant XYZ thereafter, on October 30, 1998, moved for summary judgment dismissing the complaint on the ground, inter alia, that plaintiff 's alleged injury did not meet the threshold showing of "serious injury", as required by Insurance Law § 5102(d). Plaintiff opposed the motion on the ground of untimeliness as well as on the merits. The IAS court denied the motion as untimely, fixing August 27, 1998, the date the note of issue was filed, as the critical date for the running of the 60 days. The court did not address the issue of whether the threshold showing of serious injury had been met. We reverse and dismiss the complaint .
Contrary to the IAS court's view, the 60-day period cannot be construed to run from the date of the unilateral act of filing a note of issue where, as here, defendants, by virtue of plaintiff's service of the notice by mail, cannot be charged with knowledge of the triggering event commencing the 60 days, i.e., the filing of the note of issue, until the service by mail is completed. Since plaintiff chose to serve the notice by mail, defendants, pursuant to CPLR 2103(b)(2), were entitled to an additional five days. (See, Levy v Schaefer, 160 AD2d 1182, 1183.) Measuring from August 28, 1998 with the additional five days, defendants had until November 1, 1998, a Sunday, to move. By virtue of General Construction Law § 25-a(1), the deadline was, by operation of law, extended to November 2 , 1998. Thus, the motion was timely.
As to the merits, plaintiff asserts that she suffered a "medically determined injury or impairment of a non-permanent nature which prevent[ed her] from performing substantially all of the material acts which constitute [her] ususal and customary daily activities for not less than ninety days during the one hundred eighty days immediately following the occurrence of the injury or impairment." ( Insurance Law § 5102[d].) While she was absent from work on a full time basis for two full weeks after the accident, she was thereafter able to work half days, with periodic days off. In our view, this, even when coupled with the limitations she asserts with respect to "detailed computer work" and her inability to "hold little things the way [she] used to", does not meet the "substantially all" standard , which requires a showing that the plaintiff's activities have been restricted "to a great extent rather than some slight curtailment" ( Licari v Elliott, 57 NY2d 230, 236.) In addition, "the statutory 90/180-day period of disability requirement * * * should be considered a necessary condition to the application of the statute." ( Id.) That threshold has not been met in this case either.
The issue before us is whether an infant's action against a municipality is time-barred when the infant through a parent or guardian timely files a notice of claim pursuant to General Municipal Law § 50-e, but fails to commence the action within the one year and ninety day limitation period of General Municipal Law § 50-i. We hold that CPLR 208 tolls a Statute of Limitations for the period of infancy, and the toll is not terminated by the acts of a guardian or legal representative in taking steps to pursue the infant's claim. Therefore , the infant plaintiffs' suit against the City of New York in this case is not time-barred.
In February 1993, plaintiff Evon Carmen Henry discovered that her three-year-old son Devon had been exposed to lead paint. Five months later, Evon received medical confirmation that her other son, Eann (11 months old), had also been exposed to lead paint. Evon hired an attorney and timely filed a notice of claim for each child pursuant to General Municipal Law § 50-e. Each claim alleged that the infant plaintiff ingested lead paint while living in a City-owned apartment and that the City was negligent in the ownership, maintenance and control of the apartment.
In January 1995, plaintiff commenced this action alleging that she had timely filed notices of claim for her sons, that the City had conducted a statutory hearing and that the City had not settled or adjusted the claims. The complaint alleged a claim for each child's injuries and two derivative claims by Evon for loss of services. Because the action was not commenced within the one year and ninety day period set forth in General Municipal Law § 50-i, the City moved to dismiss the complaint as time-barred.
Supreme Court dismissed the derivative causes of action, but denied the City's motion with regard to the causes of action asserted on behalf of infant plaintiffs, holding that the infancy toll under CPLR 208 did not terminate when their parent filed a notice of claim on their behalf. The court noted that the City sought, in effect, "to turn the benefit it received by the filing of the notice of claim during infancy into a penalty against infant plaintiffs because the parent or guardian has failed to commence an action within one year and ninety days" (Henry v City of New York, Sup Ct, Kings County, June 3, 1997, Bruno, J., index No. 2233/95 [citing Reid v Braithwaite, NYLJ, Feb 26, 1997, at 26, col 4]).
The Appellate Division reversed ( 244 AD2d 93). Relying on this Court's decisions in Hernandez v New York City Health and Hosps. Corp. (78 NY2d 687) and Baez v New York City Health and Hosps. Corp. (80 NY2d 571), the Appellate Division determined that infant plaintiffs were not under a "disability because of infancy" within the meaning of CPLR 208 (244 AD2d, at 95). The court also noted that as a result of a 1974 amendment, CPLR 208 no longer affords protection by reason of the age of a prospective plaintiff, but rather applies only when the plaintiff is under a "disability because of infancy" (id., at 97). The Appellate Division concluded that Devon and Eann1 no longer suffered a "disability because of infancy" as their interests were protected by their mother and counsel . We disagree.
CPLR 208 provides that where the "person entitled to commence an action is under a disability because of infancy * * * at the time the cause of action accrues," the Statute of Limitations is tolled for the period of disability. The City contends that although Devon and Eann were infants at the time their causes of action accrued, their "disability because of infancy" ceased when their mother, through counsel, filed timely notices of claim pursuant to General Municipal Law § 50-e on their behalf. Thus, the City argues, CPLR 208 is inapplicable to toll the Statute of Limitations set forth in General Municipal Law § 50-i. The City's position is not supported by CPLR 208 or the prevailing case law interpreting the provision.
This Court has consistently recognized the special status that is accorded an infant plaintiff by virtue of the infant 's tender age; that status is not altered by the action or inaction of the infant's parent or guardian (see, Russo v City of New York, 258 NY 344; Murphy v Vil. of Fort Edward, 213 NY 397). In Murphy v Vil. of Fort Edward (supra, 213 NY 397), we noted that an infant's right of action "at its origination is and remains in the infant * * * Infancy does not incapacitate the infant from bringing the action " (id., at 401). When the infant sues by a guardian ad litem, although the guardian may manage the suit and protect the infant's interests, it is the infant who is the real party to the action (id.). Thus, it could not "be justly held * * * that rights accorded by the law to infants are forfeited because a parent did not perform for an infant where performance was excused because of the infancy" (id., at 403). In Russo v City of New York (supra, 258 NY 344), we reaffirmed that "it is the age and capacity of the infant rather than the conduct of its parents and guardians which control" (id., at 348).
Other courts have concluded that the tolling provisions of CPLR 208 apply notwithstanding service of a timely notice of claim on an infant's behalf (see , Rosado v Langsam Prop. Serv. Corp., 251 AD2d 258 [1st Dept]; Sadler v Horvath, 44 AD2d 905 [4th Dept]; Corbett v Fayetteville-Manlius Cent. School Dist., 34 AD2d 379 [4th Dept]; Abbatemarco v Town of Brookhaven, 26 AD2d 664 [2d Dept]; La Fave v Town of Franklin, 20 AD2d 738 [3d Dept]). In Abbatemarco v Town of Brookhaven (supra, 26 AD2d 664), the Second Department held that the one year and ninety day time period of General Municipal Law § 50-i did not bar an infant's action against the municipality. The court specifically noted that "because of the disability of infancy, the bar of the statute never became effective" (id., at 664 [emphasis supplied]). In Rosado v Langsam Prop. Serv. Corp. (supra, 251 AD2d 258), the First Department held that although the infant plaintiff's guardian, represented by counsel, filed a timely notice of claim but then failed to commence the action within the Statute of Limitations, the action was not time-barred . The court noted that "the initial prosecution of [the infant's] claim by his legal representatives did not preclude him from invoking the CPLR 208 disability toll to prevent the running of the statutory period" (id., at 65 8).
The City argues that most of these cases are distinguishable because they were based on language no longer found in the statute. Prior to 1974, CPLR 208 provided that the infancy toll applied where "a person entitled to commence an action is, at the time the cause of action accrues, under the age of twenty-one years" ; (former CPLR 208). Thus, the City argues, the application of former CPLR 208 was defined by the plaintiff's age.
In 1974, the statute was amended; the statute's use of age to define infancy was dropped and the phrase "disability because of infancy " was added. The City views this as a substantive sea change. The infancy disability, in the City 's view, is no longer measured by age and is overcome when a parent, legal guardian or attorney takes steps to protect an infant's rights by filing a notice of claim. Thus, according to the City, there is no longer a disability once someone acts on the infant's behalf. We are unpersuaded by this argument .
In 1971, the Twenty-Sixth Amendment to the United States Constitution became effective , reducing the voting age from 21 to 18 for the purpose of State as well as Federal elections (1974 Report of NY Law Rev Commn, reprinted in McKinney's Session Laws of NY, at 1882). The Legislature ratified the amendment that same year and made the necessary adjustments to the Election Law. The ratification also raised a number of issues concerning the advisability of reducing the age at which legal "infancy" terminates. In response, the Law Revision Commission undertook a review of the Consolidated and Unconsolidated Laws to determine what statutes should be promptly amended, what statutes should remain as they were and what statutes needed additional study by the Commission (id.).
The 1974 amendment to CPLR 208 was submitted by the Law Revision Commission along with amendments to 52 other statutes (id., at 1883). In conjunction with the amendment to CPLR 208, the Legislature added definitions to the CPLR for the terms "infant" and " ;infancy." An "infant" is "a person who has not attained the age of eighteen years "; "infancy" means "the state of being an infant" ( CPLR 105[j] as added by L 1974, ch 924). While the Legislature did not include a definition for the term "disability" and did not use the phrase "under the age of eighteen" to delineate those claims to which the toll of CPLR 208 applies, the resulting phrase "disability because of infancy" appears to be nothing more than a stylistic drafting choice.
According to the Law Revision Commission, " ;amendatory language has been kept to a minimum in order to interfere as little as possible with existing language. New provisions have been adapted to the existing style of each chapter amended" (Recommendation of NY Law Rev Commn to the Legislature, 1974 McKinney's Session laws of NY, at 1889).2 There is no indication that the Legislature intended the amendment to change the application of the infancy toll (see, Alexander, Supp Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C208:4, at 114; see also, Siegel, New York Practice [2d Ed], § 54, at 66). Thus, the legislative history to the 1974 amendment fails to support the City's contention that the Legislature intended to depart from settled statutory interpretation that the toll is based on the age of the prospective plaintiff.
The City also argues that a 1975 amendment to CPLR 208 creating a ten-year cap on the commencement of an infant's medical malpractice action, is further proof that the tolling protection is tied to a person's ability to commence an action , not age. The legislative history for the 1975 amendment indicates that it was part of a larger package of reforms in response to the diminished availability of health care services as a result of the lack of affordable medical malpractice insurance coverage (Governor's Mem, Bill Jacket, L 1975, ch 109). Moreover, the ten-year ceiling was designed to cut down the large reserves or "tail" required by insurance carriers for possible claims by infants (id.). The amendment to CPLR 208 reflects nothing more than an attempt to place a time cap on infant medical malpractice claims equal to that provided for persons under other legal disabilities. It has no relevance to the reach of the tolling statute at issue here.
The City also relies on Hernandez v New York City Health & Hosps. Corp. (78 NY2d 687) and Baez v New York City Health & Hosps. Corp. (80 NY2d 571). It contends that these cases established that, once an infant's interests are protected by a guardian or personal representative, the tolling provisions of CPLR 208 are no longer applicable as the infant is no longer under a disability. The City misconstrues Hernandez and Baez. Neither Hernandez nor Baez holds that the CPLR 208 toll becomes inapplicable when the infant plaintiff retains an attorney or takes steps to pursue litigation. Both Hernandez and Baez involved wrongful death actions where the "person entitled to commence an action" is the decedent's personal representative and not a distributee -- infant or adult ( EPTL 5-4.1).
Hernandez concerned an "unusual situation" where there was no personal representative of the decedent's estate and the infant sole distributee was not eligible to receive letters of administration pursuant to SCPA 707(1)(a). No one could commence a wrongful death action until a guardian was appointed for the infant sole distributee. Thus, the infant 's disability was directly linked to identifying a prospective plaintiff (an administrator) and only the appointment of a guardian or the infant's eighteenth birthday could resolve the dilemma. In that rare situation, CPLR 208 tolls the Statute of Limitations for the wrongful death action until the "earliest moment there is a personal representative or a potential personal representative who can bring the action , whether by appointment of a guardian or majority of the distributee, whichever occurs first"( id., at 693). Hernandez does not alter the definitional limits of CPLR 208. It bridges a "unique" statutory gap in a limited circumstance (id.).
In Baez, decedent's will named plaintiff the executrix. Thus, plaintiff could have sought appointment as the personal representative for the estate and commenced the wrongful death action ; the infancy toll was inapplicable because the infant distributees were not "entitled to commence the action."
Infant plaintiffs should not be penalized by a parent's compliance with General Municipal Law § 50-e in an effort to protect a right to recovery. Infancy itself, the state of being "a person under the age of eighteen" ( CPLR 105[j]), is the disability that determines the toll. An interpretation of the infancy toll which measures the time period of infancy based on the conduct of the infant's parent or guardian cuts against the strong public policy of protecting those who are disabled because of their age (see , Valdimer v Mount Vernon Hebrew Camps, 9 NY2d 21, 25; see also, CPLR art 12). Because plaintiffs here were under the age of 18 when their causes of action accrued , they are entitled to the benefit of the infancy toll, and their claims against the City are not time -barred.
The City's remaining contentions are without merit.
Accordingly , the Appellate Division order should be reversed, with costs, and defendant City of New York's motion to dismiss the first and second causes of action of the complaint against it should be denied.
1. Eann Henry passed away during the pendency of this appeal. This Court granted the motion to substitute the Public Administrator of Bronx County for and in place of the child.
2. Indeed, the pre-1974 version of CPLR 208 used "disability" to describe insanity and infancy, the only conditions qualifying for a toll under the statute (see, former CPLR 208). Thus, the use of the phrase "disability because of infancy or insanity" is nothing more than an adaptation to the then-existing style of CPLR 208.
Order reversed, with costs, and defendant City of New York's motion to dismiss the first and second causes of action of the complaint against it denied. Opinion by Judge Wesley. Chief Judge Kaye and Judges Bellacosa, Smith, Levine and Ciparick concur. Judge Rosenblatt took no part.
DECISION & ORDER
In a proceeding pursuant to CPLR article 75 to permanently stay arbitration of an uninsured motorist claim, the appeal is from an order of the Supreme Court, Nassau County (Alpert, J.), dated December 4, 1998, which granted the petition.
ORDERED that the order is affirmed, with costs.
On August 27, 1991, the appellant, Christopher Morrison, while a passenger in his wife's vehicle, was allegedly injured by a third-party tortfeasor. After obtaining a judgment on default against the driver of the offending vehicle, Morrison demanded payment from the alleged insurance carrier of the offending vehicle, the petitioner Allcity Insurance Company (hereinafter Allcity). Allcity disclaimed liability on the ground that no policy existed on the date of the accident. On July 2, 1998, Morrison served a demand for arbitration upon Allstate Insurance Company (hereinafter Allstate), which insured his wife 's vehicle, claiming uninsured motorist benefits.
"A demand for arbitration of an uninsured motorist's claim is subject to the six-year Statute of Limitations, which runs from the date of the accident or from the time when subsequent events render the offending vehicle 'uninsured' " ( Matter of Allstate Ins. Co. v Torrales, 186 AD2d 647). Since Morrison's claim was filed more than six years after the accident date, Morrison was required to come forward with legally sufficient proof that a later accrual date applies (see, Matter of State Farm Mut. Auto. Ins. Co. v Avena, 133 AD2d 159), and that he diligently sought to determine whether the offending vehicle was insured on the date of the accident (see, Matter of Nationwide Ins. Co. v Montopoli, AD2d [2d Dept., June 28, 1999]; Matter of State Farm Mutual Ins. Co. v Pizzonia, 147 AD2d 703).
On the record before us, Morrison has failed to sustain his burden of adducing legally sufficient proof that a later accrual date applies, or that he exercised due diligence in ascertaining the insurance status of the offending vehicle. Accordingly, Allstate is entitled to a permanent stay of arbitration.
THOMPSON, J. P., KRAUSMAN, H. MILLER, and SCHMIDT, JJ., concur.