Source: https://www.schlamstone.com/insurance/page/6/
Timestamp: 2019-05-27 05:29:55
Document Index: 509029703

Matched Legal Cases: ['§ 349', '§ 2601', '§ 349', '§ 349', '§ 349', '§ 349', '§ 349', '§ 349']

Schlam Stone & Dolan LLP Insurance Page 6
On January 22, 2018, the Second Circuit issued a decision in Beazley Ins. Co. v. ACE American Ins. Co., Case No. 16‐2812‐cv, holding that an undefined term in a policy exclusion was not ambiguous because it had a “clear meaning in federal law.” Beazley Ins. Co. is an insurance coverage action relating to investor lawsuits against NASDAQ in connection with Facebook’s IPO. At issue was a “professional services” exclusion in NASDAQ’s D&O policy, which provided that the insurer “shall not be liable for Loss on account of any Claim . . . by or on behalf of a customer or client of the Company, alleging, based upon, arising out of, or attributable to the rendering or failure to render professional services.” (Emphasis added).
The D&O carrier argued that this exclusion applied because the investors who traded in Facebook shares were “customers” of NASDAQ (and their claims arose from NASDAQ’s “rendering professional services”). The policy did not define the term “customer,” and the plaintiff – an E&O carrier to which NASDAQ had assigned its rights under the D&O Policy – argued that the term was ambiguous and should be construed against the insurance company, especially because it appeared in a policy exclusion.
However, the Second Circuit affirmed the district court’s holding that the term “customer,” as applied to retailer investors who traded on NASDAQ, was not ambiguous, explaining:
The district court properly relied on custom and usage of the term[] “customers” in determining that the retail investors were “customers” of NASDAQ within the meaning of the ACE D&O policy. . . . [S]ecurities law is paradigmatically a federal field. In assessing whether there is a prevailing federal definition, we consider not whether there is complete unanimity among the courts that have addressed the question, but rather whether there is an overwhelming current of judicial opinion, that is, a meaning used by the vast majority of federal courts.
We have little trouble finding that the vast majority of federal courts to consider the issue find retail investors to be “customers” of a stock exchange. In Lank v. New York Stock Exchange, our Court held that “[t]he primary purpose of the Exchange Act was to protect customers of the stock exchanges that is, public investors.” 548 F.2d 61, 64 (2d Cir. 1977) (emphasis added). “One method of effectuating this was to impose on the exchanges a statutory duty to protect investors by regulating (the exchanges’) members.” Id. (citation and internal quotation marks omitted). District courts also regularly characterize retail investors as “customers” of stock exchanges. . . . It appears most federal courts take the meaning of “customer” in this context as a given.
[T]he fact that the professional services exclusion is a standard clause does not alter the analysis here. The parties are not required to tailor language for every policy in order for terms to have industry-specific meanings. Who counts as a customer of a particular insured within the meaning of the generic exclusion will often depend on the nature of the industry in which the insured does business. What is relevant here is that the insurer sold the policy to its insured, a stock exchange, against the backdrop of well-established federal securities law that unambiguously considers retail investors to be customers of the exchange.
This decision illustrates that the absence of an express definition for a term used in an insurance policy does not automatically render the term ambiguous. In an appropriate case, courts will look to outside the policy to custom and usage in the insured’s industry to define policy terms.
On November 8, 2017, the Second Circuit issued a decision in Nick’s Garage, Inc. v. Progressive Casualty Ins. Co., Case No. 15-1426-cv, holding that Section 2601(a) of the New York Insurance Law, which prohibits insurers from “engag[ing] in unfair claim settlement practices,” but provides no private right of action, does not preempt a claim against an insurer for “deceptive acts or practices” under Section 349 of the General Business Law.
In Nick’s Garage, a car repair shop (the “Garage”) brought suit against an automobile insurer as assignee of certain claims for repairs to damaged vehicles that the insureds brought to the Garage to be fixed. Among other things, the Garage alleged that the insurer engaged in “deceptive acts in handling the claims”, including by “falsely representing . . . that it was willing to pay prevailing competitive labor rates” for the repairs.
Unlike many other states, New York does not recognize a tort claim for bad faith claims handling. Section 2601 of the Insurance Law expressly forbids certain specified “unfair claim settlement practices,” including “knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverages at issue”, which would seem to cover the Garage’s theory in this case. However, the Court of Appeals has held that there is no private cause of action for violations of this statute. See Rocanova v. Equitable Life Assurance Soc’y of the U.S., 83 N.Y.2d 603, 614 (1994).
The plaintiff in Nick’s Garage found another way to bring the claim, alleging that the insurer’s misrepresentations about “prevailing wages” were “deceptive acts” prohibited by GBL § 349, a consumer protection statute that allows a prevailing plaintiff to recover treble damages and attorneys’ fees. The insurance company argued that this claim was an improper attempt to work an end-run around Section 2601, which prohibits the same conduct, but does not provide for a private right of action. The district court agreed and dismissed the claim on preemption grounds.
However, the Second Circuit reversed, explaining:
In [Riordan v. Nationwide Mut. Fire Ins. Co., 977 F.2d 47, 51 (2d Cir. 1992)], an insurer argued to us that § 2601, forming part of a “pervasive statutory scheme regulating unfair and deceptive acts and practice by insurance companies,” precludes a private claim against insurance companies under GBL § 349. We rejected the argument, observing that it “ignores the plain language of GBL § 349(g), which states that ‘[t]his section shall apply to all deceptive acts or practices declared to be unlawful, whether or not subject to any other law of this state.'” Id. at 52. The New York courts agree. See New York Univ. v. Cont’l Ins. Co., 87 N.Y.2d 308, 321 (1995) (“[R]elief under [GBL § 349] is not necessarily foreclosed by the fact that the transaction involved an insurance policy . . . .” (citing Riordan)); see also Joannou v. Blue Ridge Ins. Co., 289 A.D.2d 531, 532 (2d Dep’t 2001) (“An insurance carrier’s failure to pay benefits allegedly due its insured under the terms of a standard insurance policy can constitute a violation of General Business Law § 349.”).
In this case, GBL § 349 proved to be an effective vehicle for asserting a tort claim against an insurance carrier. But this statute has its own limitations. A GBL claim must be based on “conduct that is consumer oriented,” and “[p]rivate contract disputes unique to the parties . . . would not fall within the ambit of the statute.” New York University v. Continental Ins. Co., 87 N.Y.2d 308, 320 (1995) (citations omitted). Thus, a GBL § 349 claim will only work if the insured has evidence of conduct by the insurer directed to consumers generally.