Opinion ID: 4564309
Heading Depth: 2
Heading Rank: 1

Heading: Unlawful Rebate Claims

Text: This Court has not considered whether a royalty fee arrangement such as that present here, which provides a percentage of premiums collected through a group insurance plan in exchange for licensing intellectual property, constitutes an unlawful premium rebate under Connecticut and D.C. law. We need not address this issue today because, even assuming without deciding that the royalty fee constituted an unlawful premium rebate, Dane's claim fails as a matter of law because he did not plausibly allege any ascertainable loss or injury caused by his purchase of insurance or the AARP licensing arrangement.
We review a district court's grant of a motion to dismiss under Rule 12(b)(6) de novo. Bldg. Indus. Elec. Contractors Ass'n v. City of New York, 678 F.3d 184, 187 (2d Cir. 2012). To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation 10 marks omitted). [W]e accept as true all factual allegations and draw from them all reasonable inferences; but we are not required to credit conclusory allegations or legal conclusions couched as factual . . . allegations. Nielsen v. Rabin, 746 F.3d 58, 62 (2d Cir. 2014) (citation omitted). Accordingly, 'threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.' Id. (quoting Iqbal, 556 U.S. at 678) (brackets omitted).
Both Connecticut and D.C. enacted anti-rebating statutes prohibiting the unlawful use of premium rebates as an inducement to purchase insurance. Under Connecticut law: No insurance company doing business in [Connecticut], . . . shall pay or allow, or offer to pay or allow, as inducement to insurance, any rebate of premium payable on the policy, or any special favor or advantage in the dividends or other benefits to accrue thereon, or any valuable consideration or inducement not specified in the policy of insurance. Conn. Gen. Stat. § 38a-825. D.C.'s anti-rebating statute similarly prohibits the unlawful use of premium rebates:
... 11 (2) Pay, allow, give, or offer to pay, allow, or give, directly or indirectly as inducement to such policy or contract: (A) A rebate of premiums payable on the policy or contract . . . . D.C. Code § 31-2231.12(a)(2). Under Connecticut law, claims based on illegal insurance practices, including unlawful rebates, are governed by the Connecticut Unfair Insurance Practices Act (CUIPA), Conn. Gen. Stat. § 38a-815. 2 This Court has explained that: CUIPA does not provide litigants an independent cause of action, so Connecticut plaintiffs are allowed to use CUTPA as a vehicle to bring CUIPA claims. CUTPA prohibits any person from 'engag[ing] in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce,' Conn. Gen. Stat. § 42-110b(a), and provides a right of action . . . . CUIPA in turn defines unfair or deceptive acts or practices in the insurance business, and prohibits any person from engaging in such practices in Connecticut. See id. § 38a-815. Hartford Roman Catholic Diocesan Corp. v. Interstate Fire & Cas. Co., 905 F.3d 84, 9495 (2d Cir. 2018); see also Artie's Auto Body, Inc. v. Hartford Fire Ins. Co., 317 Conn. 2 Conn. Gen. Stat. § 38a-816(9) incorporates as a prohibited practice any violation of Conn. Gen. Stat. § 38a-825, the unlawful rebate statute. 12 602, 623 (2015) (Connecticut Supreme Court confirming that individuals may bring an action under CUTPA for violations of CUIPA (citing Mead v. Burns, 199 Conn. 651, 663 (1986))). Thus, a private individual pursuing a claim against an insurer for an unlawful insurance practice must plausibly allege a CUIPA violation and satisfy the elements of a CUTPA claim. See Engelman v. Conn. Gen. Life Ins. Co., No. CV 920337028S, 1997 WL 524173, at  (Conn. Super. Ct. Aug. 12, 1997), as corrected (Dec. 8, 1997) (Having proved the CUIPA violation, the plaintiff had to complete the CUTPA picture with proof of an 'ascertainable loss.' (quoting Conn. Gen. Stat. Ann. § 42-110g(a))). 3 CUTPA provides a private cause of action for [a]ny person who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment of an unfair or deceptive act. Conn. Gen. Stat. § 42110g(a) (emphasis added). It is well-settled that [t]he ascertainable loss requirement is a threshold barrier which limits the class of persons who may bring a CUTPA action seeking either actual damages or equitable relief. 3 Dane's complaint alleges that the rebating scheme is a blatant violation of the [CUIPA], Conn. Gen. Stat. § 38a-815. J. App'x at 15. The complaint also notes, correctly, that violations of CUIPA are violations of the [CUTPA], Conn. Gen. Stat. § 42-110b(a) and give rise to a cause of action under Conn. Gen. Stat. § 42-110g(a). J. App'x at 46. 13 Hinchliffe v. Am. Motors Corp., 184 Conn. 607, 615 (1981); see, e.g., Maguire v. Citicorp Retail Servs., Inc., 147 F.3d 232, 238 (2d Cir. 1998) (affirming summary judgment on the CUTPA claim after plaintiff failed to demonstrate ascertainable loss). An ascertainable loss is a loss that is capable of being discovered, observed or established. Fairchild Heights Residents Ass'n, Inc. v. Fairchild Heights, Inc., 310 Conn. 797, 822 (2014) (internal quotation marks omitted).
We conclude that Dane's unlawful rebate claim fails as a matter of law because, even assuming without deciding that the royalty fee was an unlawful rebate in violation of CUIPA, Dane did not plausibly allege any ascertainable loss arising from the payment of his Medigap premiums. Dane concedes that he paid the premium rate approved by state regulators and received the Medigap insurance for which he contracted. See Appellant's Reply Br. at 22 (conceding that [Dane] received the coverage he expected.). Thus, there can be no ascertainable loss that is capable of being discovered, observed or established. Fairchild Heights Residents Ass'n, Inc., 310 Conn. at 822. Dane has not plausibly alleged any identifiable loss, and, indeed, although he was aware of the AARP royalty arrangement at the start of this litigation, he nevertheless 14 remained enrolled in the Medigap program and continued to pay his premiums in full. At bottom, Dane alleges a theory of overpayment. Dane contends that he paid an additional 4.9% in premium costs on top of what is necessary to bind . . . coverage. Appellant's Br. at 11. He argues that the additional 4.9% charged on top of the premium due for insurance coverage should be used to reduce the costs of the plan, or [be] returned to the member insureds. J. App'x at 20, 29. Dane's description of a payment on top of what is required to bind coverage is simply a mischaracterization -- he paid the state regulator-approved rate and no more than that rate. 4 As the district court correctly explained, Dane cannot plausibly allege any loss caused by United's allocation of its premium revenue because he did not pay more than the [regulator]-approved filed rate for the coverage he received, and he could not have purchased United Medigap coverage for any other rate. S. App'x at 12. Further, because Dane failed to 4 We note that Dane failed to allege any payment beyond the rate expressly approved by Connecticut and D.C. insurance regulators. These state agencies exercise an independent duty of ensuring that the premium rates charged by Medigap providers not be excessive. Conn. Gen. Stat. § 38a-481(b); see Conn. Agencies Regs. § 38a-474- 2(a)-(c); D.C. Mun. Regs. tit. 26-A, §§ 2214.1, 2216.1. These agencies review United's premium rates to ensure they are adequate to support the promised benefits. See Conn. Gen. Stat. § 38a-495a(k); Conn. Agencies Regs. §§ 38a-474-2(d)(6), 38a-474-3(a), (b)(1); D.C. Code § 31-3704; D.C. Mun. Regs. tit. 26-A, § 2212.1(a). 15 allege any inadequate coverage under his United Medigap policy, he failed to sufficiently allege any theory of overpayment. Dane's theory of the case is fundamentally flawed because it is wholly speculative: he assumes that any costs saved from the AARP royalty fee would automatically be used to lower the costs of the Medigap plan or be returned to the AARP member insureds. See J. App'x at 55 (seeking restitution and disgorgement of Defendants' revenues to Plaintiff and the Class). Dane merely presumes that savings would be passed on to member insureds. In fact, of course, [i]n lieu of passing on all or some portion of such savings, businesses may, for example, reduce debt, increase employee compensation, increase advertising expenditures, invest in new products or business opportunities -- all the while being mindful of what competitors are doing in the marketplace. Friedman v. AARP, Inc., No. 14-00034 DDP (PLA), 2019 WL 5683465, at  (C.D. Cal. Nov. 1, 2019). To be sure, the 1997 agreement precisely contemplates that AARP may use premium contributions for a variety of costs, including administrative and operating expenses. Accordingly, because Dane failed to plausibly allege any ascertainable loss or injury resulting from the purchase of 16 insurance, there can be no CUTPA claim premised on an unlawful insurance practice under Connecticut law. 5 Moreover, we are not persuaded by Dane's policy arguments supporting his unlawful rebate theory. He argues that the royalty allows United to achieve a high share of the Medigap market, but AARP members are not bound to use United Medigap coverage. The arrangement between United and AARP has been broadly disclosed through advertising materials, and the premium rates as a whole (including the royalty fee) have been approved by the relevant state regulators. Thus, the policy concerns underlying the anti-rebating statutes are not undermined by this licensing arrangement. See 1 Steven Plitt et al., Couch on Insurance § 2:32 (3d ed. Supp. 2020) (anti-rebating statutes are intended to protect the solvency of the insurance company, prevent unfair discrimination among insureds of the same class, protect the quality of service, avoid concentration of the market in a few insurance companies, and avoid unethical sales practices); see also McGuire v. Am. Family Mut. Ins. Co., 448 F. App'x 801, 810 (10th Cir. 2011) (noting that the purpose of Kansas anti-rebating 5 We also reject Dane's contention that the district court prematurely resolved issues of fact in granting defendants' motion to dismiss. The undisputed, relevant facts show that Dane's premium rebate claim fails as a matter of law. 17 statute was to prevent or prohibit unfair discrimination practices in the business of insurance). Finally, we note that Dane's lawsuit against defendants unfolds against the backdrop of nationwide litigation challenging the AARP royalty fee as some form of an unlawful payment. For the most part, nearly every case has been unsuccessful and has been dismissed at the motion to dismiss phase or upon voluntary dismissal. See, e.g., Friedman, 2019 WL 5683465, at , appeal dismissed, No. 19-56386, 2020 WL 2732230 (9th Cir. Mar. 26, 2020); Christoph v. AARP, Inc., No. 18-cv-3453, 2019 WL 4645172, at  (E.D. Pa. Sept. 23, 2019); Levay v. AARP, Inc., No. 17-09041 DDP (PLAX), 2019 WL 2108124, at  (C.D. Cal. May 14, 2019); Sacco v. AARP, Inc., No. 18-cv-14041, Dkt. 90 (S.D. Fla. 2018). But see Krukas v. AARP, Inc., 376 F. Supp. 3d 1, 47 (D.D.C. 2019) (denying motion to dismiss); Bloom v. AARP, Inc., No. 18-cv-2788, 2018 WL 10152230, at  (D.N.J. Nov. 30, 2018) (same). Likewise, we conclude here that Dane failed to plausibly allege a cognizable claim based on his purchase of Medigap insurance through the AARP-UnitedHealthcare plan. 18