Under New York law, the elements of fraud are: a representation of a material fact, falsity, scienter, reliance and injury. New York University v. Continental Ins. Co., 87 N.Y.2d 308, 639 N.Y.S.2d 283, 289, 662 N.E.2d 763 (Ct. App. 1995). Allstate argues that the complaint does not allege reliance or an actionable misrepresentation.
The complaint alleges that Allstate misrepresented "to plaintiffs and members of the Class that it would conduct its business activities as a legitimate No-Fault insurer and would reimburse plaintiffs and other members of the Class in a timely fashion for rendering necessary medical treatment and other services to patients." (Complaint, P 31.) It also alleges that Allstate made misrepresentations to plaintiffs concerning nonreceipt of claims, the need for additional documentation and further review, and the medical necessity of treatment. (See id., PP 2, 18(a)-(d), 31.)
In reliance on those misrepresentations, plaintiffs say, they rendered medical treatment to patients entitled to receive benefits from Allstate. (Id. P 33.) However, all of the misrepresentations regarding submitted claims were made after the services were rendered, so plaintiffs could not have relied on them in deciding to provide treatment. See Mills v. Polar Corp., 12 F.3d 1170, 1175 (2nd Cir. 1993) (allegedly fraudulent statement made after contracts had been signed could not have induced contract). The sole pre-treatment misrepresentation--that Allstate would honor its contractual obligations and obey the law--simply restates plaintiffs' breach of contract claim and does not support a fraud claim. See Continental, 639 N.Y.S.2d at 288-89 (allegations that defendant insurer misrepresented its integrity and intention to pay claims, and that insurer conducted "sham" investigation, did not state claim for fraud).
Nor does the complaint satisfy Rule 9(b)'s heightened pleading standard, which requires that "the circumstances constituting fraud or mistake shall be stated with particularity." In this circuit, a complaint alleging fraud must specify the false or misleading statement, explain how the plaintiff contends the statement was fraudulent, state when and where the statement was made, and identify the speaker. Cosmas v. Hassett, 886 F.2d 8, 11 (2nd Cir. 1989). It must link the allegedly fraudulent statement to an individual speaker; attribution to a corporate entity or its representative is insufficient. Mills, 12 F.3d at 1175; Lomaglio Assocs. Inc. v. LBK Marketing Corp., 876 F. Supp. 41, 44 (S.D.N.Y. 1995).
The complaint does not provide even approximate dates for any of the alleged misrepresentations. Nor does it sufficiently identify who made the alleged misrepresentations, which are attributed only to Allstate.
Accordingly, the fraud claims are dismissed.
C. Breach of Contract
The complaint alleges that Allstate breached the insurance contracts by refusing to reimburse plaintiffs for necessary services, reducing claims without justification, and delaying and impeding reimbursement of claims. (Complaint, P 26.) Those actions, the complaint alleges, breached the policies and their implied covenants of good faith and fair dealing.
Allstate argues that the complaint fails to state a breach of contract claim because it does not specify the provisions allegedly breached. The complaint alleges that the policies obliged Allstate to pay benefits for basic economic loss, including necessary medical expenses. According to the complaint, plaintiffs performed under the policies, and Allstate breached them by refusing to pay, and by reducing and delaying reimbursement to which plaintiffs were entitled. (See Complaint, PP 24-26.) Those allegations are sufficient. See Reuben H. Donnelley Corp. v. Mark I Marketing Corp., 893 F. Supp. 285, 290-91 (S.D.N.Y. 1995) ("It is enough that the complaint contains 'a short and plain statement of the claim' sufficient to put the defendant on notice of the grounds for which plaintiff seeks relief.") (quoting Fed. R. Civ. P. 8(a)(2)).
The complaint also states a claim for a violation of the implied covenant of good faith and fair dealing. Under New York law, every contract contains a covenant of good faith and fair dealing, so neither party may do anything which destroys or injures the other's right to receive the fruits of the contract. E.g., M/A Com Security Corp. v. Galesi, 904 F.2d 134, 136 (2nd Cir. 1990).
Processing claims in bad faith and refusing to pay covered claims may breach that covenant. See Continental, 639 N.Y.S.2d at 289 (allegation that insurer investigated claim in bad faith and failed to pay covered claim states claim for breach of implied covenant of good faith and fair dealing).
Allstate also contends that plaintiffs cannot sue for breach of the insurance contracts because (1) the claim is preempted by section 2601 of New York's Insurance Law, which prohibits unfair claim settlement practices, and does not afford a private right of action; and (2) the exclusive forum for disputes involving claim processing and payment is the simplified arbitration provided for in section 5106(b) of the Insurance Law.
Section 2601(a) of the Insurance Law provides:
(a) No insurer doing business in this state shall engage in unfair claim settlement practices. Any of the following acts by an insurer, if committed without just cause and performed with such frequency as to indicate a general business practice, shall constitute unfair claim settlement practices: