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National Convention Services, L.L.C. v. Applied Underwriters Captive Risk Assurance Co. Inc.

United States District Court, S.D. New York

March 9, 2017

NATIONAL CONVENTION SERVICES, L.L.C. ET AL, Plaintiffs,
v.
APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC. ET AL, Defendants.

          OPINION AND ORDER

          JOHN G. KOELTL, District Judge.

         This dispute arises out of a complicated insurance scheme executed by several affiliated insurance carriers, and their other affiliates, that was allegedly designed to circumvent the insurance laws of, among other states, New York. It involves three allegedly interconnected contracts that, according to the plaintiffs, should be treated as one interdependent transaction: First, a workers' compensation insurance contract between a licensed insurer and an insured; second, a "reinsurance" contract between the licensed insurer and an affiliated "reinsurer"; and third, a "reinsurance and profit sharing" contract between the reinsurer and the insured. The plaintiffs allege that the "reinsurance and profit sharing" contract is not actually a separate contract for reinsurance and profit sharing, but instead is an illegal contract of insurance that modifies the material terms of the workers' compensation insurance contract issued by the licensed insurer. The plaintiffs also claim that the "reinsurance and profit sharing" contract is materially misleading, and leads insureds unwittingly to buy back the very risk that they had yielded to the licensed insurer.

         The defendants' insurance scheme was so inventive and novel that it has been patented. In spite of the patent, the scheme has drawn the scrutiny of the insurance regulators of at least three states --- California, Wisconsin, and Vermont --- which have each found that the scheme did in fact violate the insurance laws of those states.

         The defendants are Applied Underwriters Inc. ("Applied Underwriters"), Applied Underwriters Captive Risk Assurance Company, Inc. ("AUCRA"), Applied Risk Services Inc. ("ARS"), Applied Risk Services of New York Inc. ("ARSNY"), Continental Indemnity Company ("Continental Insurance"), and California Insurance Company ("California Insurance"). The plaintiffs, on behalf of a purported class, are National Convention Services, LLC, and Exserv, Inc. (the "NCS plaintiffs"); and Madjek Construction, Inc., R.D.D., Inc., and R.D.D. Management, Inc. (the "RDD plaintiffs"). The plaintiffs have brought claims against Continental Insurance and California Insurance for breach of contract (Count III); and against all of the defendants for rescission (Count II), violation of N.Y. Gen. Bus. L. § 34 9 (Count IV), and unjust enrichment (Count V).[1]

         The NCS plaintiffs brought this action in the New York State Supreme Court, New York County. After the defendants removed the action to this Court pursuant to 28 U.S.C. §§ 1332 and 1441, the NCS plaintiffs filed an amended class action complaint, in which the RDD plaintiffs joined. The RDD plaintiffs had previously filed their own action against the defendants in the New York State Supreme Court, New York County.

         The defendants have moved to dismiss the Second Amended Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the following reasons, the defendants' motion to dismiss is granted in part and denied in part.

         I.

         In deciding a motion to dismiss pursuant to Rule 12(b) (6), the allegations in the complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiff's favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally-sufficient, " Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985}. The Court should not dismiss the complaint if the plaintiff has stated "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Igbal, 556 U.S. 662, 678 (2009).

         While the Court should construe the factual allegations in the light most favorable to the plaintiff, "the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions." Id.; see also Springer v. U.S. Bank Nat'1 Ass'n, No. 15-CV-1107 (JGK), 2015 WL 9462083, at *1 (S.D.N.Y. Dec. 23, 2015). When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); see also Springer, 2015 WL 9462083, at *1.

         II.

         The allegations in the Second Amended Complaint are accepted as true for the purposes of this motion to dismiss.

         A.

         Workers' compensation is a form of insurance that provides wage replacement and medical benefits to employees injured during the course of their employment. SAC ¶ 30. New York has enacted a comprehensive regulatory scheme for workers' compensation that shifts the risk of on-the-job injuries from employees to employers. SAC ¶ 30. In turn, under the New York scheme, employers may purchase workers' compensation insurance from insurance carriers that are licensed to market and sell insurance in New York. SAC ¶ 35.

         Pursuant to the Workers' Compensation Law ("WCL") §§ 10 and 50, all employers must secure the payment of workers' compensation benefits for their employees. SAC ¶ 30. The WCL provides that employers may secure the payment of workers' compensation for their employees by purchasing a workers' compensation policy from any insurance carrier authorized to transact such business in New York. SAC ¶ 31 (citing WCL § 50(2)) . An insurance carrier must be licensed by the New York Department of Financial Services (the "DFS") in order to issue workers' compensation insurance in New York.[2] SAC ¶¶ 9, 35.

         The New York Insurance Law ("NYIL") regulates the provision of workers' compensation insurance. SAC ¶ 3. For example, under the NYIL, all workers' compensation insurance policy forms, rates, rating plans, rating rules, and rate manuals must be filed with and approved by the DFS. SAC ¶ 2. An insurance carrier may not vary an already approved rate or policy form without prior approval from the DFS. SAC ¶¶ 3-4, 33-34.

         Insurance carriers offer two main types of workers' compensation policies: guaranteed cost ("GC") policies, and retrospective rating plan ("RRP") policies. A GC policy essentially fixes insurance premiums at the outset, meaning that the actual cost of the claims against the policy will not cause premiums to fluctuate during the life of the policy. SAC ¶¶ 35-38, 40-41. Premiums under a GC policy may fluctuate depending upon certain other factors, such as the size of an employer's workforce, and the injury risks associated with a particular field of business, but generally give an employer a degree of certainty as to the cost of the insurance policy. SAC ¶¶ 36-38. By contrast, a RRP policy is loss sensitive, meaning that premiums can fluctuate during the life of the policy depending on the actual cost of the claims (typically, the greater the actual cost of the claims, the greater the premiums owed). SAC ¶¶ 35, 3 9-40. As compared to large employers, small-to-medium size employers are alleged to prefer GC policies because such employers require accurate estimates of future costs and are materially harmed by increases in costs. See SAC ¶ 94.

         B.

         The defendants are alleged to be members of the Berkshire Hathaway Group, and are also alleged to be affiliated with each other. SAC ¶ 22; see also SAC, Ex. D (In re: Shasta Linen Supply Inc.) at 9-10 (discussing the complicated organizational structure of the defendants).

         Continental Insurance is an Iowa insurance company, with its headquarters and principal place of business in Nebraska. SAC ¶ 20. California Insurance is a California insurance company, with its principal place of business in Nebraska. SAC ¶ 21. During the relevant period, the Second Amended Complaint alleges that both Continental Insurance and California Insurance were doing business in New York as licensed insurance carriers issuing insurance policies, including policies for workers' compensation insurance. SAC ¶¶ 20-21.

         Continental Insurance and California Insurance are wholly-owned subsidiaries of North American Casualty Company, which is not named as a party in this action. SAC, Ex. D at 9-10. North American Casualty Company is a wholly owned subsidiary of Applied Underwriters, a Nebraska financial service corporation, with its principal place of business in Nebraska. SAC, Ex. D at 10. Applied Underwriters provides payroll processing services, and solicits and underwrites the sale of workers' compensation insurance to small-to-medium size employers through its affiliated insurance companies. SAC ¶ 16.

         Applied Underwriters is also the parent company of AUCRA and ARS. SAC, Ex. D at 9-10. AUCRA is an insurance company that, during the relevant period, was domiciled in the British Virgin Islands. SAC ¶ 17. AUCRA was not a licensed insurer in New York. SAC ¶ 9. AUCRA is currently organized under the laws of Iowa, with its principal place of business in Nebraska. SAC ¶ 17. ARS is a Nebraska corporation, with its principal place of business in Nebraska. SAC, Ex. D at 11; see also SAC ¶ 18. ARSNY is a New York corporation that does business in New York. SAC ¶ 19, 22.

         The plaintiffs allege that the defendants are under common ownership and control, that they share common officers and directors, and that they use the same office space. SAC ¶ 22; see also SAC, Ex. D at 11 (finding of the California Insurance Commissioner that "[t]he Boards of Directors for [California Insurance], [Applied Underwriters], and AUCRA are identical in composition").

         c.

         The plaintiffs claim that the defendants used their corporate structure to thwart the NYIL, and, in the process, willfully violated many of its sections. See, e.g., SAC ¶ 42. Each defendant allegedly played a role in effecting the scheme.

         As the first step in the alleged scheme, Continental Insurance and California Insurance marketed and sold workers' compensation GC policies that had been filed with, and approved by, the DFS (the "Approved GC policies").[3] SAC ¶¶ 8-9; see also SAC, Ex. B (Workers' Compensation and Employer's Liability Insurance Policy Issued by Continental Insurance to the RDD Plaintiffs). The plaintiffs allege that the Approved GC policies, as stand-alone policies, gave the appearance of compliance with the NYIL. SAC ¶¶ 8-9. The Approved GC Policies contained fixed-cost premiums rates, see SAC ¶ 13, and were effective for one-year periods, an allegedly standard term in a GC workers' compensation policy, SAC ¶¶ 10, 60. The Approved GC Policies provided that:

This policy includes at its effective date the Information Page and all endorsements and schedules listed there. It is a contract of insurance between you (the employer named in Item 1 of the Information Page) and us (the insurer named on the Information Page) . The only agreements relating to this insurance are stated in this policy. The terms of this policy may not be changed or waived except by endorsement issued by us to be part of this policy. SAC ¶ 47 (emphasis added).

         The plaintiffs allege that the Approved GC Policies were a sham designed to conceal from the DFS the real terms of unapproved insurance policies that the defendants were marketing and selling, which were set forth in a separate document. SAC ¶¶ 42, 44. The plaintiffs allege that purchase of the Approved GC Policies offered by Continental Insurance and California Insurance was conditioned on an insured's entrance into a "Profit Sharing Plan." SAC ¶¶ 9, 48. The Profit Sharing Plans were known by a variety of names, including "SolutionOne" and "EquityComp." SAC ¶ 48.

         As part of the Profit Sharing Plan, the insured had to agree to a "Reinsurance Participation Agreement" (the "RPA") issued by AUCRA (not Continental Insurance or California Insurance) that allegedly modified the material terms of the Approved GC Policy. SAC ¶ 9; see also Ex. C (The RPA Issued by AUCRA to the NCS plaintiffs). The RPA stated that AUCRA had entered into a "Reinsurance Treaty . . . with California Insurance . . . and, through its pooling arrangement with other affiliates of Applied Underwriters, Inc., [i]ncluding, but not limited to Continental [Insurance], " and that the RPA's purpose was to allow the insured party to "share [i]n the underwriting results of the Workers' Compensation policies of Insurance Issued for the benefit of the [Insured] by the Issuing Insurers." SAC, Ex. C at 1.

         The RPA was not filed with, or approved by, the DFS; indeed, the plaintiffs claim that the DFS could not have approved the RPA (or an Approved GC Policy as modified by the RPA) because the RPA, on its face, violated numerous sections of the NYIL, and the regulations promulgated thereunder. SAC ¶¶ 5-8, 60-62. The plaintiffs claim that the RPA was not an endorsement to the Approved GC Policy, SAC ¶ 49, nor could it be an instrument of reinsurance because an instrument of reinsurance is by definition unconnected to the original insured, SAC ¶ 75.

         The plaintiffs allege that the RPA superseded the fixed-cost premium rates in the Approved GC Policies with loss sensitive rates. SAC % 43. The plaintiffs also allege that the RPA changed the effective period of an Approved GC Policy from one year to three years, and that the RPA imposed additional failure-to-renew costs that incentivized insureds to renew the RPA beyond the three-year period. SAC ¶¶ 60-61. The plaintiffs allege that the RPA imposed onerous early cancellation penalties. SAC ¶ 62. The plaintiffs allege that cancellation of the RPA would result in cancelation of the Approved GC Policy. SAC ¶ 11.

         The California Insurance Commissioner has reviewed an allegedly substantially identical insurance package issued by the defendants to a California-insured where the insured signed an approved (under California law) GC workers' compensation insurance policy issued by California Insurance, and an RPA issued by AUCRA. See SAC, Ex. D; see also SAC ¶¶ 5, 97. After an adversarial hearing during which California Insurance had the opportunity to present evidence, including witness testimony, the California Insurance Commissioner found that "where the RPA and the guaranteed cost policy differ, the RPA terms supplant those of the guaranteed-cost policy." SAC, Ex. D at 55.

         The plaintiffs allege that, in marketing the Profit Sharing Plan to employers, the defendants mischaracterized the RPA as a "reinsurance" and a "profit sharing" instrument --- when it was in reality an insurance contract that modified the terms of the Approved GC Policy --- to escape regulatory scrutiny, and to mislead customers. SAC ¶¶ 5-6, 51-52, 55. The plaintiffs claim that the RPA obligates an insured to fund a "cell, " with the amount of funding dependent on a complex formula that takes into account "loss experience" (in other words, the cost of the insured's claims filed against the Approved GC Policy). SAC ¶¶ 56-57. The plaintiffs allege that, although the defendants represented at the outset that they will return "excess premium and fees" at the conclusion of the Profit Sharing Plan, the Plan contains numerous caveats and delaying provisions, and no insured has received a distribution or return of premiums. See SAC ¶ 63-64; see also SAC, Ex. D at 3 5 (finding of the California Insurance Commissioner that, as of June 20, 2016, "AUCRA has not made any profit sharing distributions" to any insured party).

         The plaintiffs allege that, to explain the transaction to customers, the defendants provided customers with the Approved GC Policy along with marketing materials (consisting of a "Program Summary & Scenario, " a "Program Proposal, " and a "Request to Bind Coverages and Services") describing the RPA, but not the RPA itself. SAC ¶¶ 81, 83; see also SAC, Ex. E (Request to Bind Coverages and Services provided to the RDD plaintiffs); SAC, Ex. F (Workers' Compensation Program Summary & Scenario provided to the RDD plaintiffs}; SAC, Ex. G (Workers' Compensation Program Proposal & Rate Quotation provided to the RDD plaintiffs). As such, a customer of an Approved GC Policy could not review the final terms of the RPA (to which the customer had to agree in order to receive coverage under an Approved GC Policy) until after the customer had agreed in advance to enter into the Profit Sharing Plan by signing the Request to Bind Coverages and Services. SAC ¶¶ 53, 71, 81; see also SAC, Ex. E. The Program Proposal states that the "Profit Sharing Plan is a reinsurance transaction separate from the guaranteed cost policies, " and that the "Profit Sharing Plan is not a filed retrospective rating plan or dividend plan." See SAC, Ex. G at 3. The plaintiffs claim that this statement was false and misleading because the RPA in reality altered the terms of the Approved GC Policy, which a customer would not understand based upon reviewing the marketing materials, or even the RPA itself. See SAC ¶¶ 50-51, 65, 79-80, 86; see also SAC, Ex. D at 28-29 (finding of the California Insurance Commissioner that an insured that signed a GC policy issued by California Insurance, and a Request to Bind Coverages and Services issued by Applied Underwriters, but later refused to sign an RPA issued by AUCRA, would lose insurance coverage under the GC policy).

         The plaintiffs allege that, even though the marketing materials disclosed cost estimates for the Profit Sharing Plan, a customer could not accurately determine the likely costs associated with the Profit Sharing Plan based upon those estimates. SAC ¶¶ 87-88. On this point, the California Insurance Commissioner found that:

[Applied Underwriters'] Sales department distributes a Program Summary & Scenario to brokers and their clients. The Scenarios demonstrate the minimum and maximum three-year program costs and estimate the final program costs based on ultimate claims costs. The Scenarios chart the single-year prorated amounts a participant could expect to pay. . . . But this chart is misleading. EquityComp is sold as a three-year program and not three one-year programs. Accordingly, the single-year table does not represent the one-year cost of the program. In fact, it is the employer's three-year loss history that ultimately guides the cost of the program. SAC, Ex. D. at 27.

         The plaintiffs allege that the defendants' scheme broadly and aggressively targeted small-to-medium size businesses because such businesses are less sophisticated than larger companies, and would be susceptible to agreeing to an Approved GC Policy, coupled with the RPA, without appreciating the ramifications of the decision. SAC ¶¶ 65, 77, 82; see also SAC, Ex. D at 22-23. Indeed, the Plan Proposal states that "Applied Underwriters and its affiliates" established Profit Sharing Plan cells that are "designed specifically for our small and midsized insureds." SAC, Ex. G at 5. The plaintiffs allege that the defendants marketed the Profit Sharing Plan nationally with standardized documents on a take-it-or-leave-it basis. SAC ¶¶ 81-83.

         The plaintiffs allege that the defendants operated the Profit Sharing Plan as a single business unit without regard to their corporate form, and that the distinction between the Approved GC Policy and the RPA as distinct contracts issued by distinct entities is a fiction. SAC ¶ 22. Applied Underwriters allegedly sent notices of cancellation to holders of Approved GC Policies issued by Continental Insurance, or California Insurance, when the holder violated the terms of the RPA issued by AUCRA, even when the holder had not violated the terms of the Approved GC Policy. SAC ¶ 23. ARS prepared the Program Summary & Scenario and the Program Proposal on behalf of Applied Underwriters. See SAC, Exs. F-G. ARSNY allegedly served as the billing agent on behalf of AUCRA, Continental Insurance, and California Insurance. SAC ¶ 22. The Program Proposal provided that Applied Underwriters used an "integrated billing system" to assess charges under the Approved GC Policy and the RPA --- accordingly, payments due on the Approved GC Policy and the RPA appeared in a single line item. SAC, Ex. G at 5; see also SAC, Ex. D at 30.

         Applied Underwriters has patented the scheme at issue. See SAC, Ex. A ("Reinsurance Participation Plan", Patent No. 7, 908, 157 B1). The patent explains that:

One of the challenges of introducing a fundamentally new premium structure into the marketplace is that the structure must be approved by the respective insurance departments regulating the sale of insurance in the states in which the insureds operate. In the United States, each state has its own insurance department and each insurance department must give its approval to sell insurance with a given premium plan in its respective jurisdiction. Getting approval can be extremely time consuming and expensive, particularly with novel approaches that a department hasn't had experience with before. Also, many states require insurance companies to only offer small sized and medium sized companies a Guaranteed Cost plan, without the option of a retrospective plan. In part, this is because of governmental rules and laws that regulate the insurance industry. Disclosed herein is a reinsurance based approach to providing non-linear retrospective premium plans to insureds that may not have the option of such a plan directly. SAC, Ex. A at 6.

         The state insurance departments of California, Vermont, and Wisconsin have concluded that the defendants' marketing and sale of a guaranteed cost plan compliant with the laws of those respective states, coupled with the RPA, does not comply with the insurance laws of those respective states. See SAC, Ex. D at 53-63 (determination by the California Insurance Commissioner that the RPA is a collateral agreement that modifies the underlying guaranteed cost policy in violation of California law); SAC, Ex. I (Vermont Stipulation and Consent Order) at 5-11 (ordering Continental Insurance, Applied Underwriters, ARS, and AUCRA to cease marketing and selling the RPA, and to pay restitution to policyholders that entered into Profit Sharing Plans); SAC, Ex. J (Wisconsin Office of the Commissioner of Insurance Orders) (ordering ARS and Continental Insurance to cease-and-desist marketing and selling the Profit Sharing Plans); see also SAC, Ex. H (California Insurance Commissioner Notice of Hearing for Cease & Desist Orders).

         D.

         The NCS plaintiffs are New York corporations, with their principal places of business in New York, that provide services in connection with exposition and trade shows throughout the United States. SAC ¶ 14. The RDD plaintiffs are also New York corporations, with their principal places of business in New York. SAC ¶ 15.

         Around October 2 012, the NCS plaintiffs began requesting quotes from workers' compensation insurance carriers. SAC ¶ 101. The defendants proposed that the NCS plaintiffs enter into a Profit Sharing Plan, and provided the plaintiffs with Approved GC Policies issued by Continental Insurance, and California Insurance, along with marketing materials describing the Profit Sharing Plan. SAC ¶ 101-02; see also Coles Decl., Ex. 1 (Workers' Compensation Program Proposal & Rate Quotation provided to the NCS plaintiffs); Coles Decl., Ex. 3 (Workers' Compensation Program Summary & Scenario provided to the NCS plaintiffs). The NCS plaintiffs agreed to a Request to Bind Coverages and Services that bound them to accept the terms of the Profit Sharing Plan, and were allegedly only then provided with the actual RPA. SAC ¶ 102; see also SAC, Ex. B. The plaintiffs allege that their premiums under the Profit Sharing Plan far exceeded the premiums set forth in the Approved GC Plan. SAC ¶¶ 105-10. For example, while the annual estimated cost of coverage under the Approved GC Policy for the 2014-2015 term was $420, 325, the premiums for January 2015 alone were $683, 268. SAC ¶ 109. The NCS plaintiffs refused to pay their January 2 015 premiums, and the defendants canceled their insurance coverage on March 22, 2015. SAC ¶¶ 111-12. The defendants have since demanded that the NCS plaintiffs pay $1.59 million in outstanding premiums, plus a cancellation fee of nearly $1 million. SAC ¶ 112.

         The RDD plaintiffs' experience with the defendants is alleged to be substantially similar to that of the NCS plaintiffs. In November 2009, the RDD plaintiffs' insurance broker obtained quotations for workers' compensation insurance, and presented the RDD plaintiffs with the defendants' marketing materials describing the Profit Sharing Plan. SAC ¶ 115; see also SAC, Exs. E-G. The RDD plaintiffs agreed to participate in the Profit Sharing Plan on December 31, 2009. SAC ¶ 116; see also Coles Decl., Ex. 2 (The RPA Issued by AUCRA to the RDD plaintiffs). In April 2012, the defendants began charging the RDD plaintiffs substantially higher premiums, as compared to prior months. SAC ¶¶ 120-21. In early July 2012, the RDD plaintiffs notified Applied Underwriters that it had purchased insurance from another insurance carrier effective July 1, 2012. SAC ¶ 122. On July 18, 2012, Continental Insurance canceled the Approved GC Policy issued to the plaintiffs even though the RDD plaintiffs had allegedly paid the premiums due on that Approved GC Policy.[4] SAC ¶ 122. As a consequence, the RDD plaintiffs allege that they may have no workers' compensation coverage with respect to any employee claims that arise from events that took place between December 31, 2011, and August 2, 2012. SAC ¶ 123.

         On December 27, 2013, Applied Underwriters demanded that the RDD plaintiffs pay an additional $95, 368.54 incurred after the cancellation of the Profit Sharing Plan. SAC ¶ 124. The RDD plaintiffs allege that the defendants have not provided an explanation for the additional charge. SAC ¶ 126.

         III.

         The parties agree that the Approved GC Policies, as contracts of insurance, must be governed by New York law. See NYIL § 3103(b). The RPAs provide that they are governed by Nebraska law. SAC, Ex. C ¶ 16. However, the parties agree that New York law should apply to all of the issues in this dispute, and New York law will be applied in accordance with their agreement.[5] Am. Fuel Corp. v. Utah Energy Dev. Co., 122 F.3d 130, 134 (2d Cir. 1997) ("[W]here the parties have agreed to the application of the forum law, their consent concludes the choice of law inquiry."); see also Rolon v. U.S. Amada, Ltd., No. 95 Civ. 6231 (LAP), 1997 WL 724798, at *2 (S.D.N.Y. Nov. 18, 1997). In any event, the parties agree that, for the common law claims, there is no conflict between Nebraska and New York law, and that the N.Y. Gen. Bus. L. § 34 9 claims must be governed by New York law. see 433 Main St. Realty, LLC v. Darwin Nat'l Assurance Co., No. 14-CV-587 (NGG), 2014 WL 1622103, at *2 n.2 (E.D.N.Y. Apr. 22, 2014).

         This case implicates questions related to the proper interpretation of New York statutes and New York common law. A federal court sitting in diversity must look to the decisional law of the forum state and the state constitution and statues. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); Travelers Ins. Co. v. 633 Third Assoc, 14 F.3d 114, 119 (2d Cir. 1994) . Where the substantive law of the forum is ambiguous or uncertain, the federal court must strive to predict how the highest court of the forum state would resolve the issue. Travelers, 14 F.3d at 119; In re Eastern and Southern Districts Asbestos Litig., 772 F.Supp. 1380, 1388-91 (E. & S.D.N.Y. 1991) (Weinstein, J.), rev'd on other grounds sub nom. In re Brooklyn Navy Yard Asbestos Litig., 971 F.2d 831 (2d Cir. 1992). Decisions of the Appellate Division "are entitled to persuasive, if not decisive consideration." Sphere Drake Ins. Co. v. P.B.L. Entertainment, Inc., 30 F.3d 21, 23 (2d Cir. 1994), vacated on other grounds, 52 F.3d 22 (2d Cir. 1995) (citation omitted); see also Chase Manhattan Bank, N.A. v. T & N pic, 905 F.Supp. 107, 113-14 (S.D.N.Y. 1995).

         A.

         In Count II, the plaintiffs have brought claims against the defendants for rescission to reform the transactions at issue by voiding the terms of the RPAs such that the plaintiffs are only bound by the Approved GC Policies, and for rescissory damages in the amount of any premiums charged and paid over-and-above the premiums called for by the Approved GC Policies.

         The plaintiffs argue that the RPAs are void as a matter of public policy.[6] The defendants do not contest the alleged violations of the NYIL; rather, they argue that there is no private right of action to enforce the sections of the NYIL relating to workers' compensation insurance.

         The plaintiffs concede that the NYIL does not confer a general private right of action to enforce compliance with all of its sections, but they do contend that some sections expressly or impliedly provide for a private right of action as an enforcement mechanism. See, e.g., Harrison v. Metro. Life Ins. Co., 417 F.Supp.2d 424, 432 (S.D.N.Y. 2006); Soliman v. Daimler AG, No. CV 10-408 (SJF) (AKT), 2011 WL 765885, at *9 (E.D.N.Y. Feb. 9, 2011) (collecting cases), report and recommendation adopted, No. 10 CV 408 (SJF) (AKT), 2011 WL 765931 (E.D.N.Y. Feb. 24, 2011); see also Cruz v. TD Bank, N.A., 2 N.E.3d 221, 226-27 (N.Y. 2013).

         The defendants rely extensively on the decisions of the Court of Appeals for the Second Circuit and the New York Court of Appeals in the Schlessinger litigation. In Schlessinger v. Valspar Corp., 686 F.3d 81, 83, 85 (2d Cir. 2012) (Schlessinger I), the Court of Appeals for the Second Circuit considered whether private plaintiffs should be allowed to sue for rescission to excise a "store closure provision" from a contract because the provision allegedly violated N.Y. Gen. Bus. L. ยง 395-a, even though that provision vested the New York Attorney General with exclusive enforcement authority. The Court of Appeals observed that, "This issue lies at the intersection of two legal doctrines that lead to ...


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