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Inc. v. Progressive Casualty Insurance Co.

United States Court of Appeals, Second Circuit

November 8, 2017

Nick's Garage, Inc., Plaintiff-Appellant,
v.
Progressive Casualty Insurance Company, National Continental Insurance Company, Progressive Advanced Insurance Company, Progressive Direct Insurance Company, Progressive Max Insurance Company, Progressive Northern Insurance Company, Progressive Preferred Insurance Company, Progressive Specialty Insurance Company, Defendants-Appellees.

          Argued: September 19, 2016

         Plaintiff appeals from the judgment of the United States District Court for the Northern District of New York (D'Agostino, J.) granting summary judgment in favor of Defendants. Plaintiff, an automobile repair shop, brought claims as assignee of its customers against Defendants, automobile insurance companies, for breach of contract and deceptive business practices under New York General Business Law § 349. Plaintiff alleges that Defendants failed to fulfill their contractual obligation to pay sufficient funds to repair vehicles to their pre-accident condition, and engaged in deceptive practices in claims processing. The district court's grant of summary judgment was premised on its conclusion that there were no genuine issues of material fact on which Plaintiff could prevail, and, as to Plaintiff's claims of deceptive business practices, that such claims were in addition precluded by New York Insurance Law § 2601.

         Held, the district court erred in part in granting summary judgment in favor of Defendants on Plaintiff's breach of contract and deceptive practices claims. The Judgment is AFFIRMED IN PART, VACATED IN PART, and REMANDED.

          Cecelia R.S. Cannon, Bousquet Holstein PLLC, Syracuse, NY, for Plaintiff-Appellant.

          Kymberly Kochis (Veronica M. Wayner on the brief), Sutherland Asbill & Brennan LLP, New York, NY, for Defendants-Appellees.

          Before: LEVAL and LOHIER, Circuit Judges KORMAN, District Judge. [*]

          LEVAL, CIRCUIT JUDGE

         Plaintiff, Nick's Garage, Inc. ("Garage" or "Plaintiff"), appeals from the judgment of the United States District Court for the Northern District of New York (D'Agostino, J.) granting summary judgment in favor of the Defendants, Progressive Casualty Insurance Company and related entities (collectively, the "Insurer").[1] Garage, an automobile repair shop, brought these claims as assignee of its customers against the Insurer for breach of contract and deceptive business practices under New York General Business Law ("GBL") § 349. Garage alleges that Insurer failed to pay sufficient funds to fulfill its obligation to return the damaged vehicles to pre-accident condition, and engaged in deceptive practices in claims processing. The district court granted summary judgment in favor of Defendants, finding that there were no genuine issues of material fact, and furthermore, as to its claims of deceptive business practices, that such claims were also precluded by New York Insurance Law § 2601.

         We conclude that the district court erred in part in granting summary judgment to Insurer on Garage's breach of contract claims. Insurer failed to show its entitlement to judgment for costs relating to labor hours, parts, labor rates, electronic database access, and hazardous waste removal charges, and the absence of genuine disputes of material fact on these issues. Summary judgment should have been denied for those categories. On the other hand, Insurer demonstrated its entitlement to judgment, and Garage failed to raise a genuine dispute of material fact, on Insurer's payments for paint material costs; the district court properly granted summary judgment to Insurer on that category of claims.

         We also conclude that the district court erred in part in granting summary judgment to Insurer on Garage's GBL claims. There is a question of material fact on Garage's claim that Insurer engaged in deceptive practices concerning its labor rates payments, and that claim is not precluded by N.Y. Ins. Law § 2601. On the other hand, the district court properly granted summary judgment to Insurer on Garage's GBL claim that Insurer misled customers regarding their ability to use the repair shop of their choice.

         Accordingly, we affirm the judgment in part, vacate the judgment in part, and remand to the district court for further proceedings.

         I. BACKGROUND

         Plaintiff Garage is an automobile repair shop in Syracuse, New York. Defendant Insurer issues auto insurance policies in New York. From 2007 to 2011, Garage repaired various vehicles that had suffered damage for which the vehicle owners submitted damage claims to Insurer.

         The vehicle owners made Garage their designated representative to negotiate with Insurer for coverage of repairs, and assigned their insurance claims to Garage. The assignors fall into two categories: (i) "First-Party Assignors" are Insurer policyholders; and (ii) "Third-Party Assignors" are owners of vehicles that were damaged by Insurer's policyholders. Garage, as assignee, brings claims on behalf of 26 First-Party Assignors and 11 Third- Party Assignors. All of the assignors signed a form captioned, Authorization and Guideline for Repairs, undertaking to pay to Garage the balance of its charges for the repairs if Insurer did not pay Garage's full charges. All of the assignors assigned to Garage related claims and rights arising from the property damage insurance claims, and all First-Party assignors assigned their rights under the specified insurance policies to Garage.

         Insurance Law § 2601 and Regulation 64, which is Part 216 of the New York State Insurance Department Regulations, provide context for the interactions between repair shops and insurance companies. Section 2601 prohibits insurers from "engag[ing] in unfair claim settlement practices, " and specifies various acts which, when "committed without just cause and performed with such frequency as to indicate a general business practice, shall constitute unfair claim settlement practices." N.Y. Ins. Law § 2601(a). Such acts include "knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverages at issue, " and "not attempting in good faith to effectuate prompt, fair and equitable settlements of claims submitted." Id. § 2601(a)(1), (4).

         Under Regulation 64, when a claim is made, the insurer may inspect the car, and must negotiate in good faith with the insured or the insured's designated representative and make "a good faith offer of settlement, sufficient to repair the vehicle to its condition immediately prior to the loss." 11 N.Y.C.R.R. § 216.7(b)(1). If after such negotiations the parties cannot reach an "[a]greed price"-i.e., "the amount agreed . . . as the reasonable cost to repair damages to the motor vehicle resulting from the loss, " id. § 216.7(a)(1)-then the insurer must send the insured a prescribed notice of rights letter, which states the insurer's offer and indicates that, upon the insured's request, the insurer is able to recommend a shop to perform the repairs at the stated offer price, id. §§ 216.7(b)(14)(i), 216.12.

         For the vehicles in the instant case, the typical interaction between Garage and Insurer proceeded as follows: Owners brought the damaged vehicles to Garage seeking an estimate on the necessary repairs; Garage inspected the vehicles and sent Insurer an estimate of the repairs Garage determined were necessary to return the vehicles to their pre-accident condition. Insurer then sent a Managed Repair Representative ("MRR") to inspect the vehicle and provided an estimate as to the cost to repair the vehicle to pre-loss condition. Garage responded by sending Insurer a notice of deficiencies, identifying items that were omitted or insufficient in Insurer's estimates and informing Insurer that there was no agreed upon amount for the repairs. This process was sometimes repeated with supplements if additional damage was discovered during the course of the repair. Garage would repair the vehicles after it had received the estimate from Insurer.

         As relevant to this appeal, Garage brings two categories of claims. For Plaintiff's first category of claims, which it brings as assignee of First-Party Assignors, Garage claims that Insurer breached its contractual obligations to the First-Party Assignors by failing to pay the amount necessary to return the vehicles to their pre-accident condition, leaving the First-Part Assignors liable to Garage for the balance of the repair cost to the extent that Garage's charge exceeded Insurer's payment. Garage alleges five categories of under- payments: (1) failing to allow for sufficient labor hours to make necessary repairs; (2) failing to pay for original equipment manufacturer ("OEM") parts when the non-OEM parts suggested by Insurer were inadequate to return the vehicle to pre-accident condition; (3) paying insufficient labor rates; (4) failing to pay the amount necessary for paint materials; (5) failing to pay for charges for accessing an electronic database and removing hazardous waste.

         As relevant here, Insurer's insurance policy provides:

Limits of Liability
1. The limit of liability for loss to a covered auto, non-owned auto, or custom parts or equipment is the lowest of:
c. the amount necessary to repair the damaged property to its pre- loss condition reduced by the applicable deductible; or . . . .
2. Payments for loss to a covered auto, non-owned auto, or custom parts or equipment are subject to the following provisions:
d. In determining the amount necessary to repair damaged property to its pre-loss condition, the amount to be paid by [Insurer]:
i. will not exceed the prevailing competitive labor rates charged in the area where the property is to be repaired and the cost of repair or replacement parts and equipment, as reasonably determined by [Insurer]; and
ii. will be based on the cost of repair or replacement parts and equipment which may be new, reconditioned, remanufactured, or used, including, but not limited to:
(a)original manufacturer parts or equipment; and
(b)nonoriginal manufacturer parts or equipment.

Confidential App. 31-32 (emphasis omitted).

         For its second category of claims, Garage alleges that Insurer violated GBL § 349 by engaging in deceptive acts in handling the claims of both the First-Party Assignors and Third-Party Assignors. Specifically, Garage claims Insurer misled consumers by falsely representing to them that it was willing to pay prevailing competitive labor rates, and by misrepresenting consumers' ability to obtain repairs at the shop of their choice.

         Garage originally filed this suit in New York State Supreme Court. On May 10, 2012, Insurer removed to federal court, which had diversity jurisdiction pursuant to 28 U.S.C. § 1332. On February 27, 2013, the district court granted in part Insurer's motion to dismiss, dismissing Garage's claims for quantum meruit and those GBL § 349 claims that were barred by the statute of limitations. Nickʹs Garage, Inc. v. Progressive Cas. Ins. Co., No. 5:12-CV-777, 2013 WL 718457 (N.D.N.Y. Feb. 27, 2013).

          On September 23, 2013, Garage filed an amended complaint. On March 31, 2015, the district court granted Insurer's motion for summary judgment as to all of Garage's claims. Nickʹs Garage, Inc. v. Progressive Cas. Ins. Co., No. 5:12-CV-777, 2015 WL 1481683 (N.D.N.Y. Mar. 31, 2015). The district court found that Garage failed to raise a genuine dispute of material fact that could support its claims that Insurer breached its contractual obligations to the First-Party assignors as to any of the categories of costs identified. Id. at *6-10. As to Garage's GBL § 349 claims, the district court found that Garage failed to raise a genuine dispute of material fact that could support its claims that Insurer engaged in materially misleading practices, and found in the alternative that these claims were precluded by N.Y. Ins. Law § 2601. Id. at *10-15.

         II. DISCUSSION

         We review a district courtʹs grant of summary judgment de novo, "resolv[ing] all ambiguities and draw[ing] all [reasonable] factual inferences in favor of the party against whom summary judgment is sought." Johnson v. Killian, 680 F.3d 234, 236 (2d Cir. 2012) (per curiam) (quoting Terry v. Ashcroft, 336 F.3d 128, 137 (2d Cir. 2003)). For the court to grant summary judgment, the movant must "show[ ] that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A genuine issue of material fact exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         The movant bears the burden of "demonstrat[ing] the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). "Where, as here, the burden of persuasion at trial would be on the non- moving party . . . the party moving for summary judgment may satisfy his burden of production under Rule 56 in either of two ways: (1) by submitting evidence that negates an essential element of the non-moving party's claim, or (2) by demonstrating that the non-moving party's evidence is insufficient to establish an essential element of the non-moving party's claim." Farid v. Smith, 850 F.2d 917, 924 (2d Cir. 1988) (citing Celotex, 477 U.S. at 331 (Brennan, J., dissenting)).

         A. Breach of Contract

         Garage alleges that Insurer failed to pay sufficient sums to fulfill its contractual policy obligations to cover the reasonable costs necessary to repair the damaged vehicles to their pre-loss condition. To state a claim for breach of contract under New York law, "the complaint must allege: (i) the formation of a contract between the parties; (ii) performance by the plaintiff; (iii) failure of defendant to perform; and (iv) damages." Johnson v. Nextel Commc'ns, Inc., 660 F.3d 131, 142 (2d Cir. 2011). Insurer does not dispute that prongs (i) and (ii) have been met.

         1. Damages

         Insurer argues that the First-Party Assignors (whose claims are asserted by Garage as their assignee) suffered no damages because their vehicles were repaired by Garage to their pre-loss condition. Insurer misunderstands the theory of this category of claim. Insurer was obligated to pay its insureds the "loss" on a covered vehicle, i.e., the amount of money sufficient to return the vehicles to their pre-loss condition. Thus, the difference between what Insurer paid to Garage and the amount necessary to return the vehicles to their pre- loss condition constitutes damages suffered by the insureds on which Garage, as assignee, can bring suit.[2]See Citibank, N.A. v. Tele/Resources, Inc., 724 F.2d 266, 269 (2d Cir. 1983). There is no merit to Insurer's contention that the First- Party Assignors suffered no damages regardless of ...


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