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Brown v. Government Employees Insurance Co.

Supreme Court of New York, Third Department

December 14, 2017

PATRICIA BROWN, Appellant,
v.
GOVERNMENT EMPLOYEES INSURANCE COMPANY, Respondent.

          Calendar Date: October 12, 2017

          E. Stewart Jones Hacker Murphy, LLP, Troy (Ryan M. Finn of counsel), for appellant.

          Rivkin Radler LLP, Uniondale (Henry Mascia of counsel), for respondent.

          Before: McCarthy, J.P., Egan Jr., Lynch, Rose and Rumsey, JJ.

          MEMORANDUM AND ORDER

          RUMSEY, J.

         Appeal from an order of the Supreme Court (Ferreira, J.), entered April 11, 2016 in Albany County, which partially granted defendant's motion to partially dismiss the complaint.

         Plaintiff alleged that she became permanently disabled as a result of injuries that she sustained in an automobile accident in March 2012. Following an independent medical examination (hereinafter IME), defendant denied no-fault insurance benefits on the basis that plaintiff's injuries were preexisting and were not causally related to the accident. In December 2014, plaintiff commenced this action asserting causes of action for breach of contract, violation of General Business Law §§ 349 and 350 and intentional infliction of emotional distress, based on allegations that defendant pressured the physicians that it employed to conduct IMEs to attribute injuries to preexisting conditions and thereby facilitate the denial of claims, and seeking, among other relief, damages for emotional distress and punitive damages. In October 2015, defendant moved to dismiss the second and third causes of action - for violation of General Business Law §§ 349 and 350 and intentional infliction of emotional distress, respectively - and plaintiff's claims for consequential damages, emotional distress damages and punitive damages. Supreme Court partially granted defendant's motion by dismissing the second and third causes of action and plaintiff's claims for emotional distress damages and punitive damages, but held that plaintiff had adequately stated a claim for consequential damages for economic loss and pain and suffering. Plaintiff now appeals. [1]

         "On a motion to dismiss for failure to state a claim, the court must afford the complaint a liberal construction, accept as true the allegations contained therein, accord the plaintiff the benefit of every favorable inference and determine only whether the facts alleged fit within any cognizable legal theory" (Shebar v Metropolitan Life Ins. Co., 25 A.D.3d 858, 859 [2006] [internal quotation marks, brackets and citations omitted]). "A cause of action to recover damages pursuant to General Business Law § 349 has three elements: first, that the challenged act or practice was consumer-oriented; second, that it was misleading in a material way; and third, that the plaintiff suffered injury as a result of the deceptive act" (Benetech, Inc. v Omni Fin. Group, Inc., 116 A.D.3d 1190, 1190 [2014] [internal quotation marks and citations omitted], lv denied 23 N.Y.3d 909');">23 N.Y.3d 909 [2014]). In that regard, allegations that an insurer engaged in a practice of failing to investigate claims in good faith, or of denying claims without regard to their viability, are sufficient to state a cognizable claim for deceptive practices pursuant to General Business Law § 349 (see Ural v Encompass Ins. Co. of Am., 97 A.D.3d 562, 564-565 [2012]; Shebar v Metropolitan Life Ins. Co., 25 A.D.3d at 858-859; Joannou v Blue Ridge Ins. Co., 289 A.D.2d 531, 532 [2001]; Acquista v New York Life Ins. Co., 285 A.D.2d 73, 78, 82 [2001]). Moreover, "[t]he battle over whether [a] plaintiff can meet [his or] her obligation of a threshold showing that [his or] her claim was predicated upon a deceptive act or practice that was consumer oriented is best reserved for a motion for summary judgment after discovery" (Skibinsky v State Farm Fire & Cas. Co., 6 A.D.3d 975, 976 [2004] [internal quotation marks and citations omitted]).

         In her complaint, plaintiff alleged that defendant engaged in a consumer-oriented pattern and practice aimed at the public at large of wrongfully denying claims for no-fault benefits by pressuring the physicians it hired to perform IMEs to provide medical reports that would support the denial of benefits and, further, that she suffered injury as a result of that practice. Such allegations are sufficient to plead a cause of action pursuant to General Business Law § 349 "'at this early prediscovery stage'" (Shebar v Metropolitan Life Ins. Co., 25 A.D.3d at 859, quoting Skibinsky v State Farm Fire & Cas. Co., 6 A.D.3d at 976 [brackets omitted]) [2]. Thus, Supreme Court erred in granting defendant's motion to dismiss plaintiff's General Business Law § 349 cause of action.

         In her breach of contract claim, plaintiff seeks consequential damages, including damages for emotional distress. Supreme Court dismissed plaintiff's claim for emotional distress damages and held that plaintiff had otherwise adequately pleaded a claim for consequential damages. We agree. It has long been the rule that "absent a duty upon which liability can be based, there is no right of recovery for mental distress resulting from the breach of a contract-related duty" (Wehringer v Standard Sec. Life Ins. Co. of N.Y., 57 N.Y.2d 757, 759 [1982]; accord Johnson v Jamaica Hosp., 62 N.Y.2d 523, 528-529 [1984]; see Hess v Nationwide Mut. Ins. Co., 273 A.D.2d 689, 690-691 [2000]; Klein v Empire Blue Cross & Blue Shield, 173 A.D.2d 1006, 1008 [1991], lv denied 78 N.Y.2d 863');">78 N.Y.2d 863 [1991]; Sweazey v Merchants Mut. Ins. Co., 169 A.D.2d 43, 45 [1991], lv dismissed 78 N.Y.2d 1072');">78 N.Y.2d 1072 [1991]). As Supreme Court noted, plaintiff failed to satisfy this standard because she did not allege the existence of any relationship or duty between the parties separate from the contractual obligation.

         We reject plaintiff's argument that she may seek damages for emotional distress in light of Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of N.Y. (10 N.Y.3d 187');">10 N.Y.3d 187');">10 N.Y.3d 187');">10 N.Y.3d 187 [2008]) and Panasia Estates, Inc. v Hudson Ins. Co. (10 N.Y.3d 200 [2008]), in which the Court of Appeals held, for the first time, that "consequential damages resulting from a breach of the covenant of good faith and fair dealing may be asserted in an insurance contract context, so long as the damages were 'within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting'" (Panasia Estates, Inc. v Hudson Ins. Co., 10 N.Y.3d at 203, quoting Bi-Economy Mkt., Inc. v Harleysville Ins. Co. of N.Y., 10 N.Y.3d at 192 [internal quotation marks and citations omitted]). Although the Court of Appeals did not specifically consider the issue of whether damages were available for emotional distress when it decided Bi-Economy and Panasia, we conclude that it did not implicitly abandon the long-standing rule that damages for emotional distress for breach of contract are available only in certain limited circumstances, such as a willful breach accompanied by egregious and abusive behavior (see Johnson v Jamaica Hosp., 62 N.Y.2d at 528-529).

         In that regard, we note that the Second Department has continued to apply the rule of Wehringer v Standard Sec. Life Ins. Co. of N.Y. (supra) following Bi-Economy and Panasia (see Curtis-Shanley v Bank of Am., 109 A.D.3d 634, 635 [2013], lv dismissed and denied 22 N.Y.3d 1133');">22 N.Y.3d 1133 [2014]; Rakylar v Washington Mut. Bank, 51 A.D.3d 995, 996 [2008]). The Second Department has also held, based on a rule that existed prior to Bi-Economy and Panasia, that the scope of consequential damages permitted by Bi-Economy and Panasia does not include the expenses incurred when an insured commences affirmative litigation to enforce its rights under an insurance policy (see Santoro v GEICO, 117 A.D.3d 1026, 1028 [2014]; Stein, LLC v Lawyers Tit. Ins. Corp., 100 A.D.3d 622, 622-623 [2012]) [3]. We agree that nothing in Bi-Economy or Panasia implicitly altered or abrogated previous rules limiting recovery of damages for breach of a contract-related duty. Rather, Bi-Economy and Panasia announced a new rule that extended the ability to recover consequential damages for breach of the covenant of good faith and fair dealing in the context of an insurance contract - a circumstance where they had not previously been available - subject to the same rules that otherwise limit recovery of damages for any breach of contract. Thus, Supreme Court properly dismissed plaintiff's claim seeking damages for emotional distress. [4]

         Plaintiff's claim for punitive damages was likewise properly dismissed. Punitive damages may be recovered for breach of contract "only where a defendant's conduct was (1) actionable as an independent tort, (2) egregious, (3) directed toward the plaintiff and (4) part of a pattern directed at the public" (Dinstber v Allstate Ins. Co., 110 A.D.3d 1410, 1411 [2013]). Plaintiff's allegations that defendant engaged in unfair claim settlement practices do not allege a tort independent of the parties' contract sufficient to state a claim for recovery of punitive ...


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