Dubuisson v. Stonebridge Life Ins. Co., Docket 16-3526

• Decision Date: 12 April 2018
• Docket Number: Docket 16-3526,August Term 2017
• Citation: 887 F.3d 567
• Parties: Manette DUBUISSON, Individually and on behalf of all others similarly situated, Alice Lacks, Individually and on behalf of all others similarly situated, and George Gonzales, Individually and on behalf of all others similarly situated, Plaintiffs–Appellants, v. STONEBRIDGE LIFE INSURANCE COMPANY, FKA J.C. Penney Life Insurance Company, Transamerica Financial Life Insurance Company, Federal Insurance Company, a Member of the Chubb Group of Insurance Companies, Defendants–appellees.
• Court: U.S. Court of Appeals — Second Circuit

887 F.3d 567

Manette DUBUISSON, Individually and on behalf of all others similarly situated, Alice Lacks, Individually and on behalf of all others similarly situated, and George Gonzales, Individually and on behalf of all others similarly situated, Plaintiffs–Appellants,

v.STONEBRIDGE LIFE INSURANCE COMPANY, FKA J.C. Penney Life Insurance Company, Transamerica Financial Life Insurance Company, Federal Insurance Company, a Member of the Chubb Group of Insurance Companies, Defendants–appellees.^*

Docket 16-3526

August Term 2017

United States Court of Appeals, Second Circuit.

Argued: November 14, 2017

Decided: April 12, 2018

Roger L. Mandel, Lackey Hershman, L.L.P, Dallas, TX, for Plaintiffs-Appellants.

H. Christopher Boehning (Shane Avidan, Jessica S. Carey, on the brief ), Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, for Defendant-Appellee Federal Insurance Company.

Stephen R. Clark, Winstead PC, Dallas, TX (J. David Brown, Winstead PC, Dallas, TX; Steven B. Getzoff, Lester Schwab Katz & Dwyer, LLP, New York, NY, on the brief ), for Defendant-Appellee Stonebridge Life Insurance Company, FKA J.C. Penney Life Insurance Company.

Before: Pooler, Wesley, and Hall, Circuit Judges.

Wesley, Circuit Judge:

Group insurance policies, unlike individual insurance policies, are contracts for the benefit of third parties. Under a group insurance program, a central entity—the group—enters into a contract with an insurance provider and acts as the policyholder. Members of the group are the third-party beneficiaries of that contract. Typically, state law defines what entities may issue group insurance policies, and group members are almost always employees of a company or members of an organization formed for purposes other than obtaining insurance coverage. See, e.g., N.Y. Ins. Law §§ 4235, 4237 (listing organizations that may issue group and blanket health or accident plans in New York). Group members each receive the same one-size-fits-all insurance policy, sometimes without ever seeing the master policy that contains the terms of their coverage. See Steven Plitt, Daniel Maldonado & Joshua D. Rogers, Couch on Insurance § 7:1 (3d ed. 2017).

Group insurance is desirable to insurers because the larger pool of insureds reduces the insurer's risk and eliminates administrative costs. In theory, group members also benefit from enrollment in group policies for two primary reasons. First, insurers pass on the lower cost of insurance to insureds in the form of reduced premiums. Second, insureds do not need to negotiate with insurers or shop around for the best insurance policy because the group, as the policyholder, presumptively serves that role. See id .

In addition to limiting what entities may issue group policies, New York requires an eligible group to obtain approval from a regulatory agency before offering group insurance. See N.Y. Ins. Law § 3201(b)(1). New York also has a savings provision that requires insurers to honor claims on illegal policies to prevent lapses in coverage for individual and group policies. See N.Y. Ins. Law § 3103(a) (invalid or illegal insurance policies "shall be valid and binding upon the insurer"). At issue in this suit is the validity of a group policy that defendants, a collection of insurance providers and marketing companies, advertised and sold to plaintiffs, allegedly in violation of New York Insurance Laws.

BACKGROUND

I. The HealthExtras Program

In 1997, HealthExtras, Inc., created a group insurance program that offered $1,000,000 or $1,500,000 accidental permanent and total disability coverage, plus $2500 emergency accident and sickness medical expense coverage ("HealthExtras Program"). HealthExtras advertised and sold policies to consumers through marketing agreements with banks and companies that issued credit cards, including American Express, Citibank, Capital One, J.C. Penney, Sears, and Conoco Phillips. The banks and credit card companies solicited cardholders to enroll in the HealthExtras Program by sending flyers with their customers' monthly credit card bills, by direct mail, or by telephone. The flyers included images of the late actor Christopher Reeve, statements by Mr. Reeve endorsing the HealthExtras Program, and brief descriptions of the HealthExtras policies.¹

If a cardholder expressed interest in the HealthExtras Program, the marketing agent mailed them a program description encouraging them to enroll and reminding them that HealthExtras "was created to provide families with financial security" because sometimes "lives change in an instant, like Christopher Reeve's." Joint App. A-38. Cardholders who chose to enroll did so by agreeing to a monthly charge on their credit card bill. Because HealthExtras is not a licensed insurer or broker, however, it contracted with defendants Stonebridge, TransAmerica, and Federal to underwrite and issue the disability insurance.²

Defendants issued the policies to HealthExtras, the policyholder, as group and blanket accident disability and medical expense insurance, and the enrolled card holders became group members. The policies, however, narrowly circumscribed the kinds of injury or illness under which policy holders could recover.³ Plaintiffs were among the card holders who purchased HealthExtras coverage. They began paying premiums on the policies in 2000 and continued to do so until HealthExtras terminated the HealthExtras Program in December 2014. During their fourteen years of coverage, plaintiffs did not suffer qualifying losses or submit claims.

II. The Complaint and Motion to Dismiss

Plaintiffs commenced the present class action in the United States District Court for the Southern District of New York (Gardephe, J. ) in March 2015. Although the members of plaintiffs' putative class did not suffer qualifying losses or make claims for coverage under their policies, plaintiffs argue that they are entitled to reimbursement of the premiums and fees they paid defendants, as well as enhanced damages. Their complaint alleges quasi-contract claims based on violations of New York Insurance Law, claims based on violations of New York consumer protection laws, and common-law fraud claims.

First , plaintiffs allege that defendants sold them insurance coverage that was void ab initio because the policies (1) "were not issued to eligible entities" as that term is defined in New York Insurance Law §§ 4235 and 4237 ; (2) "were not filed with and approved by the Superintendent of New York's Department of Insurance, violating N.Y. Ins. Law § 3201(b)(1)"; and (3) did not contain certain provisions required by § 3221 of New York Insurance Law. Joint App. A–83. These deficiencies, according to plaintiffs, rendered the policies illegal, meaning "no risk ever attached to [their] coverage" and defendants were thereby enriched at plaintiffs' expense through "receipt of the premiums or fees." Id.

Alternatively, plaintiffs allege that even if their coverage was not void ab initio , it was voidable for illegality. Plaintiffs argue New York Insurance Law is intended to protect them from illegal insurance contracts and that defendants were enriched at their expense when they failed to comply with the law. For their quasi-contract claims, plaintiffs seek reimbursement of fees and premiums they paid to defendants.

Second , plaintiffs allege violations of New York General Business Law §§ 349 and 350, which prohibit unfair or deceptive trade practices and false advertising, respectively. Specifically, the complaint alleges that defendants sent marketing materials discussing the "nature and benefits of the HealthExtras Program" and written certificates of insurance that "falsely[ ] represented that the Policies ... were legal under New York law" and "provided real and valuable insurance coverage." Joint App. A–87, A–92. Plaintiffs also allege that defendants failed to disclose certain material facts and thereby misrepresented the nature of the insurance coverage they sold to plaintiffs.⁴ These deceptive acts and false advertising, according to plaintiffs, caused them to pay premiums or fees for illegal or valueless policies. For their statutory claims, plaintiffs seek reimbursement of fees and premiums they paid to defendants—actual damages—plus attorneys' fees and statutory damages up to three times the actual damages.

Third , plaintiffs allege that defendants committed common-law fraud, fraud in the inducement, or aiding and abetting fraud. The complaint alleges that defendants knew statements in their marketing materials were false because defendants in general are charged with knowing the terms of New York Insurance Law and these defendants knew that the subject policies did not comply. See Pasternack v. Lab. Corp. of Am. Holdings , 27 N.Y.3d 817, 827–30, 59 N.E.3d 485 (2016) (describing elements of fraud). Thus, plaintiffs argue, defendants knowingly made false statements to induce them to purchase HealthExtras coverage and plaintiffs, justifiably relying on those false statements, purchased illegal coverage that no reasonable person would have purchased in the absence of fraud.

Defendants filed a joint motion to dismiss pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(1), and 12(b)(6). They argued the District Court lacked subject-matter jurisdiction over plaintiffs' action because plaintiffs could not demonstrate an injury in fact as required for Article III standing. Specifically, defendants' position is that New York's savings statute, N.Y. Ins. Law § 3103,⁵ renders otherwise illegal policies valid and enforceable against an insurer and that plaintiffs therefore received the insurance for which they paid.

The District Court granted defendants' motion to dismiss for lack of standing; it did not reach any other grounds for dismissal.⁶ See Gonzales v. Nat'l Union Fire Ins. Co. , 15–2259, 2016 WL 5107033 (S.D.N.Y. Sept. 19, 2016). The court noted that each of plaintiffs' claims is premised on their allegation that the policies were illegal,⁷ but under New...