Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—E.D.N.Y.: Procurement of insurance that did not pay out not a deceptive act, (Feb 13, 2015)

By Dan Selcke, J.D.

The federal district court in Central Islip, New York dismissed claims that an insurance broker had engaged in deceptive acts in violation of New York State’s consumer protection laws when it agreed to procure flood insurance for a company trying to get a mortgage on a property. The company could not show that it had been harmed by the broker’s actions or that those actions were misleading to the public at large (Long Beach Road Holdings, LLC v. Foremost Insurance Company, February 11, 2015, Spatt, A).

Federally subsidized insurance. Long Beach Road Holdings attempted to obtain a first mortgage on some property it owned. The bank told it that the loan could not go through unless the property was insured against flooding, so Long Beach contacted insurance brokerage Fairmont Insurance Brokers, LTD. to find a policy. Eventually, Long Beach purchased a Standard Flood Insurance Policy (SFIP) from Foremost Insurance Company. Foremost issued policies under the National Flood Insurance Program (NFIP), which was managed by the Federal Emergency Management Agency (FEMA).

Flood damage. The original documents Long Beach received following its purchase defined the policy period as October 25, 2012 to October 25, 2013. Long Beach’s property was damaged in a flood on October 29, 2012, within that period. However, Long Beach’s mortgage transaction, which was originally scheduled to close on October 25, 2012, was delayed and ended up closing on November 2, 2012. As a result, Foremost sent Long Beach a document listing the revised policy period as “11/02/2012 [t]o 11/02/2013.”

Claim denied. Long Beach filed a claim for damages with Foremost. The insurance company denied it because “a loan closing did not occur on or prior to the Date of Loss.” Even if the loan had closed before the flood, it reasoned, Long Beach’s property still would not have been covered because, under the NFIP, new policies were subject to a 30 day waiting period before becoming effective. Long Beach appealed the decision to FEMA, which agreed with Foremost, noting that the NFIP manual stated, “Flood insurance that is initially purchased in connection with the making…of a loan shall be effective at the time of loan closing, provided that the policy is applied for at or before closing.”

Long Beach’s claims. Long Beach filed suit against Foremost and Fairmont. It alleged breach of contract claims against both defendants, a negligence claim against Fairmont, and a claim for deceptive and misleading consumer practices in violation of the New York General Business Law (NYGBL) Section 349 against Fairmont. Fairmont filed a motion to dismiss.

Breach of contract. First, the court considered the claim that Fairmont breached the broker agreement it had with Long Beach by failing to secure the proper flood insurance. The court dismissed the claim. Long Beach retained Fairmont to procure flood insurance. That was the extent of their agreement, and Fairmont had performed. Fairmont had no control over Foremost’s decision not to issue the SFIP until after the flood damage had already been done.

Negligence. Next, the court dismissed Long Beach’s negligence claim against Fairmont, despite Long Beach’s argument that Fairmont breached its duty to inform Long Beach that the SFIP would not go into effect until after Long Beach closed its mortgage transaction. Fairmont had no duty to do anything beyond obtaining the requested coverage, which it did. This might have been different if Long Beach had alleged facts to indicate that it had anything other than an ordinary consumer-agent relationship with Fairmont, but it had not. Even if Fairmont had a duty to tell Long Beach that the SFIP would not become effective until the loan closed, breaching that duty would not have caused Foremost and FEMA to deny coverage, since Fairmont had no control over when the loan closure would occur.

No deceptive acts. Finally, the court dismissed Long Beach’s claim that Fairmont violated NYGBL Sec. 349, which made unlawful “[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state.” In order to state a claim under that statute, Long Beach first had to demonstrate that Fairmont’s deceptive acts were directed at consumers. This required a showing that the acts were misleading to the public at large. Long Beach did not allege any facts in support of this element.

The typical violation contemplated by the statute involved individual consumers who fell victim to misrepresentations made by sellers of consumer goods, usually by way of misleading advertising. It did not encompass transactions like the one between Long Beach and Fairmont, which did not have ramifications for the general public. Also, Long Beach did not allege facts showing that it had actually been harmed by Fairmont’s conduct. Accordingly, the court granted Fairmont’s motion to dismiss.

The case is No.14-cv-1801.

Attorneys: Kim T. Britt (Nielsen, Carter & Treas, LLC), Michael J. Khader (Michael J. Khader P.C.), and Michael J. Mauro (The Law Offices of Michael J. Mauro, Esq., P.C.) for Long Beach Road Holdings, LLC. Michael R. Frittola and Ross T. Herman (Maroney O’Connor LLP) for Foremost Insurance Company. Jack Babchik and Jordan Sklar (Babchik & Young, LLP) for Fairmont Insurance Brokers, LTD.

Companies: Long Beach Road Holdings, LLC; Foremost Insurance Company; Fairmont Insurance Brokers, LTD.

Cases: StateUnfairTradePractices NewYorkNews