Gonzalez et al v. National Union Fire Insurance of Pittsburgh, P.A. et al

Filing 141

MEMORANDUM OPINION & ORDER re: 102 JOINT MOTION to Dismiss, filed by National Union Fire Insurance of Pittsburgh, P.A., American International Group, Inc.; re: 100 MOTION to Dismiss, filed by Federal Insurance Company. For the reasons stated above, Defendant Alliant Services' motion to dismiss (Dkt. No. 95) is denied as moot, and the remaining Defendants' motions to dismiss are granted. The Clerk of the Court is directed to terminate the motions (Dkt. Nos. 95, 100, 102). (As further set forth in this Opinion) (Signed by Judge Paul G. Gardephe on 9/18/2016) (kl)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
GEORGE GONZALES, MANETTE
DUBUISSON, and ALICE LACKS,
Individually and On Behalf of All Others
Similarly Situated,
Plaintiffs,
- against -

USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC#:
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MEMORANDUM
OPINION & ORDER
15 Civ. 2259 (PGG)

NATIONAL UNION FIRE INSURANCE OF
PITTSBURGH, P.A., AMERICAN
INTERNATIONAL GROUP, INC.,
CATAMARAN HEALTH SOLUTIONS, LLC,
F/K/A CATALYST HEALTH SOLUTIONS,
INC., F/K/A HEALTHEXTRAS, INC.,
ALLIANT SERVICES HOUSTON, INC.,
F/K/A JLT SERVICES CORPORATION,
STONEBRIDGE LIFE INSURANCE
COMPANY, F/K/A J.C. PENNEY
LIFEINSURANCE COMP ANY,
TRANSAMERICA FINANCIAL LIFE
INSURANCE COMPANY, FEDERAL
INSURANCE COMPANY, A MEMBER OF
THE CHUBB GROUP OF INSURANCE
COMPANIES, and VIRGINIA SURETY
COMPANY, INC.,
Defendants.

PAUL G. GARDEPHE, U.S.D.J.:
This is a putative class action brought by Plaintiffs who purchased accident
disability and medical expense insurnnce coverage provided by Defendants National Union Fire
Insurance Company ("National Union"), American International Group, Inc. ("AIG"),
Catamaran Health Solutions, LLC, Stonebridge Life Insurance Company, Transamerica
Financial Life Insurance Company, Federal Insurance Company, Alliant Services, and Virginia
Surety Company, Inc. through the "HealthExtras Program." The Complaint pleads (1) quasi-

contract claims; (2) violations ofN.Y. Gen. Bus. Law§§ 349-350; and (3) fraud. (Cmplt. (Dkt.
No. 1) ir 4) Plaintiffs seek the recovery of ali premiums and fees they paid to Defendants in
connection with the insurance coverage they purchased. (Id.)
Defendants have moved to dismiss pursuant to Fed. R. Civ. P. 12(b)(l) and
12(b)(6). (Dkt. Nos. 95, 100, and 102)

BACKGROUND 1
I.

FACTS

A.

The HealthExtras Program
In 1997, HealthExtras, Inc. (now known and sued as "Catamaran Health

Solutions, Inc.") created an insurance program (the "HealthExtras Program") that offered
accidental disability and medical expense insurance coverage. (Cmplt. (Dkt. No. 1) ir 33) The
HealthExtras Program offered "(l) $1,000,000 or $1,500,000 accidental permanent and total
disability insurance coverage; and (2) $2,500 emergency accident and sickness medical expense
insurance coverage." (Id.)
HealthExtras, Inc. ("HealthExtras") entered into marketing agreements with
banks that issue credit cards, including Citibank, Capital One, and Chase, and with companies
that offer branded credit cards, such as J.C. Penney, Sears and Conoco Phillips. (Id.

if 36)

HealthExtras' marketing partners sent solicitations for the HealthExtras Program with
cardholders' monthly credit card statements. (Id.

if 39)

For example, American Express sent to

its cardholders a solicitation (the "American Express Solicitation") stating: "Financial Security.

1

The facts set forth in this opinion are drawn from the Complaint and are presumed true for
purposes of resolving Defendants' motions to dismiss. See Kassner v. 2nd Ave. Delicatessen
Inc., 496 F.3d 229, 237 (2d Cir. 2007).
2

You're covered with $1. 5 Million if an accident leaves you permanently disabled." (Id.

~

40)

This solicitation went on to state:
"The American Express Accidental Disability Plan provides you with $1.5
million in one lump sum if you are permanently disabled as the result of an
accident and can't return to WCJrk. For only $9.95 a month, you can help
guarantee your financial security now and into the future. . . . With the American
Express Accidental Disability Plan you can prevent a personal tragedy from
becoming a financial tragedy. Enroll now, and for only $9.95 a month, you can
rest assured that you are protected."
(Id.)
The American Express Solicitation included images of the actor Christopher
Reeve using a tracheotomy tube. HealthExtras had hired Reeve to endorse the HealthExtras
program. The solicitation warned:
"In an instant, an accident can change your life. Now, it doesn't have to bankrupt you;
Modern medicine can save your life- don't let it bankrupt your family; and Most people
don't think about disability coverage until it's too late. Please don't put this off."
(Id.) Plaintiffs allege that HealthExtras' other marketing partners sent solicitations to their
customers "that were very similar to, if not identical to, the American Express Solicitation."
(Id.

~

41) HealthExtras itself also solicited consumers via telephone and direct mail. (Id.

~

42)

Customers who expressed interest in the HealthExtras Program were sent letters
containing the following representations:
• Enclosed please find the HealthExtras program description you requested.
Because lives change in an instant, like Christopher Reeve's, HealthExtras was
created to provide families with financial security should the unthinkable happen.
• $1,000,000 [or $1,500,000] cash payment if you are permanently disabled due
to an accident. And as a HealthExtras member, you have two tax-free options: a
$1,000,000 lump sum cash payment or a $250,000 cash payment plus $5,000 per
month for 20 years.
• $2,500 a year in reimbursements for coinsurance and deductibles for healthcare
expenses when you are traveling.

3

(Id.

~

43) Plaintiffs allege that HealthExtras and the other Defendants sent New York residents

direct mail solicitations representing, inter alia, that the HealthExtras program "provides
valuable protection" in the form of"a $1,000,000 [or $1,500,000] tax free cash payment if
you're permanently disabled due to an accident."

(Id.~

44)

Because HealthExtras is not a licensed insurer or broker, it contracted with (1)
Defendants National Union, Stonebridge, Transamerica, and Federal to underwrite and issue the
disability insurance coverage offered in the HealthExtras Program; and (2) Defendant Virginia
Surety to underwrite and issue the Program's medical expense insurance coverage.

(Id.~

59)

National Union, in tum, hired Defendant AIG to process claims made under the HealthExtras
Program that related to policies issued by National Union.

(Id.~

58) Defendant Alliant

Services "was the insurance broker under the HealthExtras Program."

(Id.~

59)

The Complaint allege that Defendants "knew that HealthExtras was not a
licensed insurance broker or insurer and could not legally solicit, sell, issue or underwrite the
Disability Coverage and Medical Expense Coverage under the ... HealthExtras Program." (Id.)
Plaintiffs further allege that the Defendants "were aware of the identity and roles of
HealthExtras' Marketing Partners, includi11g ... American Express, CitiBank, Chase, Capital
One and other issuers of credit cards."

(Id.~

53; see also

id.~

58 (alleging that "AIG was aware

of all aspects of the HealthExtras Program that National Union was aware of'))
The Complaint further alleges that HealthExtras
(1) prepar[ed] all of the materials necessary to promote the HealthExtras Program,
(2) sen[t] HealthExtras Program marketing and advertising materials, which were
reviewed and approved by the HealthExtras Program's insurers, brokers and
Marketing Partners, to the Marketing Partners for transmission to the Marketing
Partners' customers,

4

(3) process [ed] enrollment forms and change of address forms received from members
of the HealthExtras Program,
(4) sen[t] HealthExtras Program marketing and adve1iising materials (including plan
summaries, benefit plan descriptions and certificates of insurance), which were
reviewed and approved by the insurers and brokers, to members of the HealthExtras
Program,

(5) process[ed] payments for premiums and fees received from members ofthe
HealthExtras Program,
(6) operat[ed] a call center to handle customer service calls, conforming all
communications regarding benefits to scripts reviewed and approved by the insurers
and Marketing Partners, and
(7) sen[t], upon request, claims forms to members of the HealthExtras Program on
behalf of the insurers and any claims processors designated by the insurers.
(Id.

~

54)

B.

Alleged Violations of New York Insurance Law
Plaintiffs assert that the insurance policies issued in connection with the

HealthExtras Program violate New York insurance laws and regulations, rendering the policies
"illegal, against public policy and void ab initio under New York law." (Id.

~

3)

According to Plaintiffs, the HealthExtras Program's disability and medical
insurance coverage was provided under (1) "group and/or blanket accident disability insurance
policies," and (2) "group and/or blanket em;)1·gency accident and sickness me-dica.l expense
policies" issued by the defendant insurers. (Id.~ 59) "Group and blanket insurance policies
differ from individual insurance policies in that a single master insurance policy is issued to an
eligible entity, as opposed to the individual persons being insured. Thus, the eligible entity is
the actual policyholder." (Id.

~

19)

5

Plaintiffs contend that the inf.!lmrnce policies issued in con11ection with the
HealthExtras Program "were not issued to groups or entities eligible to be issued such policies
under N.Y. Ins. Law§ 4235 and§ 4237 ... , and 11 CRR-NY 52.70" (id.

if 3), and that

Defendants knew that these policies had been issued to ineligible groups, such as the AIG
Group Insurance Trust and HealthExtras. (Id.

if 62)

Plaintiffs further allege that the consumers

who purchased insurance coverage under the HealthExtras Program "were not actual members
of or a part of any eligible groups or entities, but rather merely credit card holders and other
individuals to whom Defendants had easy access." (Id.

if 3; see also id. if 106 ("The lack of any

connection between Plaintiffs and the other members of the Class and AIG Insurance Trust or
HealthExtras is further evidence that the [p ]olicies purportedly providing them with insurance
coverage were not issued to eligible entities as required by N.Y. Ins. Law§§ 4235 and 4537 ...
and 11 CRR-NY 52.70."))
Plaintiffs contend that if an "entity ... authorized to be issued group and blanket
accident and health insurance policies ever reviewed the [HealthExtras] Policies, they very
likely would never have been approved, issued and coverage under them sold to Plaintiffs." (Id.

if 110)

The Complaint fuiiher alleges that the "policies were not filed with and approved by the

Superintendent of New York's Department oflnsurance (now known as the Depmiment of
Financial Services) as required by N.Y. Ins. Law§ 3201(b)(l)." (Id.

if 3)

Plaintiffs claim that

"[h]ad these [p]olicy forms and related individual certificates of insurance been filed, and had
Defendants truthfully disclosed the proposed policyholders, it is highly likely the forms would
not have been approved." (Id.

if 111)

Finally, Plaintiffs allege that the policies issued in connection with the
HealthExtras Program did not contain ce1iain "standard provisions required to be included

6

pursuant to N.Y. Ins. Law§ 322l(a) or alternative provisions that were approved ... as being as
or more favorable [to purchasers] than the standard provisions."
example, insurers are required to
to renew the policy."

(Id.~

di.sclosc~

(Id.~

69; see also

id.~

3) For

"[t]he conditions umler which the insurer may decline

69 (quoting N.Y. Ins. Law§ 3221(a)(5))) According to Plaintiffs,

the failure to include such provisions renders the HealthExtras Program's "policies less
favorable to [the] insured[s] ... than [is] required by New York law."

(Id.~

112)

Plaintiffs also contend that the policies underlying the HealthExtras Program are
drafted so as to "make illusory the insurance coverage supposedly provided."

(Id.~

113) For

example, the policies' accident disability benefits provisions provide:
1. Loss shall mean:
a. total and permanent Loss of Use of both hands or both feet;
b. total and permanent Loss of Use of one hand and one foot;
c. total and permanent Loss of sight in both eyes;
d. total and permanent Loss of speech;
e. total and permanent Loss of hearing in both ears; and
2. Loss of Use means actual severance through or above a wrist or ankle or total
paralysis of a limb or limbs which is determined by a competent medical authority
to be permanent, complete and irreversible.
(Id.~

114)
Plaintiffs claim that the likelihood of any such loss is "staggeringly remote." (Id.

~

115) Although Plaintiffs "do not base their claims upon the unfair terms of the [p]olicies" (id.

~

113), Plaintiffs contend that the "terms of the [p]olicies illustrate how the review of group or

blanket health and accident policies by both the Department of Insurance and the type of entity
or group to which New York Law allows such policies to be issued ... potentially serves to
7

protect individuals from payment of premiums for policies with illusory coverage that are of
essentially no value." (Id.

if 117)

According to the Complaint, Defendants terminated the HealthExtras Program
and all associated insurance coverage after "[f]acing litigation in multiple states concerning the
illegality of the purported insurance policies." (Id-' if 118)

II.

THE COMPLAINT'S CAUSES OF ACTION
The Complaint asserts: (1) quasi-contract claims; (2) violations ofN.Y. Gen.

Bus. Law§ 349; (3) violations ofN.Y. Gen. Bus. Law§ 350; and (4) fraud, fraud in the
inducement, and aiding and abetting fraud claims. (Cmplt. (Dkt. No. 1) if 4)
With respect to their quasi-contract claims, Plaintiffs allege that "Defendants
were [unjustly] enriched at Plaintiffs' ... expense," because they sold "insurance coverage ...
that was illegal, against public policy, and void ab initio." (Id.

ifif 159-60)

Plaintiffs further

claim that they are entitled to recover all premiums paid- even if the "coverage ... is not void
ab initio, but rather is merely voidable due to illegality" - because "(a) Plaintiffs ... are
members of the class of persons meant to be protected by the statutes and regulations violated
by Defendants, and/or (b) because Defendants are 100% responsible for the violation of the
New York insurance statutes and regulations, making them entirely culpable for ... the
illegality of the Policies." (Id.

if 162)

The Complaint further asserts that "Defendants' marketing to, sale to, issuance
of and collection of premiums or fees from Plaintiffs ... in connection with coverage under the
[p]olicies violated N.Y. Gen. Bus. L. § 349," which "makes unlawful 'deceptive acts or
practices in the conduct of any business, trade or commerce or in the furnishing of any
service."' (Id.

if 169 (quoting N.Y. Gen. Bus. L. § 349(a)))
8

Plaintiffs cite a number of alleged

deceptive acts and practices, including (1) the creation and distribution of marketing materials,
(2) the issuance of certificates of insurance and other documentation, (3) the listing of ineligible
entities as policyholders, and (4) the collection of insurance premiums. (Id.

if 171)

In

connection with these acts and practices, Defendants falsely represented that the HealthExtras
Program insurance coverage was "legal under New York law, not against public policy, [was]
issued to real, valid and eligible policyholders, [was] not void ab initio or voidable, [and]
provided real and valuable insurance coverage." (Id.) Plaintiffs further allege that Defendants
falsely represented that they "would ... pay claims falling under the terms of the purported
[p ]olicies without first being sued." (IdJ
The Complaint also contends that Defendants failed to make the following
necessary disclosures:
(a) that HealthExtras created and all Defendants participated in a program
pursuant to which unsuspecting credit card holders and others were targeted for
what appeared to be beneficial low cost group and/or blanket accident and health
insurance policies, (b) that HealthExtras agreed with the other Defendants that
they would issue group and/or blanket accident and health insurance policies to
entities ineligible to be issued group and/or blanket insurance policies under New
York law, (c) that HealthExtras agreed with the other Defendants that they would
issue insurance coverage under group and/or blanket accident and health
insurance policy forms that were not filed with and approved by the
Superintendent of New York's Department oflnsurance as required by New York
law, (d) that HealthExtras agre~d vdth National Union, AIG, and Alliant that they
would issue insurance coverage under group and/or blanket accident and health
insurance policy forms that did not contain provisions required by New York law,
(e) that the coverage under those Policies purchased by Plaintiffs and the Class
members as part of the HealthExtras Program was illegal, against public policy,
and either void ab initio or subject to being deemed void under New York law and
were thus valueless, (:t) that the coverage purchased by Plaintiffs and the Class
members had not been reviewed or vetted by any eligible entity or group with a
vested interest in insuring the quality, fairness and merits of such coverage, and
(g) that HealthExtras and the other Defendants had agreed that claims falling
within the terms of the purported [p]olicies would not be paid unless Class
members filed suit.
(Id.

ir 172)
9

Plaintiffs contend that these same misrepresentations and omissions constitute
"false advertising" under N.Y. Gen. Bus. L. § 350

(Id.~~

179, 182), as well as fraud, fraud in

the inducement, and aiding and abetting fraud under New York law. (Id. ~~ 188-89)
Defendants have moved to dismiss all of Plaintiffs' claims. (Dkt. Nos. 95, 100,
102)2

DISCUSSION
I.

STANDING
Defendants argue that "[t]his action cannot proceed because plaintiffs have not

suffered a cognizable injury, and thus, lack standing to sue under Article III." (Def. Joint Br.
(Dkt. No. 103) at 9)

A.

Legal Standard
It is well established that '"[a] plaintiff must demonstrate standing for each claim

and form ofrelief sought."' Carver v. City of New York, 621 F.3d 221, 225 (2d Cir. 2010)
(quoting Baur v. Veneman, 352 F.3d 625, 642 n.15 (2d Cir. 2003)). '"Because standing is
jurisdictional under Article III of the United States Constitution, it is a threshold issue in all
cases since putative plaintiffs lacking standing are not entitled to have their claims litigated in
federal comi."' Picard v. JPMorgan Chase & Co., 460 B.R. 84, 91 (S.D.N.Y. 2011) (quoting
Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 117 (2d Cir. 1991)), affd sub nom.
In re Bernard L. Madoff Inv. Sec. LLC., 721 F.3d 54 (2d Cir. 2013).

2

Defendants National Union, AIG, Catamaran, Virginia Surety, Stonebridge, and Transamerica
filed a joint motion to dismiss. (Dkt. No. 102) Federal Insurance (Dkt. No. 100) and Alliant
Services (Dkt. No. 95) filed separate motions to dismiss. On August 19, 2016, this Court
entered an order dismissing the claims against Alliant with prejudice, subject to the
consummation of a settlement agreement over the 120-day period following entry of the order.
(Dkt. No. 136) Accordingly, Alliant's motion to dismiss is now moot.
10

"For purposes of ruling on a motion to dismiss for want of standing, both the trial
and reviewing comis must accept as true all material allegations of the complaint, and must
construe the complaint in favor of the complaining party." Warth v. Seldin, 422 U.S. 490, 501
(1975). "While the standard for reviewing standing at the pleading stage is lenient, a plaintiff
cannot rely solely on conclusory allegations of injury or ask the court to draw unwarranted
inferences in order to find standing." Baur, 352 F.3d at 636-37.
[T]he "irreducible constitutional minimum" of standing consists of three
elements. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992). The plaintiff
must have (1) suffered an injury in fact, (2) that is fairly traceable to the
challenged conduct of the defendant, and (3) that is likely to be redressed by a
favorable judicial decision. Id., at 560-561; Friends of the Earth, Inc. v. Laidlaw
Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180-81 (2000). The plaintiff, as the party
invoking federal jurisdiction, bears the burden of establishing these elements.
FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990).
Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016), as revised (May 24, 2016).
"To establish injury in fact, a plaintiff must show that he or she suffered 'an
invasion of a legally protected interest' that is 'concrete and particularized' and 'actual or
imminent, not conjectural or hypothetical."' Id. at 1548 (quoting Lujan, 504 U.S. at 560). "An
allegation of future injury may suffice ifthe threatened injury is 'certainly impending,' or there
is a "'substantial risk" that the harm will occur.'" Susan B. Anthony List v. Driehaus, 134 S.
Ct. 2334, 2341 (2014) (quoting Clapper v. Amnesty Int'l USA, 133 S. Ct. 1138, 1150 n.5
(2013)). "For an injury to be 'particularized,' it 'must affect the plaintiff in a personal and
individual way."' Spokeo, 136 S. Ct. at 1548 (quoting Lujan, 504 U.S. at 560 n.l). "'As a
general rule,' this means 'plaintiff must have personally suffered.'" In re the Bear Stearns
Companies, Inc. Sec., No. 08 MDL 1963 (RWS), 2016 WL 4098385, at *17 (S.D.N.Y. July 25,
2016) (quoting W.R. Huff Asset Mgmt. Co., LLC v. Deloitte & Touche LLP, 549 F.3d 100, 107

11

(2d Cir. 2008)). "Concreteness" refers to an injury that is "real, and not abstract." Spokeo, 136
S. Ct. at 1548 (internal quotation marks omitted).
B.

Analysis

1.

Plaintiffs' Claim that the HealthExtras Policies Were Void Ab Initio

Plaintiffs primary argument for standing is that the insurance coverage they
purchased under the HealthExtras Program was based on policies that were "illegal, against
public policy, and void ab initio under New York law," because they violated New York
Insurance Law and related regulations. 3 (Cmplt. (Dkt. No. 1) ifif 1, 3; see also id.

ifif 111, 158,

161, 171, 172, 174, 181, 182, 184, 189, 190) Plaintiffs contend that they "have suffered injury
by paying premiums pursuant to those void [p]olicies." (Pltf. Br. (Dkt. No. 111) at 11)
In response, Defendants contend that Plaintiffs' void ab initio argument is
mistaken, because - under New York law - insurance policies that violate the New York
Insurance Law nonetheless remain valid and enforceable against the insurer. (Def. Joint Br.
(Dkt. No. 103) at 16-17)
N.Y. Ins. Law§ 3103(a) provides that
any policy of insurance or contract of annuity delivered or issued for delivery in
this state in violation of any of the provisions of this chapter shall be valid and
binding upon the insurer issuing the same, but in all respects in which its
provisions are in violation of the requirements or prohibitions of this chapter it
shall be enforceable as if it conformed with such requirements or prohibitions.
N.Y. Ins. Law§ 3103(a). Accordingly, Section 3103(a) ensures that "[p]olicies that are
inconsistent with provisions of the insurance law remain valid and binding," and
obligates "insurer[s] ... to maintain coverage, not only for the insurance it had agreed to

Plaintiffs do not allege that they ever filed a claim under the HealthExtras Program, much less
that Defendants denied a claim filed under the Program. (See Cmplt. (Dkt. No. 1))
3

12

extend, but also for that which the law required it to extend." In re Sept. 11th Liab. Ins.
Coverage Cases, 333 F. Supp. 2d 111, 125 (S.D.N.Y. 2004) (citing N.Y. Ins. Law
§ 3103(a)); see also AXA Marine & Aviation Ins. (UK) Ltd. v. Seajet Indus. Inc., 84 F.3d
622, 624 n.1 (2d Cir. 1996) ("If ... a provision [required by New York Insurance Law] is
not included in the policy, a court construing the policy will enforce it as if it did include
the provision." (citing N.Y. Ins. Law§ 3103(a))); Travelers Indem. Co. v. Northrop
Grumman Corp., 956 F. Supp. 2d 494, 503 n.12 (S.D.N.Y. 2013) (noting that Section
3103(a) "provides that a policy that fails to include a provision otherwise imposed by law
should be enforced as if the legally mandated provision were included"); In re
Ambassador Grp., Inc. Litig., No. CV-85-2132 (RJD), 1991WL11033784, at *7
(E.D.N.Y. Feb. 27, 1991) (noting that "it would be completely contrary to New York's
established public policy to void an insurance policy issued in violation of' New York
Insurance Law and regulations; "rather, analogous to the procedure provided in Section
3103(a) of New York's Insurance Law, it would be more appropriate to treat the policy as
binding"); T.P.K. Constr. Corp. v. S. Am. Ins. Co., 752 F. Supp. 105, 111 n.8 (S.D.N.Y.
1990) ("unconscionable ... provisions do not void the Agreement[, which remains]
enforceable against the insurer under§ 3103(a) of the New York Insurance Law"); G.E.
Capital Mortg. Servs., Inc. v. Daskal, 211A.D.2d613, 615 (2d Dept. 1995) ("to the
extent that a policy deviates from the standard policy by containing terms less favorable
to the mortgagee, 'the policy is enforceable as if it conformed with the statut[e]'"
(quoting 1303 Webster Ave. Realty Corp. v. Great Am. Surplus Lines Ins. Co., 63
N.Y.2d 227, 231 (1984))); citing N.Y. Ins. Law §3103(a))); Metro Missions, Inc. v. US 1
Holdings, 35 Misc.3d 1229(A), 2012 WL 1871689, at *5 n.2 (N.Y. Sup. Ct. May 24,

13

2012) (an insurance policy that violates the New York Insurance Law will "be deemed to
provide the required coverage" pursuant to§ 3103(a)); N.Y. General Counsel Opinion
No. 7-7-2005 (#2), 2005 WL 3980860, at *1 (NY INS BUL July 7, 2005) ("If [a] policy
is not in compliance with the Insurance Law then, pursuant to N.Y. Ins. Law§ 3103(a),
the policy would be enforceable as if it conformed with any requirements or prohibitions
provided in the Insurance Law."). 4
The language of Section 3103(a) is plain and unambiguous, and must be
enforced in accordance with its terms. See In re Barnet, 737 F.3d 238, 246 (2d Cir. 2013)
('"Where the statute's language is plain, the sole function of the courts is to enforce it
according to its terms."' (quoting United States v. DiCristina, 726 F.3d 92, 96 (2d Cir.
2013))). 5 Plaintiffs have cited no case that supports their argument that the insurance
policies at issue here were void ab initio, and thus unenforceable against the insurer.
Indeed, both the plain language of Section 3103(a) and an unbroken line of precedent
refutes that argument. Accordingly, Plaintiffs' argument that the HealthExtras policies

4

Section 3103 reflects principles of New York law that have been in place for a hundred years
or more. See Metro. Life Ins. Co. v. Conway, 252 N.Y. 449, 451-52 (1930) ("If approval is
omitted, the policy or the rider is not invalid ipso facto, unless in conflict with the provisions
exacted by the statute. It is invalid even then to the extent of the conflict, and no farther. The
statute reads itself into the contract, and displaces inconsistent terms." (internal citations
omitted)); Hopkins v. Conn. Gen. Lify Ins. __C.Qc, 225 N.Y. 76, 82 (1918) ("No corporation
issuing a policy may escape liability because of its failure to obey the law.").
5
Plaintiffs argue that only an insured, and not an insurer, can invoke Section 3103(a). (See
Pltf. Br. (Dkt. No. 111) at 15-21) The statute's language contains no such limitation, however,
and it makes no sense to contend that only one side to a dispute may invoke the language of a
statute. In any event, Plaintiffs' argument misses the point. The pertinence of Section 3103(a)
to the standing inquiry here is that the statute destroys the premise of Plaintiffs' alleged injury.
Plaintiffs contend that the HealthExtras policies are void and unenforceable because they
contain terms that violate the New York Insurance Law. Section 3103(a) provides however,
that such policies are valid and binding against the insurer once the premiums are paid,
regardless of whether the policies contain terms that do not comply with the New York
Insurance Law.
14

were void ab initio contradicts New York law, and provides no basis for this Court to find
that they have suffered an injury in fact, and thus have Article III standing. 6
2.

Plaintiffs' Claim that the HealthExtras Policies Were Voidable

Plaintiffs contend that they have "plead[ ed] cognizable injuries under New York
law by pleading that the policies are voidable." (Pltf. Br. (Dkt. No. 111) at 21) Although
Plaintiffs and Defendants discuss at length whether a rescission remedy exists here, neither side
has addressed how the availability of a rescission claim bears on the issue of whether Plaintiffs

6

Many other jurisdictions follow the rule that illegal provisions in an insurance policy do not
affect the enforceability of the policy against the insurer. In these jurisdictions, courts have
rejected the theory that plaintiffs suffered a cognizable injury due to the illegality of the
HealthExtras policies. See,~, Smith v. Catamaran Health Sols., LLC, No. CV 3:15-2846BHH, 2016 WL 4555325, at *6, *11 (D.S.C. Sept. 1, 2016) ("an accident or health insurance
policy ... is held 'valid' and enforceable even where it does not comply with the requirements
of Chapter 71 of South Carolina's Insurance Code"; accordingly, plaintiffs "alleged source[] of
injury" is "wrong as a matter oflaw" (citing S.C. Code§ 38-71-80)); Williams v. Nat'l Union
Fire Ins. Co. of Pittsburgh, No. 1:14-CV-309-TWT,2016 WL 739537, at *2 (N.D. Ga. Feb. 24,
2016) (given that "the insurance policies were valid and enforceable, even if the insurance
policies violated Georgia insurance laws," "[p]laintiffs [making claims arising out of
HealthExtras policies] cannot demonstrate a cognizable injury based on the theory that the
insurance policies were illegal or void"); Campbell v. Nat'l Union Fire Ins. Co. of Pittsburgh,
PA, 130 F. Supp. 3d 236, 251 (D.D.C. 2015) (because "the D.C. Code ... contains ...
language ... dictating that non-conforming insurance policies issued in violation of the statute
'shall be held valid but shall be construed as provided in this section,"' "to the extent that Ms.
Campbell asserts injury premised on payments for a policy that was invalid and unenforceable
due to violations of DC insurance laws, the argument clearly fails as a matter of law" (quoting
D.C. Code§ 31-4712(d)(2))); Bush v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 124 F. Supp.
3d 642, 655 (E.D.N.C. 2015) ("Plaintiffs have suffered neither a concrete nor an imminent
injury. The insurance program, consisting of both the Disability Benefit and Health Benefit, is
valid and enforceable under North Carolina law."); Giercyk v. Nat'l Union Fire Ins. Co. of
Pittsburgh, No. 13-6272, 2015 WL 7871165, at *4-5 (D.N.J. Dec. 4, 2015) (in New Jersey,
"violations of insurance laws do not automatically render a policy void"; "[g]iven the policy's
enforceability," plaintiffs raising claim concerning HealthExtras policies "lack standing because
they have not alleged a concrete injury" (citing Rest. Enters., Inc. v. Sussex Mut. Ins. Co., 52
N.J. 73, 77-78 (1968))); Waiserman v. Nat'l Union Fire Ins. Co., No. 2: 14-CV-00667-SVW
(CWx), 2014 U.S. Dist. LEXIS 183642, at *5-6 (C.D. Cal. Oct. 24, 2014) ("Waiserman's policy
was not illusory. If he made a claim, [California law] would have allowed him to enforce the
policy. And if it was enforceable, it was not illusory.").
15

have demonstrated an "injury-in-fact" for Article III purposes. 7 See Carver, 621 F.3d at 226
("The standing question is distinct from whether [plaintiff] has a cause of action."); see also
LaPierre ex rel. Town of Yorktown v. DiBartolo, No. 12 Civ. 1996 (ER), 2013 WL 656313, at
*3 (S.D.N.Y. Feb. 21, 2013) ("[E]ven if Plr1intiffs would have standing t<' assert the derivative
claims ... in state court ... , Plaintiffs are still required to meet the stricter federal standing
requirements of Article III in order to assert such claims in this Court.").
In any event, for their rescission argument, Plaintiffs rely on the same alleged
illegalities cited earlier for the proposition that the HealthExtras policies were void ab initio.
(See Cmplt. (Dkt. No. 1) it 162) The Court concludes that Section 3103(a) remains an
insurmountable obstacle to Plaintiffs claim that they have suffered an injury in fact providing a
basis for Article III standing. 8

3.

Plaintiffs' Claim that Defendants' Alleged Misrepresentations
and Omissions Demonstrate Injury in Fact

Plaintiffs argue that their "misrepresentation and omission claims include claims
of misrepresentations and omissions not dependent upon the illegality and voidness of the
[p]olicies, such that Plaintiffs plead injury even ifthe [p]olicies were enforceable under New
York law." (Pltf. Supp. Br. (Dkt. No. 133-1) at 9)

7

Indeed, Plaintiffs' entire argument rests on Dornberger v. Metro. Life Ins. Co., 961 F. Supp.
506 (S.D.N.Y. 1997), a case that does not address standing.
8
Even ifthe availability of a rescission claim were relevant, there is some question as to
whether Damberger correctly determined that a rescission claim is available for a violation of
the New York Insurance Law. See Quanta Specialty Lines Ins. Co. v. Inv'rs Capital Corp., No.
06 Civ. 4624 (PKL), 2008 WL 1910503, at *6 (S.D.N.Y. Apr. 30, 2008) (dismissing rescission
claim based on alleged "unlawful group insurance policies" because "[a]ssuming, arguendo, that
the Policies constitute unlawful group policies, the Superintendent [of the Insurance
Department] is tasked with redressing such a problem").
16

The Complaint alleges that Defendants falsely represented that they "would pay
claims falling within the terms of the purported Policies without first being sued." (Cmplt.
(Dkt. No. 1) iii! 171, 181, 189) However, given that Plaintiffs do not allege that they filed a
claim under the HealthExtras policies - much less that their claim was denied - "it is difficult to
view [their asserted injury] as other than conjectural or hypothetical." Rajamin v. Deutsche
Bank Nat. Trust Co., 757 F.3d 79, 86 (2d Cir. 2014); see alfill Baur, 352 F.3d at 636-37 ("a
plaintiff cannot rely solely on conclusory allegations of injury or ask the court to draw
unwarranted inferences in order to find standing"). In short, assuming arguendo that
Defendants had agreed not to pay claims "without first being sued," Plaintiffs have not
demonstrated how the alleged falsity of that representation has injured them. "' [A]bsent any
real or impending injury arising from [Defendants'] practices and nondisclosures, Plaintiffs'
conclusory allegations ... do not suffice to confer Article III standing."' Robainas v. Metro.
Life Ins. Co., No. 14 Civ. 9926 (DLC), 2015 WL 5918200, at *6 (S.D.N.Y. Oct. 9, 2015)
(quoting Ross v. AXA Equitable Life Ins. Co., 115 F. Supp. 3d 424, 437 (S.D.N.Y. 2015)).
The Complaint also alleges that Defendants "falsely[] represented that the
purported coverage ... was issued to real; valid and eligible policyholders, ... [and] provided
real and valuable insurance coverage." (Cmplt. (Dkt. No. 1) if 171) And Plaintiffs further
contend that Defendants omitted material facts in failing to disclose that "the coverage
purchased by Plaintiffs and the Class members had not been reviewed or vetted by any eligible
entity or group." (Id.

if 172)

The Complaint pleads, however, that Plaintiffs are not alleging that the
HealthExtras policies "essentially prohibit any successful claims under them or are otherwise
unfair." (Id.

if 113)

Moreover, Plaintiffs do not allege that they would not have purchased, or

17

would have insisted on paying less for, the HealthExtras policies in the event that any of the
Defendants' supposed "material omissions" had been disclosed. In sum, Plaintiffs have not
pled facts demonstrating how any of the alleged misrepresentations or omissions affected
Plaintiffs '"in a personal and individual way. "' 9 Spokeo, 136 S. Ct. at 1548; see also Ross, 115
F. Supp. 3d at 435 ("Plaintiffs received what they bargained for ... and do not allege, let alone
plausibly allege, that they were financially harmed by vitiue of their purchases.").
Other courts considering similar claims involving the HealthExtras Program
have reached the same result. Williams v. Nat'l Union Fire Ins. Co. of Pittsburgh, No. 1:14CV-309-TWT, 2016 WL 739537, at *2 (N.D. Ga. Feb. 24, 2016) (dismis<>ing plaintiffs'
"contention that if they had submitted claims, the Defendants would have denied [them]" as
"mere speculation," because "[i]t is impossible to know whether the Defendants would have
denied their claims"); Giercyk v. Nat'l Union Fire Ins. Co. of Pittsburgh, No. 13-6272, 2015
WL 7871165, at *5 (D.N.J. Dec. 4, 2015) ("any suggestion that [d]efendants would not honor
[p] laintiffs' claims is mere speculation, and not a concrete harm," because "[p] laintiffs have not
filed any claims"); Waiserman v. Nat'l Union Fire Ins. Co., No. 2:14-CV-00667-SVW (CWx),
2014 U.S. Dist. LEXIS 183642, at *6 (C.D. Cal. Oct. 24, 2014) ("Waiserman alleges that
because the defendants had no intention of paying out claims, they misappropriated his money.
This supposition is pure speculation. How could Waiserman know whether defendants would

9

Plaintiffs' reliance on Storey v. Attends Healthcare Prods., Inc., No. 15-CV-13577, 2016 WL
3125210 (E.D. Mich. June 3, 2016) is misplaced. In Storey, the court found that plaintiffs had
standing based on allegations "that they paid a premium for incontinence products that
Defendant falsely represented as being safe for long-term use." Id. at *4. Accordingly,
plaintiffs were harmed "regardless of whether the alleged defect manifested." Id. Here, in
contrast, Plaintiffs do not allege that they purchased, or paid more for, the HealthExtras
Program because of supposed misrepresentations or omissions. See Ross, 115 F. Supp. 3d at
435 (holding that plaintiffs who did "not allege ... that they paid higher premiums as a result of
[Defendants'] misrepresentations" lacked standing).
18

pay out his claim if he never submitted one? Therefore, Waiserman cannot satisfy Article III,
which requires concrete, not specularive hRn-n. ").
The Complaint's allegations concerning Defendants' misrepresentations and
omissions do not provide a basis for this Comi to find that Plaintiffs suffered an injury in fact,
and thus have Article III standing.

4.

Plaintiffs' Claim that Standing is Conferred by Statutory Violation
Plaintiffs argue that "Spokeo reaffirmed the longstanding principle ... that the

actual or threatened injury required by Article III may exist solely by virtue of statutes creating
legal rights, the invasion of which creates standing." (Pltf. Supp. Br. (Dkt. No. 133-1) at 11
(citing Spokeo, 136 S. Ct. at 1549)) Defendants contend, however, that "Spokeo reaffirmed that
a concrete injury in fact is among the irreducible constitutional minimum requirements of
Article III standing." (Def. Supp. Br. (Dkt. No. 137) at 6)
In Spokeo, Inc. v. Robins, Robins alleged that Spokeo's search engine -which
compiled data from "a wide spectrum of databases"

contained incorrect information about

him, including that he was "married, ... in his 50's, [employed], ... relatively affluent, and
[held] a graduate degree." Spokeo, 136 S. Ct. at 1546. Robins claimed that Spokeo "qualif[ied]
as a 'consumer reporting agency' under the [Fair Credit Reporting Act ("FCRA")]," and that
Spokeo had failed to comply with FCRA statutory requirements for such agencies, such as
'"follow[ing] reasonable procedures to assure maximum possible accuracy of consumer
reports." Id. at 1545-46 (quoting 15 U.S.C § 1681e(b)). The district court granted Spokeo's
motion to dismiss, finding "that Robins had not 'properly pled' an injury in fact, as required by
Article III." Id. at 1546. The Ninth Circuit reversed, noting "that 'the violation of a statutory

19

right is usually a sufficient injury in fact to confer standing."' Id. (quoting Robins v. Spokeo,
Inc., 742 F.3d 409, 412 (9th Cir. 2014)).
The Supreme Court acknowledged that "the violation of a procedural right
granted by statute can be sufficient in some circumstances to constitute injury in fact." Id. "[A]
plaintiff in such a case need not allege any

?.:d~jJionaj

harm beyond the

o:t~e

Congress has

identified." Id. (emphasis in original). The Court cited two cases to illustrate the point: Federal
Election Comm'n v. Akins, 524 U.S. 11 (1998), and Public Citizen v. Department of Justice,
491 U.S. 440 (1989). Id. In both Akins and Public Citizen, the Court "held that a plaintiff
suffers an 'injury in fact' when the plaintiff fails to obtain information which must be publicly
disclosed pursuant to a statute." Akins, 524 U.S. at 21 (citing Public Citizen, 491 U.S. at 449
(failure to obtain information subject to disclosure under Federal Advisory Committee Act
"constitutes a sufficiently distinct injury to provide standing to sue")).
In Spokeo, however, the Court explained that "Congress' role in identifying and
elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-infact requirement whenever a statute grams a person a statutory right and purports to authorize
that person to sue to vindicate that right." Spokeo, 136 S. Ct. at 1549. The Court went on to
rule that the Ninth Circuit's standing analysis had "overlooked" the requirement of concrete
mJury:
On the one hand, Congress plainly sought to curb the dissemination of false
information by adopting procedures designed to decrease that risk. On the other
hand, Robins cannot satisfy the demands of Article III by alleging a bare
procedural violation. A violation of one of the FCRA's procedural requirements
may result in no harm. For example, even if a consumer reporting agency fails to
provide the required notice to a user of the agency's consumer information, that
information regardless may be entirely accurate. In addition, not all inaccuracies
cause harm or present any material risk of harm.
Spokeo, 136 S. Ct. at 1550.
20

Here, Plaintiffs contend that their claims fall within the Akins and Public Citizen
line of cases, because they "allege ... violation ... of their rights under both New York
insurance statutes and regulations ... and New York's consumer protection statutes." (Pltf.
Supp. Br. (Dkt. No. 133-1) at 11) This Court disagrees.
Unlike in Akins, where plaintiffs had sued under the Federal Election Campaign
Act ("FECA") and "Congress ha[d] specifically provided in FECA that '[a]ny person who
believes a violation of this Act ... has occurred, may file a complaint with the Commission"'
Akins, 524 U.S. at 19 (quoting 2 U.S.C. § 4J7g(a)(l) (current version at 52 U.S.C. §
30109(a)(l)))-Plaintiffs here have not brought claims under the New York Insurance Law, and
no private right of action exists under the Insurance Law concerning the matters about which
Plaintiffs complain. See Quanta Specialty Lines Ins. Co. v. Inv'rs Capital Corp., No. 06 Civ.
4624 (PKL), 2008 WL 1910503, at *6 (S.D.N.Y. Apr. 30, 2008) ("Assuming, arguendo, that the
[p ]olicies constitute unlawful group policies, the Superintendent is tasked with redressing such a
problem."); Harrison v. Metro. Life Ins. Co., 417 F. Supp. 2d 424, 432 (S.D.N.Y. 2006)
("implying a private right of action" under the New York Insurance Law "would not be
consistent with the legislative scheme, which establishes the procedures for enforcement of
various provisions of the Insurance Law by the Superintendent oflnsurance"); Sparkes v.
Morrison & Foerster Long-Term Disability Ins. Plan, 129 F. Supp. 2d 182, 188 (N.D.N. Y.
2001) ("Where the legislature intended that a particular provision of the Insurance Law be
enforced through a private right of action, it expressly so provided in the terms of the statute.").
Plaintiffs' allegations regarding Defendants' violations of the Insurance Law are
made merely for the purpose of demonstrating that the insurance coverage under the
HealthExtras Program was void ab initio. (See Cmplt. (Dkt. No. 1) ~ 3 (detailing Defendants'

21

violations of the New York Insurance Law and then alleging that "the purporte<l policies and the
individual coverage under them are illegal, against public policy and void ab initio under New
York law")) Plaintiffs have not brought a claim under the New York Insurance Law, and they
are not attempting to vindicate a statutory right of the sort at issue in Akins and Public Citizen.
Plaintiffs' claims under New York's consumer protection statutes - N.Y. Gen.
Bus. L. §§ 349 and 350 - likewise do not fall within the Akins and Public Citizen line of cases.
Under both statutes, plaintiffs must allege that they "suffered injury." Stutman v. Chem. Bank,
95 N.Y.2d 24, 29 (2000); see also Denenberg v. Rosen, 71A.D.3d187, 194 (1st Dept. 2010)
('"The standard for recovery under General Business Law§ 350, while specific to false
advertising, is otherwise identical to Section 349."' (quoting Goshen v. Mut. Life Ins. Co. of
New York, 98 N.Y.2d 314, 324 (2002))). Acc()rdingly, these New York (:Onsumer protection
statutes are not comparable to the statutes at issue in Akins and Public Citizen, "where Congress
clearly intended to create a right to bring suit regardless of the existence or non-existence of
actual harm." Dolan v. Select Portfolio Servicing, No. 03-CV-3285 (PKC) (AKT), 2016 WL
4099109, at *7 (E.D.N.Y. Aug. 2, 2016).
This case is also distinguishable from Akins and Public Citizen in that the
Complaint alleges only state law violations. "Although states may create a statutory cause of
action where none exists in federal law, states may not bypass constitutional or prudential
standing requirements." Robainas, 2015 WL 5918200, at *6; see also Ross, 115 F. Supp. 3d at
434-35 ("state law ... cannot 'confer injury in the Art. III sense where none would otherwise
exist"' (quoting Mangini v. R.J. Reynolds 'Iobacco Co., 793 F. Supp. 925, 929 (N.D. Cal.
1992))). As Judge Furman noted recently in dismissing a suit based on violations of the New
York Insurance Law,

22

limitations on standing "serve[] vital interests going to the role of the Judiciary in
our system of separated powers," Hollingsworth v. Perry, 133 S. Ct. 2652, 2667
(2013 ), and are "founded in concern about the proper - and properly limited role of the courts in a democratic society," Allen v. Wright, 468 U.S. 737, 750
(1984) (internal quotation marks omitted). It follows that "[s]tates cannot alter
that role simply by issuing to private parties who otherwise lack standing a ticket
to the federal courthouse." Hollip_g[.wor!h. 133 S. Ct. at 2667.
Ross, 115 F. Supp. 3d at 434.
Plaintiffs' claims under New York's consumer protection statutes do not provide
a basis for this Court to find that Plaintiffs have Article III standing.

*

*

*

*

Because the Complaint does not adequately plead an injury in fact, Defendants'
motions to dismiss (Dkt. Nos. 100, 102) will be granted. 10
CONCLUSION
For the reasons stated above, Defendant Alliant Services' motion to dismiss
(Dkt. No. 95) is denied as moot, and the remaining Defendants' motions to dismiss are granted.
The Clerk of the Court is directed to terminate the motions (Dkt. Nos. 95, 100, 102).
Dated: New York, New York
September 18, 2016
SO ORDERED.

United States District Judge

10

Given the Court's ruling as to standing, it will not address Defendants' remaining arguments
for dismissal. See Matter of Appointment oflndep. Counsel, 766 F.2d 70, 75 (2d Cir. 1985)
("[W]hen a plaintiff lacks standing the court must dismiss the case on that ground, and it is
unnecessary to intimate a view as to the merits of the claim." (citing Linda R.S. v. Richard D.,
410 U.S. 614, 619 n.6 (1973))).
23