U.S. Second Circuit Finds that Group Policyholders Have Article III Standing to Pursue Claims for the Purchase of Illegal Policies, Even If Coverage Is Enforceable

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Plaintiff group policyholders brought suit against HealthExtras for marketing “policies” that did not comply with the requirements of the New York Insurance Code.

The District Court dismissed the case for lack of standing.  While plaintiffs’ claims were premised on the contention that the policies were illegal, courts, under New York insurance law, enforce such contracts as if they did include the required provisions.  Because illegal policies are binding, plaintiffs were therefore not entitled to recover any premiums or fees. Plaintiffs, the District Court held, could have sought to enforce the policies if and when a qualifying injury had occurred; but because they did not suffer a qualifying injury, or seek to enforce the policies, they could not establish that they had suffered an injury in fact.  Under Spokeo, the mere fact of a statutory violation did not confer standing, and plaintiffs’ claims for misrepresentations and omissions, even if true, were too speculative, in the absence of submitted claims.

The U.S. Second Circuit Court of Appeals reversed.

“First, with respect to their quasi-contract claims, they argue they paid premiums for disability and medical expense insurance policies that are illegal under New York law and are therefore void ab initio or, in the alternative, voidable. Accepting plaintiffs’ allegations as true and assuming they would be successful on the merits — as we must for purposes of our threshold jurisdictional analysis — they have articulated a concrete, economic injury: payment of premiums on a void or voidable insurance policy. That is all plaintiffs need allege to establish an injury in fact for the purposes of Article III standing.

“According to defendants, plaintiffs lack standing to assert their quasi-contract claims because application of the savings statute would provide, in essence, an affirmative defense by requiring the insurers to honor the allegedly illegal policies had plaintiffs filed claims; in other words, plaintiffs were not injured because their claims are meritless. That argument, however, asks us to do what we cannot: decide the merits of the claim en route to determining its justiciability.  Where a plaintiff alleges a concrete, economic injury resulting from a defendant’s violation of a statutory provision, the plaintiff has alleged a sufficient injury to establish Article III standing, regardless of the merits of the plaintiff’s statutory interpretation.

“Plaintiffs have met that burden by alleging harm in the form of premium payments on illegal policies, and they have standing to pursue their quasi-contract claims irrespective of the fact that defendants propose a reading of a statute that would, if accepted, undermine the merits of plaintiffs’ claims.

“Second, plaintiffs have standing to pursue their statutory and common-law fraud claims. Both categories of claims allege that defendants misrepresented the nature of the HealthExtras policies by failing to disclose that they were not issued in compliance with New York law and in so doing, induced plaintiffs to purchase the policies at an inflated price. Plaintiffs have articulated an injury in fact: the difference in price between what they would have paid for the policies with full information and what they in fact paid. Therefore, even if the HealthExtras policies would have been enforced under New York law, plaintiffs are entitled to pursue their claims for at least some portion of the premiums they paid; whether the contracts for those policies were procured by fraud or whether defendants fraudulently or deceptively misrepresented the nature of the coverage they offered or the ability of plaintiffs to submit claims for loss under it are questions that go to the merits.”

Dubuisson v. Stonebridge Life Insurance Co., No.16-3526, 2018 WL 1748151 (2d Cir. April 12, 2018).

 

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