| Flax v Lincoln Natl. Life Ins. Co. |
| 2008 NY Slip Op 07209 [54 AD3d 992] |
| September 30, 2008 |
| Appellate Division, Second Department |
| Herschel Flax et al., Respondents, v Lincoln National LifeInsurance Company et al., Appellants. |
—[*1] Winget, Spadafora & Schwartzberg, LLP, New York, N.Y. (Matthew Tracy of counsel), forappellants Estate of Timothy Henry Shoecraft, Graydon Garner, Colburn International, Inc. andIndependent Financial Group, Inc. Ackerman, Levine, Cullen, Brickman & Limmer, LLP, Great Neck, N.Y. (John M. Brickmanand Kira L. Polner of counsel), for respondents.
In an action to recover damages for breach of contract, fraud, and negligentmisrepresentation, the defendants Lincoln National Life Insurance Company and Aetna LifeInsurance and Annuity Company appeal, and the defendants Estate of Timothy Henry Shoecraft,Graydon Garner, Colburn International, Inc., and Independent Financial Group, Inc., separatelyappeal, as limited by their respective notices of appeal and briefs, from so much of an order ofthe Supreme Court, Nassau County (Spinola, J.), entered May 21, 2007, as, upon granting thosebranches of their separate motions which were to dismiss the causes of action to recover damagesfor breach of contract, fraud, and negligent misrepresentation, determined that the complaintstated a cause of action to recover damages for violation of General Business Law § 349.
Ordered that the order is reversed insofar as appealed from, on the law, with one bill of costspayable by the plaintiffs to the defendants appearing separately and filing separate briefs, and themotion to dismiss the complaint is granted in its entirety.[*2]
In 1999, insurance agents Timothy Shoecraft andGraydon Garner marketed a flexible premium variable life insurance policy to the plaintiff Dr.Herschel Flax. This insurance policy contained an investment component allowing thepolicyholder to control how the premiums were to be invested. Dr. Flax alleges that the insuranceagents marketed the policy as an estate planning device, representing that an initial investment of$1 million in premiums would yield at least $4.5 million in death benefits, which would not besubject to estate taxes because the policy would actually be owned by a life insurance trustcreated for that purpose. An illustration which the agents prepared for Dr. Flax assumed that themutual funds in which the premiums were to be invested would yield an annual return of 10%,which would support the projected death benefits. However, the illustration also expresslyprovided that it should not be considered a representation of future investment results because"[a]ctual investment results may be greater or lesser than those shown and will depend upon anumber of factors, including the investment choices and allocations made by the owner of thepolicy and the different rates of return earned by those investments." Dr. Flax asserts that he didnot need or want additional life insurance when he agreed to purchase the policy, and that theillustrated investment returns were the main selling point of the policy as marketed. The policynever realized the 10% percent annual return projected by the insurance agents' illustration, andby December 2004 the death benefits payable under the policy had decreased to $1,659,333, andthe cash value of the policy had declined to $300,000.
In December 2005 the plaintiffs commenced this action against the insurance agents who hadmarketed the policy to Dr. Flax, and the insurance companies that had issued the policy, seekingdamages for breach of contract, fraud, and negligent misrepresentation. The plaintiffs alleged thatthe insurance company defendants had breached the insurance contract because the policy failedto perform as illustrated, and the total cost of insurance provided ultimately amounted to almost50% of the policy's premiums. The plaintiffs further claimed that the insurance agent defendants,inter alia, had fraudulently represented that life insurance was only an incidental benefit of thepolicy, and had concealed the fact that life insurance constituted the major portion of the cost ofthe policy. The insurance company defendants and the insurance agent defendants separatelymoved to dismiss the complaint for failure to state a cause of action. The Supreme Court grantedthose branches of the defendants' motions which were to dismiss the breach of contract, fraud,and negligent misrepresentation claims, noting, among other things, that disclaimers contained inthe policy and the promotional materials provided to Dr. Flax were sufficient to absolve thedefendants of fraud. However, although no cause of action was asserted pursuant to GeneralBusiness Law § 349, the court concluded that the complaint stated a cause of action torecover damages for a deceptive act or business practice in violation of that statute.
On a motion to dismiss a complaint for failure to state a cause of action pursuant to CPLR3211 (a) (7), the court must accept all of the facts alleged in the pleading to be true, and accordthe plaintiff the benefit of every possible favorable inference in determining whether theallegations fit within any cognizable legal theory (see Leon v Martinez, 84 NY2d 83[1994]; Smith v Meridian Tech., Inc.,52 AD3d 685 [2008]; Mancusov Rubin, 52 AD3d 580 [2008]). Applying these principles here, the factual allegationsset forth in the complaint fail to set forth a viable claim to recover damages for a violation ofGeneral Business Law § 349. General Business Law § 349 is a broad consumerprotection statute which declares "[d]eceptive acts or practices in the conduct of any business,trade or commerce" to be unlawful (see Stutman v Chemical Bank, 95 NY2d 24, 28[2000]). "As a threshold matter, in order to satisfy General Business Law § 349 plaintiffs'claims must be predicated on a deceptive act or practice that is 'consumer oriented' " (Gaidonv Guardian Life Ins. Co. of Am., 94 NY2d 330, 344 [1944], quoting Oswego Laborers'Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20, 24-25 [1995]). Deceptiveacts or practices may be considered "consumer oriented" when they have a broad impact onconsumers at large (see Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank,85 NY2d 20, 25 [1995]). In contrast, private contract disputes which are unique to the partiesdo not fall within the ambit of the statute (id. at 25). Here, the plaintiffs do not allege thatthe defendants engaged in deceptive business practices directed at members of the publicgenerally who purchased flexible premium life insurance policies (cf. Gaidon v Guardian LifeIns. Co. of Am., 94 NY2d 330 [1999]; Shebar v Metropolitan Life Ins. Co., 25 AD3d 858, 859 [2006]; Monter v Massachusetts Mut. Life Ins. Co.,12 AD3d 651 [2004]). Rather, the plaintiffs' claim is predicated upon allegations that theinsurance agents marketed the policy to Dr. Flax by making misleading oral representationsregarding the nature of the policy, and projecting the death benefits the policy would providebased upon an estimate that the investments selected by Dr. Flax would yield a 10% rate ofreturn. These marketing practices are unique to Dr. Flax, and do not have an impact on the publicat large. Accordingly, the factual allegations set forth in the complaint are insufficient to showthat the defendants engaged in consumer oriented conduct, and do not state a cause of action forviolation of General Business Law § 349 (see Brooks v Key Trust Co. N.A., 26 AD3d 628 [2006]; Berardino v Ochlan, 2 AD3d 556,557 [2003]).
The plaintiffs' request for leave to amend the complaint is improperly made for the first timeon appeal (see Dimovich v OnBank & Trust Co., 242 AD2d 922, 923 [1997]; Butlerv Gibbons, 173 AD2d 352, 353 [1991]).
In view of our determination, we do not reach the defendants' remaining contentions. Lifson,J.P., Florio, Eng and Belen, JJ., concur.