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Gaidon v. the Guardian Life Ins. Co. of America

Court of Appeals of the State of New York
May 8, 2001
96 N.Y.2d 201 (N.Y. 2001)

Summary

holding that the six-year statute of limitations for common law fraud does not apply to a claim under section 349 because it is a statutory cause of action

Summary of this case from Marshall v. American

Opinion

May 8, 2001.

Appeal, in the first above-entitled action, by permission of the Appellate Division of the Supreme Court in the First Judicial Department, from and order of that court, entered May 2, 2000, which, upon remittitur from the Court of Appeals ( see, 94 N.Y.2d 330), modified, on the law, and, as modified, affirmed a judgment of the Supreme Court (Charles E. Ramos, J.), entered in New York County, granting a motion by defendant to dismiss the complaint. The modification consisted of reinstating the cause of action alleging a violation of General Business Law § 349 arising out of defendant's sale of a "vanishing premium" life insurance policy. The following question was certified by the Appellate Division: "Was the order of this Court, which modified the order of Supreme Court, properly made?"

Appeal, in the second above-entitled action, by permission of the Court of Appeals, from so much of an order of the Appellate Division of the Supreme Court in the Third Judicial Department, entered July 27, 2000, as affirmed (1) an order of the Supreme Court (Walter J. Relihan, Jr., J.), entered in Tompkins County, partially granting a motion by defendant to dismiss causes of action seeking aquitable relief arising from an alleged breach of fiduciary duty, and damages for negligence, negligent misrepresentation and violating General Business Law § 349, arising out of defendant's sale of a "vanishing premium" life insurance policy, and (2) a subsequent order of said court granting a motion by defendant for summary judgment dismissing the remaining causes of action.

Thomas J. Dougherty, for appellant.

Barry A. Weprin, for respondents.

Barry A. Weprin, for appellant.

Eliot Spitzer, Attorney General of the State of New York; Life Insurance Council of New York, Inc., amici curiae.

Vaughn C. Williams, for respondent.

Eliot Spitzer, Attorney General of the State of New York, amicus curiae.

Chief Judge Kaye and Judges Smith, Ciparick, Wesley, Rosenblatt and Graffeo concur.


In Gaidon v. Guardian Life Ins. Co . ( 94 N.Y.2d 330) ( Gaidon ), this Court ruled that plaintiffs had pleaded a legally sufficient cause of action against defendant Guardian Life Insurance Company under General Business Law § 349(h). The complaint alleged that Guardian Life engaged in deceptive marketing and sales practices in promoting sales of its "vanishing premium" policies through agents' representations and personalized graphic illustrations showing that, after a specified period, "the policy's dividends would thereafter cover the premium costs" ( id ., at 339). The Gaidon case is now again before us and, along with the appeal in Russo v. Massachusetts Mutual Life Insurance Company , presents two issues: (1) whether the three-year Statute of Limitations provided by CPLR 214(2) for statutory causes of action, rather than the six-year limitations period provided by CPLR 213(8) for fraud, applies to a cause of action brought under General Business Law § 349, and (2) whether plaintiffs' actions accrued when they purchased and received their policies, or when defendant life insurers demanded additional premium payments beyond the dates by which they led plaintiffs to believe that premium payments would "vanish."

In the Gaidon case, the policies at issue were purchased in 1987. Some eight years later, premiums were demanded after the purported date they were to be entirely offset by dividends. Plaintiffs commenced this action on October 8, 1996, asserting claims for breach of contract and common-law fraudulent inducement, as well as their cause of action under General Business Law § 349. Supreme Court granted Guardian Life's motion to dismiss the complaint in its entirety, and the Appellate Division, First Department, affirmed. We modified by reinstating only plaintiffs' section 349 cause of action, and remitted to the Appellate Division to consider the other issues raised but not decided on the appeal to that court.

Upon remittal ( 272 A.D.2d 60), the Appellate Division affirmed dismissal for lack of standing with respect to several plaintiffs, by reason of their prior execution of general releases to Guardian Life, and as against plaintiff Frank Gaidon, because the policies insuring his life were not purchased or owned by him, but by plaintiff trustees, who did have standing. As to the trustees' claims under General Business Law § 349, the court reversed Supreme Court's dismissal of their General Business Law § 349 cause of action, rejecting Guardian Life's challenge that the action was time-barred. The court held that the three-year period of limitation for statutory causes of action (CPLR 214) applied, but concluded that the latter claim was timely interposed because the cause of action did not accrue until plaintiffs were required to pay premiums beyond the projected date by which they were assured that the premiums would be fully covered by policy dividends. The Appellate Division granted Guardian Life leave to appeal on the certified question, was its order properly made?

In Russo v. Massachusetts Mutual Life Insurance Company, plaintiff, a purchaser of defendant's vanishing premium "N-PAY" Life Insurance policy in 1989, commenced a proposed class action on April 12, 1996. The complaint contained causes of action sounding in, among other things, breach of contract, fraud, violations of Insurance Law §§ 2123 and 4226 (prohibiting misrepresentations by insurers and insurance agents) and a violation of General Business Law § 349. Supreme Court granted Mass. Mutual's motion to dismiss the General Business Law § 349 cause of action, as superseded by their claims under Insurance Law §§ 2123 and 4226; thereafter it denied plaintiff's motion for class certification and, after joinder of issue and discovery, granted Mass. Mutual's motion for summary judgment dismissing all of the remaining causes of action.

On plaintiff's appeals, the Appellate Division, Third Department, affirmed all three of Supreme Court's orders. Affirmance of the dismissal of plaintiff's General Business Law § 349 claim was on a different ground — that it was time-barred. Like the First Department in Gaidon, the court ruled that the applicable Statute of Limitations was the three-year period for statutory causes of action under CPLR 214 (2). The court concluded, however, that plaintiff's section 349 claim accrued when she purchased her policy in 1989 and, hence, was not timely commenced. We granted plaintiff leave to appeal. Only the section 349 claim is before us.

The Applicable Statute of Limitations

The courts below agreed that the plaintiffs' claims under General Business Law § 349(h) are "to recover upon a liability * * * created or imposed by statute" (CPLR 214) and, therefore, are governed by the three-year Statute of Limitations provided in that section. CPLR 214(2) does not automatically apply to all causes of action in which a statutory remedy is sought, but only where liability "would not exist but for a statute" (Aetna Life and Cas. Co. v. Nelson, 67 N.Y.2d 169, 174). Thus, CPLR 214(2) "does not apply to liabilities existing at common law which have been recognized or implemented by statute" (id.). When this is the case, the Statute of Limitations for the statutory claim is that for the common-law cause of action which the statute codified or implemented (see, State of New York v. Cortelle Corp., 38 N.Y.2d 83, 86-87).

Plaintiffs and the Attorney General, appearing as amicus curiae, contend that, at its core, General Business Law § 349(h) merely codifies and affords new remedies for what in essence is a common-law fraud claim. They characterize the only substantive deviation from common-law fraud as being the elimination of the scienter requirement in a claim under section 349. Otherwise, they maintain, the proof of one establishes the other. We disagree.

As described in Motor Vehicle Acc. Indem. Corp. v. Aetna Cas. Sur. Co. ( 89 N.Y.2d 214, 220-221), our case law construing CPLR 214(2) contrasts:

"(1) claims which, although provided for in a statute, merely codify or implement an existing common-law liability, which are not governed by CPLR 214(2) but by the Statute of Limitations applicable to their common-law sources; with (2) claims which, although akin to common-law causes, would not exist but for the statute * * *, in which case CPLR 214(2) applies" (emphasis supplied).

General Business Law § 349, as invoked in this case, falls in the latter category. While General Business Law § 349 may cover conduct "akin" to common-law fraud, it encompasses a far greater range of claims that were never legally cognizable before its enactment. We made this clear in Gaidon I, where we said (in comparing common-law fraud to the conduct proscribed by section 349):

"Although a person's actions may at once implicate both, General Business Law § 349 contemplates actionable conduct that does not necessarily rise to the level of fraud. In contrast to common-law fraud, General Business Law § 349 is a creature of statute based on broad consumer-protection concerns * * *. Although General Business Law § 349 claims have been aptly characterized as similar to fraud claims * * * they are critically different in ways illustrated by the cases at bar" (94 N.Y.2d, at 343 [emphasis supplied]).

The substantive differences between the claims under General Business Law § 349 here and common-law fraud were most pointedly demonstrated by our disposition of those respective causes of action in Gaidon I. There, we held that, because of the disclaimers in the promotional illustrations Guardian Life used in selling its vanishing premium policies, the misrepresentations in those materials and by sales agents did not rise to the level necessary to establish a common-law fraud claim. Yet we also held that the disclaimers were not sufficient to dispel the deceptiveness of Guardian Life's sales practices with respect to the same illustrations for purposes of alleging violation of General Business Law § 349. Thus, despite plaintiffs' and the Attorney General's contentions to the contrary, it is not merely the absence of scienter that distinguishes a violation of section 349 from common-law fraud; section 349 encompasses a significantly wider range of deceptive business practices that were never previously condemned by decisional law. For these reasons, we hold that the three-year period of limitations for statutory causes of action under CPLR 214(2) applies to the instant General Business Law § 349 claims.

Accrual of Plaintiffs' Causes of Action Under General Business Law § 349

In general, a cause of action accrues, triggering commencement of the limitations period, when all of the factual circumstances necessary to establish a right of action have occurred, so that the plaintiff would be entitled to relief (see, Britt v. Legal Aid Socy. Inc ., 95 N.Y.2d 443, 446; Motor Vehicle Acc. Indem. Corp. v. Aetna Cas. Sur. Co ., supra , 89 N.Y.2d, at 221). In an action to recover for a liability created or imposed by statute, the statutory language determines the elements of the claim which must exist before the action accrues ( see , Motor Vehicle Acc. Indem. Corp ., supra , at 221).

Here, the statute prohibits "[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service" (General Business Law § 349[a]), and affords a right of action to "any person who has been injured by reason of any violation of this section" (General Business Law § 349[h]). Thus, accrual of a section 349(h) private right of action first occurs when plaintiff has been injured by a deceptive act or practice violating section 349 ( see , Small v. Lorillard Tobacco Co ., 94 N.Y.2d 43, 55). In Gaidon I , we held that plaintiffs sufficiently alleged Guardian Life's deceptive behavior, in violation of section 349, regarding the marketing of its vanishing premium policies. The sufficiency of plaintiff Russo's pleading of Mass. Mutual's deceptive practices is not at issue on her appeal. Thus, accrual of plaintiffs' section 349 causes of action here turns upon when their respective injuries occurred as a result of the alleged statutory violations.

Guardian Life and Mass. Mutual contend that each plaintiff's injury occurred at the time of purchase and delivery of each life insurance policy, which was unambiguous in stating that: (1) premiums were payable over the lifetime of the insured; (2) dividends (which the policyholder might apply to premium payments) were not guaranteed; and (3) the policy provisions contained all of the insurer's obligations, and all earlier representations were merged into the policy contract. Both defendants argue that those terms demonstrated that plaintiffs had actually received policies that were less valuable than the vanishing premium policies they were promised or represented to have purchased. Thus, their argument goes, each plaintiff's injury occurred when the inferior policy was delivered, triggering accrual of the statutory cause of action and the three-year period of limitations at that moment in time.

We, however, agree with plaintiffs that their injuries occurred when they were first called upon to pay additional premiums beyond the date by which they were led to believe that policy dividends would be sufficient to cover all premium costs. Defendants' contention that injury occurred when each plaintiff received a policy that failed to contain terms reflecting the vanishing premium illustrations is based upon a misconception of the gravamen of plaintiffs' General Business Law § 349 causes of action. As Gaidon I explains, the basis of the alleged section 349 violation was not a false guarantee that the policies themselves would expressly provide for premiums to vanish, or even that the illustrations expressly guaranteed that result. Indeed, we held that the disclaimers in the illustrations and in the policy provisions were sufficient to negate the existence of any such guarantees. We concluded in Gaidon I , however, that the absence of any such guarantee was beside the point with respect to plaintiffs' section 349 claim. "Although [the insurers] did not guarantee that interest [and thus dividend] rates would remain constant, they failed to reveal that the illustrated vanishing dates were wholly unrealistic" ( supra , 94 N.Y.2d, at 350).

We held in Gaidon I that the operative allegations of the violation of General Business Law § 349 were that, through "an extensive marketing scheme * * * defendants lured them into purchasing policies by using illustrations that created unrealistic expectations as to the prospects of premium disappearance upon a strategically chosen `vanishing date.' This vanishing date, plaintiffs allege, was misleading , as based on the premise that interest rates would continue at a high unprecedented rate for, in some cases, 20 or more years — a premise that defendants allegedly knew to be unlikely" ( id ., at 344 [emphasis supplied]).

Because the gravamen of the complaints of General Business Law § 349 violations was not false guarantees of policy terms, but deceptive practices inducing unrealistic expectations of continuing interest/dividend rate performance to fully offset premiums at the projected date, plaintiffs suffered no measurable damage until the point in time when those expectations were actually not met, and they were then called upon either to pay additional premiums or lose coverage and forfeit the premiums they previously paid. Thus, we conclude, the date when those additional premiums were demanded triggered the Statute of Limitations, and these actions, commenced within three years of those dates, were timely commenced.

Accordingly, in Gaidon v. Guardian Life Insurance Company , the order of the Appellate Division should be affirmed, with costs, and the certified question answered in the affirmative. In Russo v. Massachusetts Mutual Life Insurance Company , the order of the Appellate Division, insofar as appealed from, should be reversed, with costs, and plaintiff's cause of action under General Business Law § 349 reinstated.

* * * * * * * * * * * * * * * * *

Order affirmed, with costs, and certified question answered in the affirmative.

Order, insofar as appealed from, reversed, with costs, and plaintiff's General Business Law § 349 cause of action reinstated.


Summaries of

Gaidon v. the Guardian Life Ins. Co. of America

Court of Appeals of the State of New York
May 8, 2001
96 N.Y.2d 201 (N.Y. 2001)

holding that the six-year statute of limitations for common law fraud does not apply to a claim under section 349 because it is a statutory cause of action

Summary of this case from Marshall v. American

holding that the six-year limitations period for common law fraud claims does not apply section 349 claims given that it is a statutory cause of action

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holding that the six-year limitations period for common law fraud claims does not apply section 349 claims given that it is a statutory cause of action

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holding that plaintiffs suffered no measurable damage under the General Business Law until the point in time at which their commercial expectations were not met

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holding that plaintiffs suffered no measurable damage under the General Business Law until the point in time at which their commercial expectations were not met

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In Gaidon, the plaintiffs brought a GBL § 349 claim against insurance companies alleging they had purchased their insurance policies based on the defendants' false representations that the plaintiffs would have to make out-of-pocket premium payments only for a certain number of years, after which the payments would "vanish," and the policies' dividends would cover the remaining premium costs.

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In Gaidon, the Court of Appeals stated that where "the gravamen of the complaints of General Business Law § 349 violations was not false guarantees of policy terms, but deceptive practices inducing unrealistic expectations... plaintiffs suffered no measurable damage until the point in time when those expectations were actually not met."

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discussing New York consumer protection laws and noting that "[i]n general, a cause of action accrues, triggering commencement of the limitations period, when all of the factual circumstances necessary to establish a right of action have occurred, so that the plaintiff would be entitled to relief"

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noting that such a claim “first occurs when plaintiff has been injured by a deceptive act or practice violating section 349”

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noting that "[i]n 1980, the Legislature took a significant step to expand the statute's enforcement scheme by allowing a private cause of action."

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In Gaidon, the plaintiffs argued that NYGBL § 349(h), which permits private suits under NYGBL § 349, "merely codifies and affords new remedies for what in essence is a common-law fraud claim[,]" and only deviates from common-law fraud by relaxing scienter.

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differentiating the statute of limitations for N.Y. Gen. Bus. Law § 349 from the statute of limitations for common law fraud controlled by N.Y. C.P.L.R. § 213

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In Gaidon, the alleged deception related to the likelihood of a future event: the defendants had sold life insurance to the plaintiffs, using materials showing that, after a certain date, policy dividends would be sufficient to cover the premiums.

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In Gaidon, which applied CPLR 214(2) to a General Business Law § 349(h) claim, the Court stated that " General Business Law § 349, as invoked in this case, falls in the... category" of "claims which, although akin to common- law causes, would not exist but for the statute " (Gaidon at 209, 727 N.Y.S.2d 30, 750 N.E.2d 1078 [internal quotation marks omitted]).

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In Gaidon v Guardian Life Ins. Co. of Am., 96 NY2d 201(2001), the defendant insurer sold "vanishing premium" life insurance policies to consumers, and the insurer was sued by the plaintiffs for violation of section 349 of New York's General Business Law for deceptive practices.

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Case details for

Gaidon v. the Guardian Life Ins. Co. of America

Case Details

Full title:FRANK J. GAIDON, c., ET AL., RESPONDENTS, v. THE GUARDIAN LIFE INSURANCE…

Court:Court of Appeals of the State of New York

Date published: May 8, 2001

Citations

96 N.Y.2d 201 (N.Y. 2001)
727 N.Y.S.2d 30
750 N.E.2d 1078

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