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Using Unfair and Deceptive Acts and Practices Statutes to Challenge Reinsurer Delays in Claims Payment


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Although the viability of a claim for violation of an unfair and deceptive acts and practices statute in the reinsurance …

Although the viability of a claim for violation of an unfair and deceptive acts and practices statute in the reinsurance
context is still in its infancy, the possibility of those claims must be considered by cedents and reinsurers alike in their claims activities, at least in jurisdictions where such claims are viable.

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  • 1. The following article is from National Underwriter’s latest online resource, FC&S Legal: The Insurance Coverage Law Information Center. The Insurance Coverage Law Information Center USING UNFAIR AND DECEPTIVE ACTS AND PRACTICES STATUTES TO CHALLENGE REINSURER DELAYS IN CLAIMS PAYMENT September 25, 2013 Andrew S. Lewner, Allyson M. Rucinski Although the viability of a claim for violation of an unfair and deceptive acts and practices statute in the reinsurance context is still in its infancy, the possibility of those claims must be considered by cedents and reinsurers alike in their claims activities, at least in jurisdictions where such claims are viable. The relationship between cedents[1] and reinsurers has become increasingly strained in recent years, with cedents more and more frequently commencing arbitration or litigation based upon alleged improper claim denial or significant delay in the payment of claims under reinsurance agreements. Although it is not uncommon for parties to a reinsurance dispute to allege that the other has acted in “bad faith,” such allegations are often amorphous in nature, and frequently do not seek specific relief other than the payment of the disputed claims. It is for this reason that cedents and reinsurers should take notice of the potential applicability to reinsurance disputes of claims arising under state unfair and deceptive acts and practices (“UDAP”) statutes. As this article discusses in detail, claims under UDAP statutes are potentially significant in the reinsurance context, as such statutes often allow the prevailing party to recover not only compensatory damages, but punitive damages, enhanced penalties, and/or attorneys’ fees. Although there have only been a limited number of reported cases involving UDAP claims in the reinsurance context, existing case law indicates that such claims may be viable in several jurisdictions. Indeed, while Massachusetts has the most developed case law on such a claim – with cedents having successfully brought UDAP claims against reinsurers in Commercial Union Insurance Co. v. Seven Provinces Insurance Co., Ltd (“Seven Provinces”)[2] and more recently in Trenwick America Reinsurance Corp. v. IRC, Inc.(“Trenwick”)[3] – courts interpreting other state UDAP statutes have either expressly or implicitly acknowledged that such a claim may successfully be brought in those jurisdictions by a cedent. Although such a claim might not be possible in all jurisdictions, for those jurisdictions in which it is, a cedent has a far more powerful tool than a general bad faith claim challenging a reinsurer’s non-payment or delay. Reinsurers need to be aware of the possibility of such claims, which can render any unreasonable claim denial or delay very costly. Overview of State UDAP Statutes All 50 states have enacted statutes prohibiting businesses from engaging in unfair and deceptive acts and practices. This article focuses on two types: (1) general prohibitions on deceptive business practices commonly referred to as “consumer protection statutes;” and (2) insurance-specific statutes that proscribe unfair and deceptive conduct in the insurance arena. GENERAL UDAP STATUTES The general statutes that fall under the rubric of “consumer protection statutes” vary from state to state, but are all designed with the same purpose—to discourage unfair and deceptive tactics in the marketplace. These statues tend to be very broad and contain sweeping prohibitions that encompass a multitude of practices.[4] For example, New Jersey’s Consumer Fraud Act (“CFA”) contains the following broad prohibitions: The act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any Call 1-800-543-0874 | Email | ©2013. All Rights Reserved.
  • 2. merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice….[5] Conversely, some states, such as Colorado, Indiana, and Oregon, enumerate specific practices that are considered deceptive, thereby effectively limiting the types of suits that can be brought under their respective statutes.[6] Of particular relevance to reinsurance disputes, a private right of action is available under every state’s UDAP statute,[7] with Iowa being the only exception.[8] Moreover, in the majority of jurisdictions, a party successfully bringing an action under a state’s general UDAP statute is entitled to a multitude of potential remedies, such as compensatory damages, punitive damages, enhanced penalties (such as treble damages), and attorneys’ fees.[9] INSURANCE-SPECIFIC UDAP STATUTES In addition to general consumer protection statutes, all 50 states have adopted insurance-specific UDAP statutes. Unlike the general UDAP statutes, which vary widely from state to state, there is more uniformity among the insurancespecific statutes and, in particular, the portions of such statutes governing insurance claims settlement practices. This is due to the fact that almost all of the states have premised their respective statutes, in whole or in part, on the model act formulated by the National Association of Insurance Commissioners (“NAIC”).[10] Thus, with relative uniformity, the following conduct constitutes an unfair claims settlement practice in most states:[11] •  ailing to acknowledge and act with reasonable promptness upon communications with respect to claims arising F under insurance policies; • Refusing to pay claims without conducting a reasonable investigation based upon all available information; •  ailing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been F completed; •  ot attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has N become reasonably clear; •  ompelling insureds to institute litigation to recover amounts due under an insurance policy by offering C substantially less than the amounts ultimately recovered in actions brought by such insureds; •  ttempting to settle a claim for less than the amount to which a reasonable person would have believed s/he was A entitled by reference to written or printed advertising material accompanying or made part of an application; •  elaying the investigation or payment of claims by requiring an insured, claimant, or the physician of either to D submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information; •  ailing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or F applicable law for denial of a claim or for the offer of a compromise settlement. Although there is consistency among the states as to what constitutes prohibited conduct, there remain key variations among the states’ insurance-specific UDAP statutes. For instance, the states are divided as to the level of intent that is required to maintain a claim against an insurer for engaging in unfair claims settlement practices. Indeed, although many states require a showing that an insurer acted in violation of the insurance-specific UDAP statute with intent,[12] others, such as Colorado and Washington, will hold an insurer liable where the insurer merely acted negligently in processing a claim.[13] Moreover, unlike general UDAP statutes, which uniformly provide for a private right of action, the majority of state insurance-specific UDAP statutes do not, and are instead used primarily as an enforcement tool for state agencies.[14] Where a private right of action is provided, however, a prevailing party may be able to recover such monetary benefits as attorneys’ fees, costs, and even punitive damages.[15] Additionally, where a jurisdiction does not expressly provide for a private right of action under its insurance-specific UDAP statute, it is possible that a claim may still be brought by utilizing the private right of action under the state’s general UDAP statute. As discussed in greater detail below, in jurisdictions where there is no private right of action under the insurance-specific statute, a party may be able to bring an action under the general UDAP statute, and cite to conduct violative of the insurance-specific statute as per se evidence that the insurer engaged in an unfair or deceptive practice, in violation of the general statute. Call 1-800-543-0874 | Email | ©2013. All Rights Reserved.
  • 3. Jurisdictions Where A UDAP Claim Is Viable Although there are very few cases in the reinsurance context in which courts have addressed claims involving violation of a state’s UDAP statutes, there are several jurisdictions in which such claims have either succeeded, or appear to be viable. MASSACHUSETTS Massachusetts General Laws, Chapter 93A, entitled “Regulation of Business Practices for Consumer Protection” (hereinafter “Chapter 93A”), prohibits those engaged in trade or commerce from employing “unfair methods of competition or deceptive acts or practices.”[16] Section 11 of Chapter 93A provides for a private cause of action to individuals and business entities[17] by providing, in relevant part, that: Any person who engages in the conduct of any trade or commerce and who suffers any loss of money or property, real or personal, as a result of the use or employment by another person who engages in any trade or commerce of an unfair method of competition or an unfair or deceptive act or practice . . . as hereinafter provided, bring an action in the superior court, . . . for damages . . . as the court deems to be necessary and proper.[18] Significantly, under Chapter 93A, the aggrieved party may recover up to treble damages, plus attorneys’ fees and costs associated with any lawsuit brought thereunder.[19] Despite the fact that Chapter 93A does not explicitly apply to reinsurance transactions, the courts in both Seven Provinces and Trenwick held that reinsurers are subject to Chapter 93A.[20] In the insurance/reinsurance context, Chapter 93A does not enumerate the types of conduct that constitute unfair methods of competition and unfair or deceptive acts. Rather, liability under Chapter 93A is triggered by conduct that is “within at least the penumbra of some common-law, statutory or other established concept of unfairness,” is “immoral, unethical, oppressive, or unscrupulous,” and “causes substantial injury to consumers (or competitors or other businessmen).”[21] Although such a standard can be somewhat amorphous, the Massachusetts courts have essentially adopted a “we’ll know it when we see it” stance regarding potential violations of Chapter 93A, and have repeatedly “‘declined to adopt a static definition of either ‘unfair’ or ‘deceptive.’”[22] Courts have prohibited conduct under Chapter 93A that is “in disregard of known contractual arrangements and intended to secure benefits for the breaching party,”[23] a breach of the implied covenant of good faith and fair dealing,[24] and egregious misconduct that violates the duty of utmost good faith that goes beyond an ordinary breach of contract.[25] In addition to Chapter 93A, Massachusetts has enacted an insurance-specific UDAP statute - Massachusetts General Laws, Chapter 176D, entitled “Unfair Methods of Competition and Unfair and Deceptive Acts and Practices in the Business of Insurance” (hereinafter “Chapter 176D”) – which is modeled after the NAIC Model Laws, Regulations, & Guidelines. Although Massachusetts courts have uniformly held that a private right of action based strictly on Chapter 176D does not exist for a business entity plaintiff,[26] a violation of Chapter 176D has been held to be evidence of a violation of Chapter 93A §11.[27] In Seven Provinces, the First Circuit Court of Appeals affirmed the finding of the U.S. District Court for the District of Massachusetts that Seven Provinces Insurance Company, a reinsurer, violated Chapter 93A.[28] There, the reinsurer’s unfair and deceptive conduct included: its failure to communicate to its insured, Commercial Union, a decision to deny coverage; its “pattern of evasiveness and obstructionism” without ever refusing to pay; its avoidance of the direct issue of whether Seven Provinces believed it was obligated to Commercial Union and, if so, for how much; and “its deliberate avoidance strategy by raising a series of constantly shifting defenses and objections to payment,” which were “intended to pressure Commercial Union into a settlement.”[29] Notably, the court determined that the lengthy delay by Seven Provinces – almost two and a half years from the discovery of the facultative certificate to the trial, without coming to a decision on whether to pay – was egregious and outside what is considered normal industry practice.[30] Commercial Union was awarded double damages and attorneys’ fees based on Seven Provinces’ violation of Chapter 93A.[31] Similarly, in Trenwick, the U.S. District Court for the District of Massachusetts expanded upon the type of conduct found violative of Chapter 93A by a reinsurer. In Trenwick, the plaintiff alleged that the defendant reinsurers and their principal engaged in fraud and negligent misrepresentation, as well as disavowed the contract in bad faith and engaged in a “moving target” strategy of constantly shifting positions throughout the litigation.[32] The district court concluded that the defendants violated Chapter 93A by engaging in the following conduct: disavowing the contract in bad faith; raising a “specious” defense to payment; stringing the insured along in an effort to avoid payment; and attempting to obfuscate the issues during litigation in order to stall the resolution of the matter.[33] The district court further emphasized that culpable conduct under Chapter 93A can take place both prior to and after the commencement of litigation.[34] There, the plaintiff was awarded double damages, including interest, along with attorneys’ fees and expenses.[35] Call 1-800-543-0874 | Email | ©2013. All Rights Reserved.
  • 4. In addition to the Seven Provinces and Trenwick cases, there are a number of cases outside of the reinsurance context that have examined aspects of a Chapter 93A claim. Among the various behaviors enumerated in Chapter 176D, the most frequently examined by the courts has been §3(9)(f), which provides that it is an unfair claims settlement practice for an insurer to fail “to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.”[36] An objective test is used to determine when an insured’s liability has become “reasonably clear”: “whether a reasonable person, with knowledge of the relevant facts and law, would probably have concluded, for good reason, that the insured was liable to the plaintiff.”[37] Nonetheless, Massachusetts courts have explained that if an insurer fails to act in good faith, it will be found to have engaged in an unfair settlement practice, “even in the face of a plausible coverage position.”[38] CONNECTICUT The Connecticut Unfair Trade Practices Act (“CUTPA”)[39] provides that “no person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”[40] Like many other general UDAP statutes, CUTPA expressly provides that a party that successfully asserts a claim under the statute may be entitled to an award of attorneys’ fees and punitive damages.[41] In determining whether a practice violates CUTPA, Connecticut courts consider three criteria: 1. [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has  been established by statutes, the common law, or otherwise-whether, in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; 2. whether it is immoral, unethical, oppressive, or unscrupulous;  3. whether it causes substantial injury to consumers [competitors or other businesspeople]....[42]  “All three criteria do not need to be satisfied to support a finding of unfairness. A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three.... Thus a violation of CUTPA may be established by showing either an actual deceptive practice ... or a practice amounting to a violation of public policy.... Furthermore, a party need not prove an intent to deceive to prevail under CUTPA.”[43] In Connecticut, a party can bring a claim under CUTPA, based on a violation of Connecticut’s Unfair Insurance Practices Act (“CUIPA”).[44] CUIPA provides, in relevant part, that: No person shall engage in this state in any trade practice which is defined in section 38a-816 as, or determined pursuant to sections 38a-817 and 38a-818 to be, an unfair method of competition or an unfair or deceptive act or practice in the business of insurance, nor shall any domestic insurance company engage outside of this state in any act or practice defined in subsections (1) to (12), inclusive, of section 38a-816.[45] Connecticut has adopted the NAIC model legislation wholesale, and as such, “unfair methods of competition and unfair and deceptive acts or practices in the business of insurance” includes the practices enumerated elsewhere in this article.[46] Connecticut has an additional requirement, not included in the NAIC model, that to constitute an unfair claim settlement practice, the acts must be “commit[ed] or perform[ed] with such frequency as to indicate a general business practice.”[47] Although CUIPA does not explicitly apply to reinsurance contracts, the U.S. District Court for the District of Connecticut in Security Insurance Co. of Hartford v. Trustmark Insurance Co., Civ. 3:01CV2198, 2002 WL 32500873, at *3 (D. Conn. Aug. 22, 2002) (“Trustmark”), held that reinsurers are subject to CUIPA because the “business of insurance” language in the statute encompasses reinsurance agreements.[48] There have been few claims brought by a cedent against a reinsurer under CUTPA. This is most likely because a cedent must demonstrate that a reinsurer has engaged in prohibited acts with such frequency as to indicate a “general business practice.”[49] Nonetheless, such a claim by a cedent against a reinsurer was recently asserted in Travelers Indemnity Co. v. Excalibur Reinsurance Corp. (“Travelers”).[50] In Travelers, the U.S. District Court for the District of Connecticut granted Travelers’ motion to amend its complaint to assert claims against its reinsurer, Excalibur for, inter alia, violations of CUTPA based upon Excalibur’s delay in handling Travelers’ claims.[51] Specifically, Travelers alleged that “Excalibur’s business practices of arbitrary and contract-violative delays in the evaluation of reinsurance claims, and in the payment of them even when approved,” violated CUTPA.[52] In finding that Travelers’ proposed amended complaint stated a plausible claim against Excalibur for violations of CUTPA, the court noted that these allegations went beyond a simple breach of contract, and were more offensive than simply not paying a reinsurance claim when first presented.[53] Call 1-800-543-0874 | Email | ©2013. All Rights Reserved.
  • 5. WASHINGTON STATE Although there have been no published cases in the reinsurance context, Washington State’s statutes and case law indicate that such a claim would likely be viable. Washington’s Consumer Protection Act (“CPA”) provides that: “Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.”[54] Under this statute any person – including a corporation – can bring a private right of action for injuries it suffered to its business or property as a result of a CPA violation.[55] Moreover, a prevailing plaintiff may be awarded actual damages, reasonable attorneys’ fees, and treble damages.[56] Five elements must be satisfied to state a claim under the CPA: “(1) an unfair or deceptive act or practice, (2) in trade or commerce, (3) that impacts the public interest, (4) which causes injury to the party in his business or property, and (5) which injury is causally linked to the unfair or deceptive act.”[57] In the insurance context, the Washington Supreme Court has repeatedly recognized that the first two elements of this test can be satisfied by establishing a violation of Washington’s Unfair Claims Settlement Practices Regulations (hereinafter “WAC 284-30”).[58] WAC 284-30 defines various practices that are determined to be “unfair or deceptive acts or practices in the business of insurance, specifically applicable to the settlement of claims.”[59] These regulations proscribe 19 types of conduct, which encompass all of the practices enumerated in the NAIC’s model legislation, as well as some additional practices.[60] Only a single violation of WAC 284-30 is needed to demonstrate a per se unfair trade practice under the CPA.[61] Likewise, a violation of WAC 284-30 will satisfy the CPA’s third element, as “[t]he public interest element may be established by showing a violation of a statute containing a legislative declaration of public interest impact.”[62] Thus, once a cedent establishes a violation of WAC 284-30, it need only demonstrate causation and injury to prevail on its claim. Notably, a cedent would only have to show that the reinsurer’s acts were unreasonable – there is no necessary showing of bad faith.[63] Although the CPA has not specifically been extended to the reinsurance context, it has been held to apply to insurance companies and actions brought by insureds.[64] In addition, the CPA is a very broad statute, and courts have been hesitant to interpret it in a manner that limits its scope or applicability.[65] NORTH CAROLINA Like Washington, in North Carolina, there exists a corresponding relationship between North Carolina’s Unfair and Deceptive Trade Practices Act (“UDTPA”),[66] which prohibits unfair and deceptive acts in general, and its Unfair Claims Act, which prohibits unfair methods of competition and unfair or deceptive acts or practices in the insurance industry.[67] Subsection (11) of the Unfair Claims Act, which governs unfair claims settlement practices, contains the same proscriptions set forth in the NAIC model legislation.[68] UDTPA provides that, “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are declared unlawful.”[69] The term “commerce” is defined very broadly under the statute as including “all business activities.”[70] UDTPA confers a private right of action on any injured party – person, firm, or corporation – and entitles a prevailing plaintiff to have the damages assessed by the jury trebled.[71] This is a statutory right granted to the prevailing plaintiff and an award of treble damages is not subject to judicial discretion.[72] Although there is no private right of action under North Carolina’s Unfair Claims Act, courts have recognized that “[t]he relationship between the insurance statute and the more general unfair or deceptive trade practices statutes is that the latter provide a remedy in the nature of a private action for the former.”[73] In fact, since the early 1990s, North Carolina courts have upheld this private right of action even in the face of amendments to the statutes, by consistently interpreting violations of the claim settlement practices provision of the Unfair Claims Act as constituting a per se violation of UDTPA. [74] This interplay between North Carolina’s UDTPA and Unfair Claims Act simplifies the process for challenging the manner in which an insurer settles a claim. In North Carolina, to prevail on a UDTPA claim, a party must show: “(1) an unfair or deceptive act or practice, or unfair method of competition, (2) in or affecting commerce, and (3) which proximately caused actual injury to the plaintiff or his business.”[75] Because the insurance industry qualifies as falling within the realm of commerce, aside from matters of proximate cause, all that a plaintiff must prove is that a violation of the Unfair Claims Act occurred, and such violation would therefore “constitute[ ] an unfair and deceptive trade practice in violation [of the consumer protection law] as a matter of law.”[76] Moreover, where a violation of the Unfair Claims Act’s claim settlement provisions forms the basis of an UDTPA claim, a party does not have to establish that the defendant business was Call 1-800-543-0874 | Email | ©2013. All Rights Reserved.
  • 6. engaged in a campaign of unfair or deceptive practices that would rise to the level of a “general business practice,” as “such conduct is inherently unfair, unscrupulous, immoral, and injurious to consumers.”[77] It is likely that a cedent could assert a claim against a reinsurer under North Carolina’s UDTPA statute. Insureds have already prevailed in actions under UDTPA against insurers for “[n]ot attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.”[78] In addition, there is limited case law to suggest that UDTPA extends to the reinsurance context. For example, in Stonewall Insurance Co. v. Fortress Reinsurers Managers, Inc.,[79] a cedent brought an action against a reinsurer to recover under a reinsurance policy. The cedent asserted several claims, including that the reinsurer acted in bad faith and engaged in unfair and deceptive practices in violation of UDTPA.[80] The North Carolina Court of Appeals affirmed the lower court’s grant of summary judgment for the reinsurer on the bad faith and UDTPA claims. In doing so, however, the court of appeals did not hold that a claim could not be asserted under UDTPA in the reinsurance claims context.[81] Arbitrability of UDAP Claims The issue of arbitrability is particularly relevant in the reinsurance context, as the majority of reinsurance agreements contain arbitration clauses. Generally, courts have held that claims arising under UDAP statutes are arbitrable if the agreement under which the claims arise contains a broad, as opposed to narrow, arbitration clause.[82] Thus, whether a party seeking to assert a claim arising under a UDAP statute can bring the claim in court or in arbitration will depend on the specific language of the operative arbitration clause. In Massachusetts, for example, broad arbitration clauses are identifiable by their sweeping language, which generally encompass “any and all disputes,” or claims “arising under or relating to” an agreement.[83] By contrast, narrow arbitration clauses vary widely and do not contain “set” language. In determining whether a clause is narrow, Massachusetts courts look to whether the arbitration clause contains any words of limitation as to the scope of arbitrable issues.[84] If the scope of the arbitration provision is construed as encompassing Chapter 93A claims, a business is limited to bringing its claim in arbitration.[85] Similarly, the Connecticut Supreme Court has repeatedly held that CUTPA claims are subject to arbitration, and that if the parties have entered into a broad arbitration agreement, the CUTPA claims should be submitted to arbitration.[86] Arbitration provisions, such as ones encompassing “all disputes arising out of or related to [an] [a]greement,” are considered “precisely the kind of broad arbitration clause that justifies a presumption of arbitrability.”[87] Moreover, Connecticut courts have consistently stayed litigation of CUTPA claims where the agreements underlying those claims were subject to arbitration agreements.[88] Although beyond the scope of this article, a party seeking to bring a UDAP claim in the reinsurance context must first analyze any applicable agreements to determine whether the agreements contain an arbitration clause, and if so, whether that clause (and the case law of the particular jurisdiction) require a claim for violation of a UDAP statute to be brought in arbitration, as opposed to in litigation. CONCLUSION The viability of a claim for violation of a UDAP statute in the reinsurance context is still in its infancy in the majority of jurisdictions. Nonetheless, even in the limited jurisdictions where such claims have been brought, it is clear that the cost to a reinsurer for unreasonable delay can be high, and the recovery to a cedent quite significant. Time will tell whether UDAP claims become a new tool for cedents to challenge reinsurers’ claim settlement practices in the majority of jurisdictions. For now, in at least certain jurisdictions where such claims are viable, the possibility of UDAP claims must be considered by cedents and reinsurers alike in their claims activities. ________________________________________ [1]. A “cedent” refers to the original insurer or direct insurer, and the insurance company that is transferring or ceding its  risk is known as the “reinsured.” 1A Couch on Ins. § 9:2. [2]. 217 F.3d 33 (1st Cir. 2000).  [3]. 764 F. Supp. 2d 274 (D. Mass. 2011).  [4]. See, e.g., Conn. Gen. Stat. § 42-110b (2013); Me. Rev. Stat. tit. 5 § 207 (2013); Mass. Gen. Laws ch. 93A, § 2(a) (2013);  N.C. Gen. Stat. § 75-1.1(a) (2013); Wash. Rev. Code § 19.86.020 (2013). [5]. N.J. Stat. Ann. § 56:8-2 (West 2013). New Jersey courts have explicitly held that the CFA applies to the insurance  industry. See Yourman v. People’s Sec. Life Ins. Co., 992 F. Supp. 696 (D. N.J. 1998) (CFA applies to the sale and marketing of insurance policies);see also Lemelledo v. Beneficial Mgmt. Corp. of Am., 696 A.2d 546 (N.J. 1997) (holding that the CFA is to be applied broadly and includes both lending and insurance sales practices). A business entity Call 1-800-543-0874 | Email | ©2013. All Rights Reserved.
  • 7. can bring an action under the CFA, provided it is acting in a consumer-oriented situation, which is determined based on the character of the transaction and not the identity of the purchaser. See J & R Ice Cream Corp. v. California Smoothie Licensing Corp., 31 F.3d 1259, 1273 (3d Cir. 1994) (citing New Jersey cases holding that corporations that are purchasers of yachts, tow trucks, computer peripherals, and prefabricated wall panels are all “consumers” under the CFA). [6]. See Colo. Rev. Stat. § 6-1-105 (2013); Ind. Code § 24-5-0.5 (2013); Or. Rev. Stat. § 646.608 (2013).  [7]. There are, however, limitations upon the availability of a private right of action in some states. For example, although  Michigan and Rhode Island provide for a private right of action, courts in those states have limited their respective state UDAP statutes in such a way that few, if any, consumer transactions are covered. See Mich. Comp. Laws § 445.903 (2013); Liss v. Lewiston -Richards, Inc., 732 N.W.2d 514 (Mich. 2007); R.I. Gen. Laws § 6-13.1-2 (2012); Chavers v. Fleet Bank, 844 A.2d 666 (R.I. 2004). [8]. Iowa limits the enforcement of its general UDAP statute to the state Attorney General. See Iowa Code § 714.16  (2013). [9]. See, e.g., Conn. Gen. Stat. § 42-110g(a), (d) (2013); Haw. Rev. Stat. § 480-13(a)(1), (b)(1) (2013); Mass. Gen. Laws ch. 93A, § 9(1), (3), (4) (2013); N.J. Stat. Ann. § 56:8-19 (West 2013). [10]. Victor E. Schwartz & Christopher E. Appel, Common-Sense Construction of Unfair Claims Settlement Statutes:  Restoring the Good Faith in Bad Faith, 58 Am. Univ. L. Rev. 1477, 1531 n.50 (2009). [11]. See NAIC Model Laws, Regulations, & Guidelines, Vol. V, p. 900-1 et seq.  [12]. See, e.g., Phelps v. State Farm Mut. Auto. Ins. Co., 680 F.3d 725, 731 (6th Cir. 2012) (standard to state a claim under  Kentucky’s Unfair Claims Settlement Practices Act is a “high threshold” requiring evidence of “intentional misconduct or reckless disregard of the rights of an insured or a claimant” by the insurance company). [13]. Colo. Rev. Stat. § 10-3-1115 (2013) (reasonableness standard); Wash. Rev. Code § 48.30.015 (2013) (same).  [14]. See, e.g., Ariz. Rev. Stat. Ann. § 20-461(19)(D) (2013) (noting that although Arizona’s unfair claims settlement  practices statute provides a right to an administrative remedy, it does not provide any private right of action for insureds); Aetna Cas. & Sur. Co. v. ITT Hartford Ins. Co., 249 A.D.2d 241, 242 (1st Dep’t 1998) (regulations defining unfair insurance claims settlement practices under NY. Ins. Law § 2601 do not give rise to a private right of action); S.D. Codified Laws § 58-33-69 (2012) (barring private actions under South Dakota’s unfair or deceptive insurance practices laws); Tenn. Code Ann. § 56-8-101(c) (2013) (barring any private right of action under the Tennessee Unfair Trade Practices and Unfair Claims Settlement Act); Utah Code Ann. § 31A-26-303(5) (West 2012) (explicitly barring a private cause of action under Utah’s Unfair Claim Settlement Practices statute).  Conversely, only a handful of states allow for a private right of action under their respective unfair insurance claims settlement practices acts, either by the express provision of their statutes or by judicial interpretation. See, e.g., Mont. Code Ann. § 33-18-242(1) (creating an independent cause of action for an insurer’s violation of Montana’s Unfair Claim Settlement Practices statute); State Farm Mut. Auto. Ins. Co. v. Reeder, 763 S.W.2d 116, 117 (Ky. 1988) (holding that although not explicitly stated in KRS 304. 12-230, a private right of action, as well as a third-party action, exist under Kentucky’s Unfair Claims Settlement Practices Act). [15]. See, e.g., ME Rev. Stat. tit. 24-A, § 2436-A(1) (2013) (claimant can recover damages, court courts, and reasonable  attorney’s fees, plus a monthly interest rate of 1.5 percent on damages under Maine’s Unfair Claims Settlement Practices statute); Fla. Stat. Ann. § 624.155(4) (West 2012) (allowing a successful plaintiff to recover damages, court costs, and reasonable attorneys’ fees under Florida’s unfair claim settlement practices statute); McCormick v. Allstate Ins. Co., 505 S.E.2d 454, 459 (W. Va. 1998) (insured can recover punitive damages under West Virginia’s Unfair Claims Settlement Practices Act, W.Va. Code § 33-11-4(9), where insurer acts with actual malice). [16]. Mass. Gen. Laws ch. 93A, § 2 (2013).  [17]. See Mass. Gen. Laws ch. 93A, § 1(a) (2013) (defining “Person” as including “natural persons, corporations, trusts,  partnerships, incorporated or unincorporated associations, and any other legal entity”). [18]. Id. [19]. See Mass. Gen. Laws ch. 93A, § 11 (2013) (providing for the award of double or treble damages and the award of reasonable attorneys’ fees and costs). [20]. Seven Provinces, 217 F.3d at 44-45; Trenwick, 764 F. Supp. 2d at 305-09.  [21]. In re Pharm. Indus. Average Wholesale Price Litig., 582 F.3d 156, 184 (1st Cir. 2009) (quoting Mass. Eye & Ear  Infirmary v. QLT Phototherapeutics, Inc., 412 F.3d 215, 243 (1st Cir. 2005)). [22]. Trenwick, 764 F. Supp. 2d at 305 (citing Purity Supreme Inc. v. Att’y Gen., 407 N.E. 2d 297 (Mass. 1980)).  [23]. Arthur D. Little, Inc. v. Dooyang Corp., 147 F.3d 47, 55 (1st Cir. 1998) (quoting Anthony’s Pier Four v. HBC Assocs.,  583 N.E.2d 806, 821 (Mass. 1991)). [24]. Speakman v. Allmerica Fin. Life Ins. & Annuity Co., 367 F. Supp. 2d 122, 140 (D.Mass. 2005).  [25]. Seven Provinces, 217 F.3d at 43–44.  [26]. See Metro. Prop. & Cas. Ins. Co. v. Boston Reg’l Physical Therapy, Inc., 538 F. Supp. 2d 338, 343 (D. Mass. 2008)  (holding that “business entities” are not permitted to bring a stand-alone action to enforce a violation of Chapter 176D). Call 1-800-543-0874 | Email | ©2013. All Rights Reserved.
  • 8. [27]. Id.; see also United States ex rel. Metric Elec., Inc. v. Enviroserve, Inc., 301 F. Supp. 2d 56, 70 (D. Mass. 2003) (holding  that “a plaintiff may attempt to state a claim under chapter 93A, section 2 by alluding to conduct that is impermissible under chapter 176D”);Petersborough Oil Co. v. Great Am. Ins. Co., 397 F. Supp. 2d 230, 244 (D. Mass. 2005) (“[A] violation of chapter 176D is . . . evidence of a violation of chapter 93A, §11.”) (alternation in original). [28]. Seven Provinces, 217 F.3d at 44-46.  [29]. Id. at 41-42 (internal quotation marks omitted). [30]. Id. at 41, 43. [31]. Id. at 36. [32]. Trenwick, 764 F. Supp. 2d at 281.  [33]. Id. at 305.  [34]. Id. at 307; see also City of Revere v. Boston/Logan Airport Assocs. LLC, 416 F. Supp. 2d 200, 211 (D. Mass. 2005) (finding a Chapter 93A violation by commencing “clearly meritless litigation”); Refuse & Envtl. Sys., Inc. v. Indus. Servs. of Am., Inc., 932 F.2d 37, 43 (1st Cir. 1991) (stating that “bringing [a] lawsuit in spite of the evidence” can be a Chapter 93A violation). [35]. Id. at 311. [36]. Mass. Gen. Law ch. 176D § 3(9)(f) (2013); see also O’Leary-Alison v. Metro Prop. & Cas. Ins. Co., 752 N.E.2d 795, 798  (Mass. 2001) (“An insurer’s duty to settle arises when ‘liability has become reasonably clear.’”). [37]. O’Leary-Alison, 752 N.E.2d at 798; see also Federal Ins. Co. v. HPSC, Inc., 480 F.3d 26, 35-36 (1st Cir. 2007).  [38]. Federal Ins. Co., 480 F.3d at 36.  [39]. Conn. Gen. Stat. § 42-110 et seq. (2013).  [40]. Conn. Gen. Stat. § 42-110(b) (2013).  [41]. Conn. Gen. Stat. § 42-110g(a), (d) (2013).  [42]. H & L Chevrolet, Inc. v. Berkley Ins. Co., 955 A.2d 565, 575 (Conn. 2008).  [43]. Journal Publ’g Co. v. Hartford Courant Co., 804 A.2d 823, 839 (Conn. 2002).  [44]. Conn. Gen. Stat. 38a-815, et seq. (2013). There is no private cause of action provided under CUIPA; however, the  Connecticut Supreme Court has recognized that a private cause of action exists under CUTPA to enforce alleged CUIPA violations. See Mead v. Burns, 509 A.2d 11, 17-18 (Conn. 1986). [45]. Conn. Gen. Stat. 38a-815 (2013).  [46]. Conn. Gen. Stat. § 38a-816(6) (2013).  [47]. Id. [48]. The district court further acknowledged that, under Connecticut law, “[r]einsurance contracts are characterized as  insurance contracts.” Id. at *4. [49]. See McCulloch v. Hartford Life & Accident Ins. Co., 363 F. Supp. 2d 169, 182 (D. Conn. 2005) (in reinsurance context,  finding no violation of CUIPA under CUTPA because the “alleged improper conduct in the handling of a single insurance claim, without any evidence of misconduct in processing any other claim, does not rise to the level of a general business practice”); see also Craig v. Colonial Penn Ins. Co., 335 F. Supp. 2d 296 (D. Conn. 2004) (requiring a showing of more than a single act of insurance misconduct). [50]. No. 3:11-CV-1209, 2013 U.S. Dist. LEXIS 13716 (D. Conn. Feb. 1, 2013).  [51]. Id. at *20.  [52]. Id. at *19. [53]. Id. at *20. [54]. Wash. Rev. Code § 19.86.020 (2013).  [55]. See Wash. Rev. Code § 19.86.010 (2013) (defining “Person” under the Act as including “natural persons, corpora tions, trusts, unincorporated associations and partnerships”); Salois v. Mutual of Omaha Ins. Co., 581 P.2d 1349 (Wash. 1978) (insured may bring a private action against insurer under CPA). [56]. Wash. Rev. Code § 19.86.090 (2013).  [57]. Hayden v. Mutual of Enumclaw Ins. Co., 1 P.3d 1167, 1171 (Wash. 2000).  [58]. See id. (stating that one way to satisfy the first two elements is by establishing a violation of WAC 284-30); Industrial  Indem. Co. of the N.W. Inc. v. Kallevig, 792 P.2d 520, 529 (Wash. 1990) (explaining statutory basis for a violation of WAC 284-30 constituting a per se unfair trade practice under the CPA). [59]. Wash. Admin. Code. 284-30-330 (2013).  [60]. Like Connecticut, there is no private right of action provided under WAC 284-30; however a party can use the  private right of action available under the CPA. See Hayden, 1 P.3d at 1171. [61]. Industrial Indem. Co. of the N.W. Inc., 792 P.2d at 528-30.  [62]. Anderson v. State Farm Mut. Ins. Co., 2 P.3d 1029, 1033 (Wash. Ct. App. 2000) (citing Hangman Ridge Training  Stables, Inc. v. Safeco Title Ins. Co., 719 P.2d 531 (Wash. 1986)). Washington courts have held that a CPA claim “alleging unfair insurance claims practices meet[s] the public interest element because [Washington’s Insurance Regulations] declares that the ‘business of insurance is one affected by the public interest.” Anderson, 2 P.3d at 1033. Call 1-800-543-0874 | Email | ©2013. All Rights Reserved.
  • 9. [63]. See Industrial Indem. Co. of the N.W. Inc., 792 P.2d at 526, 528 (standard for determining whether an insurer  engaged in one of the practices prohibited under WAC 284-30, is a “reasonableness” standard); St. Paul Fire & Marine Ins. Co., v. Onvia, Inc., 196 P.3d 664, 670 (Wash. 2008) (CPA recognizes a claim by an insured for a violation of unfair insurance claims settlement regulations that does not depend on a finding of bad faith or existence of a duty to settle, indemnify, or defend). [64]. See, e.g., Leingang v. Pierce County Med. Bureau, Inc., 930 P.2d 288 (Wash. 1997) (insured may bring private action  against insurer for breach of duty of good faith under CPA); Bailey v. State Farm Mut. Auto. Ins. Co., 91 Wash. App. 1045 (1998) (expressly holding that insurers can be subject to claims brought under the CPA for violations of WAC 284-30). [65]. Wash. Rev. Code § 19.86.920 (2013) (“[T]his act shall be liberally construed that its beneficial purposes may be  served.”); see, e.g., Salois, 581 P.2d at 1349-50 (in an action by an insured against an insurer for failure to pay on a claim, court refused to apply a narrow construction to the CPA and instead liberally interpreted CPA as encompassing both acts and practices designed to induce potential buyer to buy goods or services, as well as post-sale activities). [66]. N.C. Gen. Stat. § 75-1.1 (2013).  [67]. N.C. Gen. Stat. § 58-63-15 (2013). See Gray v. North Carolina Ins. Underwriting Ass’n, 529 S.E.2d 676 (N.C. 2000).  [68]. N.C. Gen. Stat. § 58-63-15(11) (2013).  [69]. N.C. Gen. Stat. § 75-1.1 (2013).  [70]. N.C. Gen. Stat. § 75-1.1(b) (2013). North Carolina’s Supreme Court has held that “[b]usiness activities’ is a term  which connotes the manner in which businesses conduct their regular, day-to-day activities, or affairs, such as the purchase and sale of goods, or whatever other activities the business regularly engages in and for which it is organized.” HAJMM Co. v. House of Raeford Farms, Inc., 403 S.E.2d 483, 493 (N.C. 1991). [71]. N.C. Gen. Stat. § 75-16 (2013).  [72]. See Marshall v. Miller, 276 S.E.2d 397, 402 (N.C. 1981).  [73].  iller v. Nationwide Mut. Ins. Co., 435 S.E.2d 537, 542 (N.C. App. Ct. 1993) (citing Kron Med. Corp. v. Collier Cobb & M Assoc., 420 S.E.2d 192, 194 (N.C. App. Ct. 1993)). [74]. E.g., Gray, 529 S.E.2d at 680-81.  [75]. Miller, 435 S.E.2d at 542.  [76]. d.; see also Gray, 529 S.E.2d at 683 (noting that “insurance companies are not immune to the general principles I and provisions of N.C. Gen. Stat. § 75-1.1”). [77]. See Gray, 529 S.E.2d at 683 (holding that violations of North Carolina’s unfair claim settlement practices constitutes  a violation of UDTPA as a “matter of law, without the necessity of an additional showing of frequency indicating a ‘general business practice’”). [78]. Id. at 680-81. [79]. 350 S.E.2d 131 (N.C. App. Ct. 1986).  [80]. Id. at 133. [81]. Id. at 137.  [82]. See, e.g., Greenleaf Eng’g & Constr. Co., Inc. v. Teradyne, Inc., 447 N.E.2d 9, 12-13 (Mass. App. Ct. 1983) (claims  brought by businesses under Chapter 93A are arbitrable); JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 182 (2d Cir. 2004) (claims under CUTPA are arbitrable). [83]. See, e.g., Drywall Sys., Inc. v. ZVI Constr. Co., 761 N.E.2d 482, 484 (Mass. 2002) (holding clause providing for  arbitration of “[a]ny controversy or claim ... arising out of or related to [the contract]” was broad and encompassed disputes brought under Chapter 93A). [84]. See, e.g., White v. Safety Ins. Co., 843 N.E.2d 82, 83-84 (Mass. App. Ct. 2006) (finding that an agreement providing  for arbitration only on issues of “whether an injured person is legally entitled to recover damages from the legally responsible owner or operator,” and “the amount of the damages, if any,” is a narrow clause and does not incorporate claims brought under Chapter 93A or 176D). [85]. See Gargano & Assocs., P.C. v. John Swider & Assocs., 770 N.E.2d 506, 512 (Mass. App. Ct. 2002) (sole recourse for  claim under § 11 was “by means of arbitration, as contractually agreed by the parties”). [86]. Fink v. Golenbock, 238 Conn. 183, 196 n.10 (1996).  [87]. Disc. Trophy & Co., Inc. v. Plastic Dress-Up Co., CIV. 3:03CV2167(MRK), 2004 WL 350477, at *3 (D. Conn. Feb. 19,  2004). [88]. Id.; see also Peters v. Pillsbury Winthrop Shaw Pitman, LLP, No. FSTCV116009039, 2011 WL 5304627, at *10 (Conn.  Super. Ct. Oct. 17, 2011); Grossman Acquisition Co. v. Grossman, No. CV 990090920S, 2000 WL 1409737, at *2 (Conn. Super. Ct. Sept. 12, 2000). Call 1-800-543-0874 | Email | ©2013. All Rights Reserved.
  • 10. ABOUT THE AUTHORS Andrew S. Lewner, who can be reached at, is a partner in the Insurance and Litigation Practice Groups of Stroock & Stroock & Lavan LLP. Allyson M. Rucinski is an associate in the firm’s Litigation Practice Group of Stroock & Stroock & Lavan LLP. For more information, or to begin your free trial: • Call: 1-800-543-0874 • Email: • Online: FC&S Legal guarantees you instant access to the most authoritative and comprehensive insurance coverage law information available today. This powerful, up-to-the-minute online resource enables you to stay apprised of the latest developments through your desktop, laptop, tablet, or smart phone —whenever and wherever you need it. Call 1-800-543-0874 | Email | ©2013. All Rights Reserved.