Evan H. Krinick

Twenty-five years ago, in Riordan v. Nationwide Mutual Fire Ins. Co., 977 F.2d 47 (2d Cir. 1992), the U.S. Court of Appeals for the Second Circuit ruled that New York General Business Law §349—one of the most powerful consumer fraud provisions of New York law—was applicable to insurance companies’ interactions with policyholders. In Riordan, the circuit court affirmed a jury verdict against an insurer and rejected the insurer’s argument that §349 could not be used against insurance companies because of the pervasive statutory scheme regulating unfair and deceptive acts and practices by insurance companies.

Many policyholder lawyers, as well as lawyers for insurance companies, believed that the circuit court’s decision in Riordan could lead to a flood of §349 actions against insurers. Although various §349 claims have been asserted against insurers since then, see, e.g., Wilner v. Allstate Ins. Co., 71 A.D.3d 155 (2d Dep’t 2010) (collecting cases), many were dismissed on summary judgment, see, e.g., JD&K Associates, LLC v. Selective Ins. Group, 143 A.D.3d 1232 (4th Dep’t 2016); Kaufman v. Medical Liability Mutual Ins. Co., 92 A.D.3d 1057 (3d Dep’t 2012), or by motion to dismiss, see, e.g., Kantrowitz v. Allstate Indemnity Co., 48 A.D.3d 753 (2d Dep’t 2008). The expected deluge did not occur.

The Second Circuit, however, now has issued another decision involving §349 and insurance companies that is likely to catch the attention of insurance industry lawyers.

In Nick’s Garage v. Progressive Casualty Ins. Co., 875 F.3d 107 (2d Cir. 2017), the Second Circuit ruled that certain claims against auto insurers under §349 could proceed. The decision may embolden plaintiffs to assert more §349 claims against auto insurers in the future.


From 2007 to 2011, Nick’s Garage, an automobile repair shop in Syracuse, N.Y., repaired various damaged vehicles for owners who submitted claims to Progressive Casualty Insurance Company and related entities (collectively, the Insurer). The owners’ claims related to property damage to their cars insured by the Insurer, or to property damage to their cars that had been caused by cars insured by the Insurer. The owners made Nick’s Garage their designated representative to negotiate with the Insurer for coverage of repairs, and they assigned their insurance claims to Nick’s Garage.

In March 2012, Nick’s Garage, as assignee of more than three dozen of its customers, sued the Insurer for breach of contract and for violating §349 by engaging in deceptive business practices in handling the customers’ claims. Nick’s Garage contended that the Insurer had violated §349 by, among other things, falsely representing to consumers that it was willing to pay prevailing competitive labor rates and by misrepresenting consumers’ ability to obtain repairs at the shop of their choice.

The U.S. District Court for the Northern District of New York granted summary judgment in favor of the Insurer, finding that Nick’s Garage had not raised a genuine issue of material fact that could support its breach of contract claims or §349 claims.

Nick’s Garage appealed to the Second Circuit.

Statutory Framework

Section 349 prohibits “deceptive acts or practices” in the conduct of any business, trade, or commerce or in the furnishing of any service in New York. Section 349(a) explicitly provides for a broad private right of action for “any person who has been injured by reason of any violation of this section.”

To state a claim for a violation of §349, a plaintiff must allege that the defendant had engaged in consumer-oriented conduct that was materially misleading and that the plaintiff suffered injury as a result of the allegedly deceptive act or practice. A claim under §349 only is actionable if the defendant’s conduct was deceptive or misleading in a material way, and was likely to mislead a reasonable consumer acting reasonably under the circumstances. The New York Court of Appeals made clear in a leading case involving §349, Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20 (1995), that the “objective definition” of deceptive acts and practices was intended to avoid “a tidal wave of litigation against businesses.”

Second Circuit’s Decision

After first deciding that the district court should not have granted summary judgment to the Insurer on certain of Nick’s Garage’s breach of contract claims, the Second Circuit turned to Nick’s Garage’s §349 claims. The Second Circuit ruled that the district court should not have granted summary judgment to the Insurer on Nick’s Garage’s §349 claim that the Insurer had engaged in deceptive practices concerning its labor rates payments, although it concluded that the district court had properly granted summary judgment to the Insurer on Nick’s Garage’s §349 claim that the Insurer had misled customers regarding their ability to use the repair shop of their choice.

In its decision, the circuit court found that there was a genuine issue of fact as to whether the Insurer had engaged in misleading practices concerning the labor rates it paid repair shops. The circuit court noted that the Insurer’s insurance policy provided that it was obligated to pay labor rates up to “the prevailing competitive labor rates charged in the area where the property is to be repaired.” The circuit court then observed that Nick’s Garage had put forth evidence that could establish that the Insurer had routinely refused to pay the prevailing competitive labor rates, and that the rates the Insurer had agreed to pay reflected not the prevailing competitive rates in the market but rates that a potentially large volume customer could prevail on repair shops to accept.

In the Second Circuit’s view, Nick’s Garage’s evidence was sufficient to raise a genuine issue of fact on its §349 claim that the Insurer, as a matter of practice, had paid labor rates below those it was obligated to pay pursuant to its insurance policy.

The circuit court was not persuaded by the Insurer’s argument that its practice of good faith negotiation with Nick’s Garage defeated the claim, reasoning that the Insurer’s readiness to negotiate with Nick’s Garage in good faith was “not incompatible with its having misled its policyholders about its payment of prevailing labor rates.” Moreover, the circuit court continued, deceptive practices under §349 referred to “the capacity of the practice to mislead, regardless of intent to deceive.” Therefore, the Second Circuit said, it was not necessary under §349 that a plaintiff establish the defendant’s “intent to defraud or mislead.”

The Second Circuit also rejected the Insurer’s argument that its practice could not be deceptive because it had fully disclosed information about labor rates to consumers. According to the circuit court, the issue was not what the Insurer had disclosed, but that the rates listed on the Insurer’s estimates allegedly did not represent the prevailing competitive labor rates, as they purported to represent.

Next, the Second Circuit disagreed with the Insurer that there was no dispute as to a material fact concerning the other elements of a §349 claim. The circuit court ruled that Nick’s Garage’s evidence that the Insurer, as a matter of practice, had misled consumers and had paid insufficient sums on claims pursuant to its standard form contract affected the public generally and, therefore, satisfied the requirement of “consumer-oriented” conduct within the meaning of §349. Moreover, according to the circuit court, Nick’s Garage had raised a question of material fact as to a §349 injury because vehicle owners were entitled to receive a sufficient amount of money to repair their vehicles to pre-loss condition, and the Insurer allegedly had failed to pay sufficient sums. Then, the circuit court rejected the Insurer’s contention that the §349 claims Nick’s Garage brought on behalf of assignors who also asserted breach of contract claims against the Insurer failed because they had not alleged an injury independent of their contract damages; the Second Circuit found no such requirement.

In a brief portion of its opinion, the Second Circuit agreed with the district court’s grant of summary judgment on Nick’s Garage’s §349 claim that the Insurer had misled the assignors as to their right to use the repair shop of their choice, finding that the Insurer had “clearly advised consumers of their right to use the shop of their choice.”

The Second Circuit also ruled that the district court had erred in holding that Nick’s Garage’s §349 claims were precluded by New York Insurance Law §2601, which prohibits certain actions by insurers but does not allow for a private right of action. The Second Circuit reasoned that §349 stated that it applied “to all deceptive acts or practices declared to be unlawful, whether or not subject to any other law of this state.” A §349 claim, the circuit court declared, was viable where the plaintiff made a freestanding claim of deceptiveness that happened to overlap with a possible claim under another statute that was not independently actionable. Accordingly, it concluded, Nick’s Garage’s evidence that the Insurer had engaged in inherently deceptive conduct relating to labor rates supported a viable claim of violation of §349, regardless of whether the conduct also violated §2601.


The Second Circuit’s decision may open the door to more §349 claims being brought against auto insurers in the future. Moreover, the Second Circuit’s conclusion that issues of fact precluded summary judgment on Nick’s Garage’s labor rates claim may result in more §349 claims against insurers being able to withstand their motions for summary judgment. Plaintiffs’ lawyers certainly are taking note of the ruling, and insurers should pay heed to its lessons, as well.

Evan H. Krinick, managing partner of Rivkin Radler, can be reached at evan.krinick@rivkin.com.