“Deceptive practices” and lender force-placed insurance: New York’s state of mind (Part 1)

October 29, 2014

Insurance LawLender force-placed insurance (“LFPI”) practices under residential mortgage contracts have led to many recent lawsuits.  Most of the LFPI lawsuits have been filed in Federal Courts.  A wide variety of claims and causes of action are alleged in these cases.  Claims that are alleged under State Deceptive Practices Acts, when and where such claims are available, historically have been both one of the less frequently used legal bases for LFPI claims, and also one of the more successful ways to withstand a motion to dismiss in Federal Court.

New York provides a recent example of how to allege, take discovery and defend LFPI cases under a Deceptive Practices Act.   The New York Deceptive Practices Act or “NYDPA” is like many other State Deceptive Practices Acts in many ways, and unlike them in some other ways.  Understanding the basics of the New York law offers a way to understand how to present LFPI claims not only under New York’s Deceptive Practices Act but also how to present LFPI claims under the deceptive practices laws enacted in other States.

The New York Deceptive Practices Act (“NYDPA”) is New York General Business Law Section 349.  Like many other deceptive practices laws, the NYDPA prohibits:

Deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful.

N.Y.G.B.L. § 349(a).  The standard of liability for a statutory “deceptive act” in New York is objective, in line with the laws of most other States.  It has been held under the New York Act that an act or practice is “deceptive” if it is “‘likely to mislead a reasonable consumer acting reasonably under the circumstances.'”  Hoover v. HSBC Mortgage Corp., 9 F. Supp. 3d 223, 254 (N.D.N.Y. 2014), quoting Spagnola v. Chubb Corp., 574 F.3d 64, 74 (2d Cir. 2009).

New York’s DPA is unique, however, in the judicial application of  twin requirements of standing to bring a claim under the Act:  First, that the allegedly deceptive act or practice was directed at consumers, and second, that the act or practice was “materially misleading.”  See Dumont and others v. Litton Loan Servicing, LP, and others, 2014 WL 815244 *10-*11  (S.D.N.Y. March 3, 2014).

The New York Act makes a combination of remedies and penalties available.  Similar to the deceptive practices statutes in most other States, the New York law allows for the recovery of “actual damages,” but the New York law combines this remedy with a statutory imposition of what amounts to a penalty of $50.00 if the plaintiff’s actual damages are less than that amount.

Further, subject to certain significant constraints, Courts are vested with discretion under the New York law to increase an award of actual damages by up to three times.  In other jurisdictions and under other statutes such a penalty might be called “treble damages”.  In New York, however, this particular damages award enhancement is only possible under the NYDPA up to a maximum of $1,000.00 and only “if the court finds the defendant willfully or knowingly violated this section.”   N.Y. Gen. Bus. Law § 349(h).

The same provision of the NYDPA also makes injunctive relief available to successful claimants who seek to stop the allegedly deceptive acts and practices of the defendant.

Finally, the same subsection of the NYDPA also allows for an additional award of reasonable attorney’s fees to a prevailing plaintiff.  N.Y. Gen. Bus. Law § 349(h).