New York Appellate Court Recognizes Members’ Rights To Bring Direct Claims Against Parties Who Allegedly Caused Group Self-Insurance Trusts To Go Defunct
The Appellate Division, Third Department has recently issued an Opinion and Order in Accredited Aides Plus, Inc. v. Program Risk Mgmt., Inc. that recognized the rights of former members of defunct group self-insurance workers compensation trusts (“GSITs”) to pursue claims for monetary damages against parties that allegedly caused the GSIT to become insolvent.
GSITs were designed to allow members in a common industry to pool their resources into a self-insurance plan that would cover their workers compensation claims. As detailed in prior Barclay Damon alerts, for over a decade now, the Workers Compensation Board has been assuming control of GSITs and levying assessments on the members for substantial amounts of money in order to make up the deficit caused by the parties that oversaw them, based upon the GSITs joint several liability. This matter involved one such Trust, the Healthcare Providers Self-Insurance Trust (“HCPSIT”) which was mostly comprised of home healthcare providers, some of whom brought a complaint against the parties that allegedly caused HCPSIT’s $188 million deficit. Barclay Damon has represented those members in the proceeding. In the decision, the Appellate Division provides insight on the viability of certain causes of action, particularly those that the members could maintain directly and those that belonged to the Trust itself to pursue.
In response to the lawsuit, the trust’s program and claims administrators denied liability and requested the complaint be dismissed against them. The trial court found that many of the claims should be dismissed because the members lacked legal standing to sue. However, the Appellate Division reversed, finding the members could be intended beneficiaries of the agreements between the Trust and the professional defendants, and therefore could pursue claims directly against them. The Appellate Division further found that the members successfully alleged a claim for the breach of the duty of good faith and fair dealing, a core theory of the Trust members’ case. The Court also upheld claims of fraud, fraud in the inducement and negligent misrepresentation because these claims were designed “to vindicate plaintiffs' personal rights rather than to obtain redress on behalf of the Trust,” and thus the members could pursue them.
Perhaps most significant precedential holding was that the members had established a proper claim against the Trust administrator for violations of New York’s consumer protection laws found in General Business Law Sections 349 and 350 which prohibits deceptive business practices and false advertising. This was the first instance in an appellate case involving a GSIT where such claims have been deemed actionable. The Appellate Division disagreed with the lower court’s dismissal of this claim, finding the members had alleged that the administrator’s actions “were directed or had a broader impact on consumers at large.” In doing so, it distinguished its prior holding in State of N.Y. Workers Comp. Bd. v. 26-28 Maple Ave., 80 A.D.3d 1135 (2011), holding “the conduct of business organizations may be found to be consumer oriented where it is alleged that consumers at large may potentially be affected.” These claims, which carry the potential of attorney’s fee awards and exemplary damages, can provide important legal advantages to consumers (including small businesses) asserting claims involving deceptive and/or fraudulent conduct.
The decision is important for consumers in general and for trust members in particular who have brought claims against the parties who caused Trust’s deficit for which they are currently being assessed.
The full text of the decision can be found here: http://decisions.courts.state.ny.us/ad3/CalendarPages/nc01052017.htm
If you have questions or require further assistance regarding the information contained in this Legal Alert and the impact on your organization, please contact David M. Cost at email@example.com, or Linda J. Clark, Chair of the Barclay Damon Health Care Controversies Practice Area at firstname.lastname@example.org.