Third-Party Claimant's Breach of Contract and Deceptive Acts & Practices Action Against Tortfeasor's Personal Auto Insurer Dismissed

AUTO – GENERAL BUSINESS LAW § 349 – DECEPTIVE ACTS & PRACTICES – PRIVITY
Falco v. Allstate Ins. Co.
(4th Dept., decided 2/11/2010)

Personal auto insurers take note.  Here's the case you want when you head to small claims court to seek dismissal of actions brought by third-party claimants -- not your insureds -- directly against you, rather than against your insureds, for either an allegedly inadequate property damage settlement offer or an allegedly inadequate payment.  The argument goes like this:  "Your Honor, in the case of Falco v. Allstate, the Appellate Division, Fourth Department, recognized that a third-party claimant has no privity or legal standing to maintain a breach of contract action against the alleged tortfeasor's personal auto insurer." [Hand copies of the decision to the judge and claimant or claimant's counsel.]

Allstate's insured rear-ended the plaintiff Vincent Falco's 1997 Honda Accord.  Allstate made offers of $6,125 and $7,000 to Falco for the damage to his vehicle, which Falco rejected.  Falco ultimately made a claim to and received a payment of $8,180 for the damage from his own collision insurance company, State Farm.   Falco then brought this suit against Allstate, alleging that Allstate violated New York General Business Law § 349 by having offered him a "low-ball" figure of $6,125 and by having engaged in a scheme through delays, false standards and unfair practices to frustrate and discourage Falco into accepting Allstate's "low-ball" offer for the damages to his vehicle.   Falco's complaint also asserted a breach of contract cause of action against Allstate, although it lacked any factual allegations of there having been any written or oral contract between the parties.

Allstate made a motion to dismiss Falco's complaint pursuant to CPLR Rule 3211(a)(7), arguing that the complaint failed to state a legally cognizable claim upon which relief could be granted.  Monroe County Supreme Court granted Allstate's motion with respect to the complaint's GBL § 349 cause of action, but denied it with respect to the breach of contract cause of action.  Both parties appealed.

In MODIFYING the order appealed from to grant Allstate's motion to dismiss the breach of contract action, as well, the Fourth Department held:

Even accepting all of the facts alleged by plaintiff in his complaint as true and according him the benefit of every favorable inference, as we must in the context of defendant's motion to dismiss the complaint pursuant to CPLR 3211 (a) (see Leon v Martinez, 84 NY2d 83, 86-87; Kumar v American Tr. Ins. Co., 49 AD3d 1353, 1354), we conclude that Supreme Court properly granted that part of defendant's motion seeking dismissal of the cause of action alleging the violation of General Business Law § 349. Plaintiff failed to allege that "the acts or practices [complained of] have a broader impact on consumers at large" and thus failed to state a cause of action for the violation of that statute (Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20, 25). We agree with defendant, however, that the court erred in denying that part of its motion seeking dismissal of the breach of contract cause of action, thereby granting the motion in its entirety. Plaintiff failed to allege facts sufficient to establish the existence of any agreement between the parties or between defendant and plaintiff's insurer. Thus, plaintiff failed to state a cause of action for breach of contract, inasmuch as "no contract of any kind exists between plaintiff and defendant and there is no recognized theory upon which defendant . . . might be held liable to plaintiff, as a third-party beneficiary" (Area Masonry v Dormitory Auth. of State of N.Y., 64 AD2d 810, 811). We therefore modify the judgment and order accordingly. 

What we've been telling small claims court judges for years.  No contract.  No privity.  No maintainable action by the third-party claimant directly against the alleged tortfeasor's personal auto insurer.  Claimants unhappy with an offer from the tortfeasor's insurer can either accept their own collision insurer's payment (in which case the collision insurer would become subrogated to the tort claim) or sue the alleged tortfeasor directly for damages, thereby requiring the tortfeasor's personal auto insurer to defend and potentially indemnify the tortfeasor.  But the claimant can't accept payment from his own collision carrier and then sue the adverse vehicle's insurer directly.  This case says so. 

My thanks to Mary Ann Pierino from Kristen Degnan's office, who represented Allstate, for faxing me the statement of facts from Allstate's appellate brief so I could fill in the facts.