2025 NY Slip Op 00183

When an insurance policy provides for a surrender option upon breach, the insured cannot claim as damages the full value of the policy’s death benefit, and punitive damages under General Business Law § 349 (h) are limited to the treble damages provided by the statute.

Summary

In Hobish v. AXA Equitable Life Insurance Co., the New York Court of Appeals addressed a dispute over a universal life insurance policy and upheld the lower courts’ decisions on damages and punitive awards. The court held that where policyholders chose to surrender their policy after the insurer increased the cost of insurance (COI) charges, they were not entitled to the full death benefit as damages. Additionally, the court clarified that punitive damages under General Business Law § 349 (h) are limited to the treble damages provision within the statute, rejecting claims for additional punitive damages. The court also found the contractual term “a given class” ambiguous regarding COI increases, and dismissed claims for punitive damages under breach of contract. This case provides guidance on calculating damages when an insured chooses to surrender a policy and underscores the statutory limits on punitive damages in actions under General Business Law § 349.

Facts

The Hobish Irrevocable Trust purchased a universal life insurance policy from AXA Equitable Life Insurance Company (AXA) in 2007. The policy allowed the policyholder to make flexible premium payments, with monthly COI charges deducted from the account. The policy allowed AXA to alter the COI Rate Scale, but the increases must be “equitable to all policyholders of a given class.” In 2015, AXA announced plans to change the COI Rate Scale, which plaintiffs claimed would drastically increase premiums. The Trust chose to surrender the policy and received the remaining account balance, less a surrender fee. The plaintiffs sued AXA, alleging breach of contract and a violation of General Business Law § 349, claiming damages based on the policy’s death benefit and seeking punitive damages. The trial court and the Appellate Division rejected their theories of damages and the request for punitive damages, and the Court of Appeals affirmed.

Procedural History

Plaintiffs initiated the action in New York Supreme Court, alleging breach of contract and violation of General Business Law § 349. The Supreme Court denied both parties’ summary judgment motions and rejected the plaintiffs’ damages theories. The Appellate Division affirmed the Supreme Court’s rulings. The Court of Appeals granted leave to appeal, and upheld the Appellate Division’s decision, agreeing that plaintiffs were not entitled to the full death benefit after surrendering their policy and finding punitive damages unavailable beyond those provided in the statute.

Issue(s)

1. Whether the plaintiffs were entitled to the full death benefit of the policy as compensatory damages after choosing to surrender the policy following the COI rate increase.
2. Whether the plaintiffs could recover punitive damages under their breach of contract claim.
3. Whether the punitive damages recoverable under General Business Law § 349 (h) were limited to the statutory treble damages, or whether additional punitive damages could be awarded.

Holding

1. No, because the plaintiffs chose to surrender the policy and receive its surrender value.
2. No, because the defendant’s conduct did not meet the high standard of egregious behavior required for punitive damages in contract claims.
3. Yes, the court held that punitive damages for section 349 (h) claims are limited to the treble damages provided by the statute.

Court’s Reasoning

The Court held that because the plaintiffs chose to surrender the policy, they were no longer entitled to the death benefit. The court noted the plaintiffs could have maintained the policy and pursued other remedies to prevent COI charges, but they did not. The court then found that the language