Examining the Applicability of the Vermont Consumer Fraud Act to the Insurance Industry

• Publication year: 2011
• Citation: Vol. 2011 No. 12

Vermont Bar Journal 2011.

Winter 2011-#6. Examining the Applicability of the Vermont Consumer Fraud Act to the Insurance Industry

THE VERMONT BAR JOURNAL
Volume 36, No. 4
Winter 2011

Examining the Applicability of the Vermont Consumer Fraud Act to the Insurance Industry

by Devon Green, Esq.

Introduction

A national insurance company boasts that "you're in good hands"; however, not all insurance companies or insurance agents provide the safety and security promised in their policies. Indeed, a few industry players may have hands that are downright unclean. In these cases, as with any other fraudulent consumer transaction, one would assume that Vermont consumers could rely on Vermont's Consumer Fraud Act for protection. The state of Vermont's law, as well as the nation as a whole, however, is undecided as to whether consumer protection laws, commonly known as UDAP(fn1) statutes, apply to the insurance industry. This leaves Vermont consumers with little guidance and less protection in the court system against insurance companies that commit misrepresentations or fraud.

This article will examine the two Vermont cases that most directly confront the applicability of the Consumer Fraud Act on the insurance industry. Next, the article will briefly touch on the status of UDAP laws and the insurance industry in other states. Finally, the article will argue that the Consumer Fraud Act is a necessary tool for Vermont Consumers against the insurance industry.

Wilder v. Aetna Life and Casualty Insurance Co.

Vermont's only published case that directly addresses the issue of the applicability of Vermont's Consumer Fraud Act to the insurance industry is the 1981 Vermont Supreme Court case Wilder v. Aetna Life and Casualty Insurance Co.(fn2) In that case, the insurance company agreed to pay $4,000 to three minor children involved in a car accident. The children never received the money. The plaintiffs claimed that the money was unreasonably withheld, amounting to a deceptive and false practice in commerce under 9 V.S.A. § 2461(b).(fn3)

In deciding the issue of whether Vermont's Consumer Fraud Act applies to insurance contracts, the court noted that, in this case, they were dealing with a situation in which the insurance contract was one step removed because it dealt with a settlement agreement to a party that was not the insured.(fn4) Instead of stopping its analysis at that point, however, the Court determined that insurance was not a contract for "goods or services" as required by 9 V.S.A. § 2461 and defined by then 9 V.S.A. §§ 2451a(b) and (c). The court acknowledged the remedial intent of the Vermont Consumer Fraud Act, but determined that construing insurance as a contract for goods or services would evade legislative intent.(fn5) The court did not discuss the legislative intent.

At that time, the definitions of "goods" and "services" under the Vermont Consumer Fraud Act were as follows:

(b) "Goods" means all tangible personal chattel including motor vehicles and mobile homes when purchased primarily for personal, family or household use and not for commercial, industrial or agricultural use, and courses of instruction or training regardless of the purpose for which they are taken. The term includes chattels which are furnished or used, at the time of sale or subsequently, in the modernization, rehabilitation, repair, alteration, improvement or construction of real property as to become a part thereof whether or not severable therefrom. The term also includes merchandise certificates or coupons, issued by a seller, not redeemable in cash and to be used in their face amount in lieu of cash.

(c) "Services" means work, labor and services furnished for personal, family or household use (and not for commercial, industrial or agricultural use) in connection with the delivery, installation, servicing, repair or improvement of goods sold under contract work, labor and service of any kind rented or furnished by a person engaged in the business of seller which are for personal, family or household use and not for commercial, industrial or agricultural use.(fn6)

Both of these definitions, with the exclusion of courses and gift certificates, relied on the idea that a "good" is a tangible object. The Vermont Supreme Court did not fully reveal its reasoning as to why an insurance contract is considered neither a "good"...