Authored by: Joseph Ciollo
Superior Court – Material Misrepresentation – Coverage Denial
In Evans & Lewis, LLC et al v. National Liability & Fire Ins. Co., the plaintiffs filed an action to seek enforcement of a professional liability insurance policy, demanding that the insurer indemnify them for a professional malpractice suit brought by a former client. The insurer filed a counterclaim seeking a declaratory judgment that it did not owe defense or indemnification, on the basis that the malpractice suit predated the insurance coverage period, that the plaintiffs knew of the malpractice suit prior to the policy inception date, and that the plaintiffs made material misrepresentations on the insurance application. The insurer filed a motion for summary judgment as to the plaintiffs’ breach of contract claim, as well as its own counterclaim for declaratory judgment. The plaintiffs argued that the malpractice suit was not a “claim,” “potential claim,” or “wrongful act” as defined by the policy; that the insurer had not been “harmed, disadvantaged, or otherwise prejudiced as a result of any innocent misrepresentations” in their insurance application and/or that the doctrine of disproportionate forfeiture should afford relief from the rigorous enforcement of contract provisions. The facts demonstrated that the plaintiffs’ former client had filed a grievance complaint against them with the Statewide Grievance Committee prior to the commencement of the insurance application process. In the insurance application, the plaintiffs answered “no” to multiple questions concerning any known claims, potential claims, or suits. In the present action, the plaintiffs conceded that these answers were untrue. Based on a review of the record, the Court found that the plaintiffs had the requisite subjective knowledge of allegations made by the former client before the policy start date. The Court also found that the former client’s accusations of professional negligence, including a formal complaint with the Statewide Grievance Committee, would alert a reasonable attorney to the possibility that the former client might bring a professional malpractice claim. The plaintiffs contended in part that the Committee’s dismissal of the former client’s grievance complaint proved that there was no merit to the complaint. However, as the Court observed, it was not the merits of the grievance complaint that was an issue with respect to coverage under the policy. Rather, it was the fact that the complaint existed at all at the time the application was submitted that was critical to the determination of the insurer’s obligation to cover the claim. The insurer submitted an affidavit from an underwriting manager confirming that had the information of the grievance been known to the insurer at the time of the application, then it would have either issued an exclusion to the policy for such a claim or substantially increased the premium quoted. No evidence contrary to those representation was submitted by the plaintiffs. Hence, the Court found there to be prejudice to the insurer as a result of the misrepresentation. Based on the undisputed material facts, the Court granted the insurer’s motion for summary judgment as to the plaintiffs’ breach of contract claim and the insurer’s counterclaim for a declaration that it did not owe defense or indemnification to the plaintiffs.
Superior Court – Insured’s Duty To Cooperate – Duty to Defend
In Valentin v. U-Haul Co. of Connecticut, the plaintiff was injured in a motor vehicle accident when her vehicle collided with a U-Haul vehicle rented by the operator of the rental vehicle. The rental agreement stated that U-Haul would provide its renter with liability coverage while she operated the rental vehicle. The plaintiff filed a personal injury against the renter and obtained a default judgment after the renter failed to appear. The plaintiff then filed a direct action against U-Haul pursuant to General Statutes § 38a-321, alleging that U-Haul failed to defend or indemnify its renter in the personal injury action and failed to honor the terms of the rental contract. U-Haul filed a motion for summary judgment on various grounds, including its position that it had no duty to defend its renter on the basis that the renter failed to cooperate with U-Haul in the claim process, thus breaching the rental agreement. The Court noted that it was undisputed that the renter refused to participate in her own defense. Both parties submitted evidence clearly stating that the renter could not be located, and the plaintiff submitted evidence showing that the renter had become completely unresponsive to U-Haul’s attempts to communicate. The question before the Court was whether the actions or inaction of the renter constituted merely an immaterial and unsubstantial failure to cooperate with U-Haul. No evidence was submitted showing collusion between the U-Haul and the renter in facilitating her absence and nonparticipation. The plaintiff did not submit any evidence that U-Haul failed to diligently attempt to locate the renter. The Court found that the renter’s failure to cooperate was a material and substantial breach of the contract and, pursuant to the rental agreement, relieved U-Haul of its duty to defend and indemnify her. In reaching its conclusion, the Court noted that in a direct action under General Statutes § 38a-321, a defendant is not deprived of any defense ordinarily available to an insurer in an action by its own insured. In the present case, the plaintiff who brought an action in the renter’s place under § 38a-321, could not prevail as a matter of law because the renter herself could not have recovered on the policy. U-Haul’s motion for summary judgment was granted.
Superior Court – Negligent Adjustment – Motion to Strike
In Roosevelt et al v. State Farm Fire & Casualty Ins. Co. et al, the plaintiffs’ property sustained a loss as a result of a blocked chimney flue. The chimney flue had been blocked from prior work performed on the subject property after a tornado impacted it. The plaintiffs submitted a claim to State Farm, which State Farm declined to pay. In the present action, the plaintiffs asserted a cause of action for State Farm’s alleged negligent adjustment of the insurance claim. State Farm filed a motion to strike the cause of action for negligent adjustment on the grounds that it was barred by the economic loss doctrine. State Farm first argued that the economic loss doctrine applied because the plaintiffs failed to show that the negligent adjustment claim was independent from their separate claim for breach of contract. State Farm further argued that the damages under this claim were for purely economic losses. The plaintiffs countered that there are prior cases that permit claims for negligent handling and adjustment of insurance claims, and that the economic loss doctrine typically does not apply to insurance coverage disputes. While the Court observed that prior insurance coverage cases cited by the plaintiffs have included both negligence claims and breach of contract claims, the Court also noted that those prior cases did not address the applicability of the economic loss doctrine. The plaintiffs did not cite any case law in support of their argument that the economic loss doctrine does not apply to insurance contracts. The Court closely reviewed the allegations of negligent adjustment in the plaintiff’s complaint, and did not find an independent tort theory within that claim. The Court found that without the breach of contract claim, the claim for negligent adjustment could not otherwise survive. Therefore the negligent adjustment claim was barred by the economic loss doctrine and the Court granted the motion to strike the cause of action for negligent adjustment.
