CT Property and Casualty Insurance Law Newsletter – February 2023
February 17, 2023
U.S. District Court – Property Loss Conditions – Substantial Compliance
In 50 Waterville Street Trust, LLC v. Vermont Mutual Insurance Co., the plaintiff owned a one-family dwelling unit. After a tenant moved out in October 2019, the plaintiff discovered damage that was believed to have occurred when water pipes froze and burst. The timing of the alleged occurrence was unknown. Pursuant to the applicable insurance policy provisions, the insurer requested a signed sworn proof of loss within sixty days. The insurer provided repeated reminders and extensions of the sixty-day deadline. The plaintiff provided certain information in support of the claim, but at no time prior to filing suit did it provide a completed proof of loss form. The Court ruled that the plaintiff’s submission of a completed proof of loss over one year after filing suit did not satisfy the proof of loss condition precedent to coverage. The Court also disagreed with the plaintiff’s argument that the other information it provided was a reasonable substitute for the proof of loss form. The Court noted the plaintiff’s complete lack of action concerning the proof of loss form. The plaintiff did not attempt to complete the form to the best of its ability, nor did the plaintiff seek clarification as to the form’s requirements despite the insurer’s repeated requests for the completed form. The Court also observed the important fraud-prevention function served by the signed, sworn proof of loss, and noted that the plaintiff was only able to provide inconclusive beliefs regarding the facts underlying its claim, including the date, cause, and manner of the loss. The Court granted the insurer’s motion for summary judgment upon finding that the plaintiff could not establish a breach of the policy provisions by the insurer.
Superior Court – Uninsured Motorist Benefits – Apportionment
In Jones v. Barnett et al., the plaintiff claimed that he sustained personal injuries after a motor vehicle accident where the defendant’s vehicle struck him from behind. In turn, the defendant filed an apportionment complaint against State Farm Mutual Insurance Company (“State Farm”), which insured the plaintiff’s vehicle, alleging that the subject accident was caused by and driver of the unidentified tractor trailer. State Farm moved to strike the apportionment complaint, arguing that no apportionment could be sought when the plaintiff himself had not sued an unidentified driver or the plaintiff’s own insurer for Uninsured Motorist benefits. Although there is no appellate authority directly on point and a split of authority among Superior Court decisions on this issue, the Court followed the minority view after conducting an analysis of multiple prior decisions and applicable statutes. Citing to a prior Superior Court decision, the Court noted that privity between the defendant and the plaintiff’s insurer is not part of the statutory scheme of apportionment and that reading a privity requirement into the apportionment statutes would leave control of apportionment entirely in the hands of the plaintiff, who may have various reasons for not seeking to recover from all culpable persons. If the plaintiff decided not to allege the liability of a nonparty, it would defeat the primary purpose of apportionment, which is to protect a defendant by apportioning damages fairly between all culpable persons. The Court denied State Farm’s motion to strike and concluded that an insurer providing uninsured motorist coverage for the liability of an unidentified motorist is within the class of persons subject to suit by an apportionment complaint.
Superior Court – Uninsured Motorist Benefits – Unidentified Driver
In Rodas v. Metropolitan Group Property and Casualty Insurance Co., the plaintiff alleged that an unidentified vehicle suddenly merged and slammed on its brakes in front of the plaintiff’s vehicle, causing the plaintiff to swerve to avoid a collision, ultimately resulting in the plaintiff striking the center guard rail. The plaintiff testified that he identified the offending vehicle to the responding police officer and asked the officer to take the vehicle’s information for him. The police report did not include any information regarding another vehicle present at the scene and identifies a phone call to 911 by a single witness, “Dylan Kirby.” The plaintiff filed a claim for Uninsured Motorist (“UM”) benefits. The insurer filed a motion for summary judgment on the basis that the responsible driver had been identified. The insurer presented evidence that the plaintiff had asserted a claim against the alleged owner and operator of the other vehicle. The plaintiff argued that neither his deposition testimony nor the police report clearly confirmed that the Mr. Kirby identified in the police report as the 911 caller was the alleged unidentified driver. In reviewing the full context of the police report, the Court agreed that the Mr. Kirby identified in the report was the same person who the plaintiff identified as the adverse driver. The Court also noted that the plaintiff filed a claim with Mr. Kirby’s insurance carrier. The Court determined that based on the totality of the evidence, the driver in question was and remained identified and thus, there was no issue of fact in about such identity. The insurer’s motion for summary judgment was granted.
Supreme Court – COVID-19 Business Income Losses
In Connecticut Dermatology Group, PC et al v. Twin City Fire Insurance Company et al., the Connecticut Supreme Court decided whether a property insurance policy providing coverage for “direct physical loss of or physical damage to” covered property provided coverage for business income losses arising from the suspension of business operations during the COVID-19 pandemic. The plaintiffs owned and operated healthcare facilities at various locations in Connecticut. They suspended their business operations during the COVID-19 pandemic and, as a result, lost business income and incurred other expenses. The Court undertook an extensive analysis of federal and state courts construing language similar or identical to the language contained in the policies at issue in the present case, and noted that the majority of courts have concluded that a policy covering “ ‘accidental physical loss or accidental physical damage’ ” to property did not cover a loss incurred as result of the suspension of business operations during the COVID-19 pandemic because the loss was not physical, and the virus did not tangibly alter the property. The Court concluded that the plain meaning of the term “direct physical loss of …[p]roperty” does not include the suspension of business operations on a physically unaltered property in order to prevent the transmission of the coronavirus. Rather, in ordinary usage, the phrase “direct physical loss of…[p]roperty” clearly and unambiguously means that there must be some physical, tangible alteration to or deprivation of the property that renders it physically unusable or inaccessible. The Court rejected the plaintiffs’ argument that they sustained “direct physical loss” of their properties because the COVID-19 pandemic physically transformed their “ordinary business properties” into “potential viral incubators that were imminently dangerous to human beings.” The record did not support that there had been any “physical transformation” of the plaintiffs’ properties as the result of the COVID-19 pandemic. Similarly, the Court found that the plaintiffs’ activities designed to prevent the transmission of the coronavirus on their properties were not “repairs” in the ordinary sense of the word. The Court noted that even if the plaintiffs had claimed that their properties were actually contaminated by the coronavirus, the virus was not the type of physical contaminant that created the risk of a direct physical loss because, once a contaminated surface was cleaned or simply left alone for a few days, it no longer posed any physical threat to occupants. The Court held that the subject insurance policies did not cover the plaintiffs’ claims and affirmed the trial court’s entry of summary judgment for the insurers.
Supreme Court – COVID-19 Business Income Losses
In Hartford Fire Insurance Company v. Moda, LLC et al, which was decided on the same day as the aforementioned Connecticut Dermatology case, the Connecticut Supreme Court again addressed whether business losses suffered during the COVID-19 pandemic were covered by insurance for “direct physical loss of or direct physical damage to…[p]roperty…” The defendants sold shoes to department stores and other retailers across the country. Due to state government orders that temporarily closed nonessential businesses, the defendants alleged that their major retail customers shuttered their storefronts and canceled orders that had been placed months prior. The defendants claimed that as result, their warehouses overflowed with inventory that was effectively unsellable, resulting in financial losses. The Court adopted its holding in Connecticut Dermatology to resolve most of the issues raised by the defendants with respect to their multi-flex business policy, which was one of two policies at issue in the case. The Court determined that the interpretation of the second policy at issue, an ocean marine policy, was governed by New York law. Noting that New York courts and federal courts applying New York law have uniformly held that property insurance policies like the ocean marine policy at issue do not cover losses sustained from COVID-19 and related governmental orders, the Court affirmed the trial court’s entry of summary judgment on the insurer’s claim for declaratory relief.
U.S. Court of Appeals –COVID-19 Business Income Losses
In ITT, Inc. v. Factory Mutual Insurance Company, the plaintiff was a worldwide diversified manufacturing and technology company serving the aerospace, transportation, energy, communications, and industrial markets, whose business operations were interrupted by the COVID-19 pandemic. The District Court had dismissed the plaintiff’s complaint for failure to state a claim pursuant on the ground that the plaintiff’s allegations concerning the impact of COVID-19 on the plaintiff’s operations did not constitute “physical loss or damage,” as necessary to trigger coverage under the applicable policy. On appeal, the U.S. Court of Appeals noted the recent decision by the Connecticut Supreme Court in the
Connecticut Dermatology case, in which Connecticut joined the consensus of other jurisdictions on this issue. The U.S. Court of Appeals disagreed with the plaintiff’s contention that even if “physical loss or damage” entailed physical alteration to property, the plaintiff had adequately alleged such physical impact to property with its allegations concerning how COVID-19 interacts with property. Similarly, the U.S. Court of Appeals rejected the plaintiff’s argument that the District Court’s decision represented a factual determination on an emerging scientific issue that was inappropriate at the pleading stage. Given the absence of any claim by the plaintiff of a single object or piece of property that required repair or replacement due to exposure to COVID-19, the U.S. Court of Appeals found it implausible that COVID-19, a disease caused by a virus whose impact on property is indiscernible to the human eye, physically altered the plaintiff’s property to the point of physical damage or loss. The judgment of the District Court was affirmed.
U.S. District Court –COVID-19 Business Income Losses
In SKM Restaurants, Inc. d/b/a Toad’s Place v. Lexington Insurance Company, the plaintiff was a bar and performance venue, that sought insurance coverage for losses it sustained resulting from the COVID-19 pandemic and the related government shutdown of its business. The plaintiff alleged it experienced direct physical loss of its property, which was necessary to protect people from serious harm during the pandemic. The plaintiff also alleged that bars and performance venues posed greater risk during the pandemic, as patrons and staff are typically in close proximity to each other. The plaintiff further alleged it incurred reasonable costs for emergency measures it took to protect the property from damage caused by the pandemic. Relying on the aforementioned Connecticut Dermatology case, and noting recent decisions by the Second Circuit and courts in District of Connecticut that analyzed similar policy language and similar arguments, the Court granted the insurer’s motion to dismiss.