CT Property and Casualty Insurance Law Newsletter – January 2023
January 5, 2023
Superior Court – Motion to Strike – Good Faith and Fair Dealing
In Clarke v. State Farm Mutual Automobile Insurance Company, the plaintiff filed an action against the insurer seeking payment of Uninsured Motorist benefits under his automobile insurance policy. The insurer filed a motion to strike the plaintiff’s count for breach of the implied covenant of good faith and fair dealing, arguing that the claim was legally insufficient and failed to plead facts that would support an inference of improper motive or sinister intent. The Court recognized that several Superior Court opinions have addressed the pleading requirements for a claim for breach of the implied covenant of good faith and fair dealing, and that from those opinions majority and minority views have emerged. The majority view requires a plaintiff to plead facts that go beyond a simple breach of contract claim and enter into a realm of tortious conduct which is motivated by a dishonest or sinister purpose. The minority view generally holds a plaintiff to a less stringent standard requiring that the plaintiff need only allege sufficient facts or allegations from which a reasonable inference of sinister motive can be made. However, even courts following minority approach have looked to allegations that the conduct at issue was engaged in purposefully. The Court concluded that the plaintiff failed to meet pleading requirements under the majority or the minority standard. The complaint lacked any specific factual allegations that the insurer acted in bad faith with the intention of obstructing the plaintiff from receiving benefits to which he is entitled, or that the insurer did so purposefully. Further, the plaintiff’s inclusion of language indicating that the insurer acted with a certain intent, without specific factual allegations illustrating such intentions, did not support a reasonable inference that the insurer acted purposefully and with a sinister motive. Accordingly, the motion to strike was granted.
Superior Court – Determination of “Covered Auto”
In Russo v. Essentia Insurance Company, the plaintiff filed an action against the insurer seeking payment of Uninsured Motorist benefits under his automobile insurance policy. The insurer filed a motion for summary judgment and argued that the vehicle the plaintiff was driving at the time of the collision (a 2005 Hummer) was not an insured vehicle under his Classic Automobile Policy. The plaintiff argued that genuine issues of material fact existed as to whether his vehicle was “antique” or “classic” pursuant to the policy’s definitions section, whether his vehicle was a replacement vehicle pursuant to the policy’s terms, and when he acquired the vehicle he was driving at the time of the collision. The Court noted that the insurer did not include evidence of the policy’s declarations page which would provide critical information to apply to the policy’s definition of a “covered auto.” The insurer’s mere assertion that the 2005 Hummer was not listed as an insured vehicle in the policy was insufficient to show that the vehicle was not antique or classic, that the plaintiff became the owner of that vehicle outside of the policy period, or that the vehicle was not a replacement for any vehicle listed on the declarations page that the plaintiff failed to ask the insurer to insure within thirty days of acquiring it. For these reasons, the Court found there to be remaining genuine issues of material fact and denied the motion for summary judgment.
Superior Court – Scheduled Property
In Eric’s Landscaping & Tree Service, LLC v. Great American Insurance Company of New York, the plaintiff sought coverage for damage done to a crane it purchased with insurance proceeds obtained from the insurer for damage done to a virtually identical crane several months earlier. The insurer denied coverage for the replacement crane because, inter alia, the plaintiff had failed to add the replacement crane to the list of “scheduled property” within thirty days of its acquisition. In considering the insurer’s motion for summary judgment, the Court took note of the following uncontested facts in determining there to be no genuine issue of material fact that the replacement crane is not covered under the additional equipment provision of the policy: 1) the replacement crane was damaged sometime between 30-32 days after the plaintiff took possession of it; 2) the replacement crane was not listed as covered property under the policy at the time of the loss; and 3) the plaintiff waited more than thirty days after acquiring the replacement crane to notify the insurer that it had acquired the replacement crane. Further, although the replacement crane was eventually added to the coverage provided under the policy, that coverage did not become effective until after the loss had already occurred. As to plaintiff’s claim that the insurer had been unjustly enriched by continuing to receive premium payments, the Court found there to be no genuine issue of material fact that the plaintiff received the benefit of insurance coverage for all properly listed equipment throughout the term of the policy, including the replacement crane. Accordingly, the Court granted the insurer’s motion for summary judgment.
U.S. District Court – Data Breach – Business Interruption Losses
In New England Systems, Inc. v. Citizens Insurance Company of America, the plaintiff brought an action against its insurer, alleging that the insurer failed to honor its obligation under an insurance policy to reimburse the plaintiff for business interruption losses sustained due to a data breach. The insurer filed a motion for summary judgment, asserting that the plaintiff did not suffer any business interruption losses due to the data breach at issue, that the plaintiff did not provide a basis for a jury to calculate the damages relating to any such losses, and that the plaintiff did not provide any evidence that the insurer acted in bad faith. The plaintiff asserted that it lost business income because it was unable to perform work for six of its clients following the data breach. Relying on persuasive authority from other federal district courts, and construing an ambiguity in the policy language against the insurer as required, the Court concluded that the term “actual impairment” in the policy was broad enough to include the forced reallocation of resources, resulting from a covered data breach, from services the plaintiff planned to provide to clients to efforts the plaintiff took to remediate the effects the data breach had on its clients. The Court declined to conclude that the parties intended to exclude from coverage the type of “impairment”—i.e., the forced diversion of resources away from planned client services—the plaintiff claims it sustained in this case. Nothing in the policy expressly limited the definition of “impairment” to the remediation of impacts on the Plaintiff’s own systems. The Court acknowledged that this case presented a unique situation in which the steps an insured party took to remediate a data breach look similar to the work the insured party typically performed. The case was also unique because the plaintiff may have been independently responsible for remedying the effects of the data breach on its clients even if the breach had originated from another source. Nonetheless, the insurer did supply the Court with evidence to establish, as a matter of law, that the parties intended that the plaintiff’s purported forced diversion of resources would not constitute an impairment of the plaintiff’s business operations under the terms of the policy. The Court also found that based on the plaintiff’s evidence, there were genuine issues of material fact regarding whether the plaintiff suffered a loss in business income due to the data breach, and whether the plaintiff sustained damages from purportedly lost monthly service agreements. Finally, the Court found that the plaintiff failed to explain how this case presented anything more than a coverage dispute over a fairly debatable claim or negligence on the part of the insurer. The Court denied the motion for summary judgment as to the coverage and damages issues, and granted the motion as to the plaintiff’s claim for breach of the implied covenant of good faith and fair dealing.
U.S. District Court – Duty to Defend
In B&W Paving and Landscape, LLC v. Employers Mutual Casualty Company, B&W was a paving company insured by the defendant insurer for work done as a subcontractor for the Whiting Turner Contracting Company (“Whiting”), who filed a third-party complaint against the B&W in an underlying action. After the insurer refused to provide its defense, B&W sought a declaratory judgment that the duty to defend had been triggered. B&W and the insurer filed cross-motions for summary judgment. In the underlying action, United Illuminating (“UI”) had sued Whiting for defective and incomplete work relating to the construction of UI’s new central facility. Whiting subcontracted with Cherry Hill Construction, Inc. (“Cherry Hill”) for work in the areas of the site underneath the parking lot and driveways. Whiting also subcontracted with B&W for the asphalt paving. Whiting’s third-party complaint against B&W concerned any liability Whiting may have to UI for allegations that B&W installed an insufficient quantity of asphalt or otherwise improperly and/or incompletely installed asphalt for the parking lots and driveways. After the underlying action was filed, an expert retained by Whiting opined that certain aspects of the paving at the subject premises contributed to the detrimental intrusion of water resulting in an associated reduction in structure strength. The parties did not contest that for coverage purposes “property damage” from defective construction work by the insured only includes damage caused to other, non-defective property, and does not extend to repairing or replacing the insured’s defective work. The coverage dispute between B&W and the insurer turned on whether the extrinsic fact of the expert’s conclusions, in combination with the underlying complaint, triggered the duty to defend. The Court noted that for purposes of determining the duty to defend, the relevant fact was not the truth of the experts conclusions, but rather the fact that an expert was able to reach such conclusions, thereby creating the possibility of coverage. Thus, the Court concluded that the expert report should be considered in resolving the pending motions. The insurer argued that there was no duty to defend because the underlying third-party complaint did not specify that B&W’s work damaged Cherry Hill’s non-defective work, instead broadly alleging property damage caused by B&W. However, the Court found that the expert’s opinions on UI’s losses at least arguably included losses caused by B&W’s work damaging the work of Cherry Hill, which sufficed to find that the allegations in the third-party complaint fell “even possibly” within the scope of B&W’s coverage. The insurer also raised two coverage exclusions as a basis for avoiding the duty to defend. However, the court found that despite the exclusions, the allegations of the third-party complaint and the extrinsic evidence of the expert report raised the possibility of coverage, which triggered the duty to defend. B&W’s motion for summary judgment was granted and the insurer’s motion for summary judgment was denied.
Superior Court – Motion to Strike – Unjust Enrichment
In Orlando v. Liburd et. al., the plaintiff alleged that his vehicle was damaged when it was struck by a vehicle driven negligently by the defendant, Ernest Liburd. The plaintiff’s complaint also included a count alleging unjust enrichment against the plaintiff’s insurer, Nationwide Mutual Insurance Co. (“Nationwide”). The plaintiff alleged that in pursuing its subrogation rights against Liburd’s insurer, Nationwide failed to compensate the plaintiff in exchange for benefits it received from the plaintiff. Although Nationwide made several arguments in support of a motion to strike the count for unjust enrichment, the Court concluded on its own motion that the plaintiff’s claim was not ripe for adjudication, and thus did not reach Nationwide’s other arguments. As pled, the plaintiff’s claim against Nationwide was contingent on the outcome of his claim against Liburd and, potentially, on whether any judgment against Liburd could not be satisfied. The Court observed that the claim was contingent upon an event that has not and may never occur. Notwithstanding the contingent allegation, the plaintiff argued that his claim was ripe because he asserted that Nationwide had already infringed upon the plaintiff’s rights by reducing the existing pool of funds available under the defendant’s insurance policy. The plaintiff argued that this circumstance impaired his “litigation position” by undermining his leverage to negotiate a settlement of his pending claim against Liburd. The Court noted that the plaintiff’s complaint here did not allege the amount of his claimed damages, the amount subrogated by his insurer, or the limits of Liburd’s coverage. The omission of these allegations made the plaintiff’s claim unripe and thus deprived the court of subject matter jurisdiction. As a result, the Court dismissed the count for unjust enrichment.