Connecticut Property and Casualty Insurance Law Newsletter – June 2023
June 22, 2023
Appellate Court – Motion to Strike – Implied Covenant of Good Faith and Fair Dealing In Napolitano v. Ace American Ins. Co., which included number of issues in cross-appeals filed by the parties, the plaintiff appealed from the trial court’s granting of the defendant’s motion to strike a claim of bad faith. The plaintiff argued on appeal that he pleaded legally sufficient allegations that the defendant breached the implied covenant of good faith and fair dealing when it refused to defend or indemnify him under his insurance policy. Before the trial court, the defendant argued that the plaintiff’s allegations that the defendant acted with an intentional and improper motive to increase profits were merely conclusory. In his objection, the plaintiff claimed that he alleged legally sufficient facts to plead that the defendant acted in bad faith because he alleged that the defendant intentionally and with improper motive denied coverage under the applicable policy in order to increase profits. The Appellate Court recognized that there is some variance among Connecticut trial court decisions concerning the standard of pleading required to state a legally sufficient bad faith cause of action. One line of cases requires specific allegations that establish malice or a dishonest purpose. Another line of cases applies a less stringent standard accepting factual allegations from which an inference of bad faith may be drawn. In reviewing the plaintiff’s allegations in the most favorable light, the Appellate Court concluded that the plaintiff had pled facts sufficient to plead a claim of bad faith under either approach. Of note, the trial court had not indicated in its memorandum of decision whether it adopted either of the two approaches. Nonetheless, the Appellate Court explained the reasons why the plaintiff’s allegations satisfied both approaches. Under the first approach, the plaintiff set forth sufficient specific factual allegations to establish that the defendant denied coverage under the policy for a dishonest purpose. The plaintiff specifically alleged that the defendant acted with the improper motive for the purpose of wrongfully denying the claim to increase its profits. Further, the plaintiff alleged facts indicating that the defendant undertook a specific course of conduct leading up to and at the time of the denial of coverage, including failing to respond to the underlying action, providing confusing information regarding the policy, and refusing coverage after certain information had been provided by an insurance agent, all in order to avoid paying a claim under a policy with which the plaintiff was told he was compliant before the date of loss. The plaintiff also set forth allegations sufficient under the second approach adopted by Connecticut’s trial courts. That is, it could be inferred from the facts alleged that the defendant’s deliberate course of conduct in denying coverage was unlikely to be attributable to an honest mistake or negligence, but, rather, a deliberate refusal to provide otherwise available coverage for the purpose of increasing profits. Accordingly, the Appellate Court reversed the decision of the trial court striking the claim of bad faith, and remanded the case for further proceedings.
Superior Court – Trial Decision – Connecticut Unfair Insurance Practices Act / Connecticut Unfair Trade Practices Act In Krausman v. Liberty Mutual Ins. Co., the plaintiff was injured in a 2015 motor vehicle accident and exhausted the liability coverage available from the tortfeasor’s insurance company. The plaintiff then presented a claim for Underinsured Motorist (“UIM”) benefits to her own insurance company, Liberty Mutual. The parties engaged in contested pre-trial discovery, and the plaintiff made an offer of compromise of $45,000 in late 2017. The defendant countered with an offer of $3,000, which was not accepted. The matter came before a court-appointed arbitrator, who in early 2018 awarded $19,500 to the plaintiff under her UIM policy, taking into account the $50,000 she received under the tortfeasor’s policy. The arbitration award was then converted into a judgment, but Liberty Mutual, relying on advice of its counsel, did not pay it as it was not a final judgment, given the pendency of two remaining counts, one for alleged violation of the Connecticut Unfair Insurance Practices Act (“CUIPA”), and one for alleged violation of the Connecticut Unfair Trade Practices Act (“CUTPA”). A count for breach of the covenant of fair dealing was later added to the complaint. The Appellate Court confirmed the non-finality of the 2018 judgment in a ruling on a dispute about post-judgment asset discovery. In 2022, a week before the trial of the remaining counts, Liberty paid the 2018 judgment. During discovery, the plaintiff was allowed to amend her complaint to allege greater specificity in the alleged violations of CUIPA, and to identify five other cases where Liberty Mutual had allegedly committed such acts. At trial, among the plaintiff’s evidence was testimony from other attorneys concerning Liberty Mutual’s behavior they had observed in matters they were handling. The issues to be decided by the trial court included the following: 1) Whether the plaintiff proved that Liberty Mutual violated CUIPA/CUTPA with respect to herself; and, 2) If so, whether the plaintiff proved that it did so as part of a general business practice. Within the CUIPA/CUTPA claim, the plaintiff argued that Liberty Mutual misrepresented or falsely advertised that the company “would stand by you,” and that it did not do so. The trial court rejected this argument and explained the concept of “puffery,” holding that Liberty Mutual’s slogan at issue was too vague and broad to support reasonable reliance as an actionable representation of performance under the policy. The trial court also rejected the plaintiff’s claim that Liberty Mutual refused to pay a claim without conducting a reasonable investigation based upon all available evidence. The plaintiff argued that her claim value inexplicably increased after litigation commenced, and speculated that this was due to an improper assessment of litigation expenses. However, the trial court noted that the plaintiff was continuing to treat, and Liberty Mutual continued to receive medical bills after commencement of the litigation, which was therefore a reasonable source for the increases in valuation. The plaintiff also argued that Liberty Mutual did not set a reserve for the claim until after she commenced suit, and then authorized settlement for a number lower than the reserve. However, the trial court found that the plaintiff did not cite any authority supporting her contentions that the timing of the reserve or that authorizing a settlement for less than the reserve were improper. The plaintiff further argued that Liberty Mutual did not attempt in good faith to effectuate prompt, fair and equitable settlement of a claim in which liability had become reasonably clear. In rejecting this argument, the trial court highlighted various aspects of the claim handling process, including Liberty Mutual’s good faith reliance on the advice of outside counsel. The trial court also rejected the plaintiff’s final argument within the CUIPA/CUTPA claim, which is that she had been reasonably “forced” to initiate litigation because she had not yet received an acceptable settlement offer. The trial court did not reach the issue concerning Liberty Mutual’s general business practices because there was not sufficient proof that the company had violated CUIPA in the present case. Furthermore, because of the failure of the CUIPA claim, the CUTPA claim necessarily failed. Based its numerous findings of fact and conclusions of law, the trial court directed that judgment enter on all counts in favor of Liberty Mutual.
Superior Court – Discovery – Attorney-Client Privilege In Ghio et al v. Liberty Insurance Underwriters et al, the underlying dispute involved the plaintiffs’ claims regarding their investment in Back9 Network, Inc. (“Back9”), a company belonging to certain individuals insured by Liberty Insurance Underwriters (“Liberty”). Liberty assigned defense counsel to represent its insureds. In October of 2018, shortly before the scheduled trial, Liberty’s coverage counsel notified the insureds’ defense counsel that Liberty denied that the policy provided coverage for any judgment in the plaintiffs’ action. After receiving the coverage denial letter, the insureds and the plaintiffs entered into a stipulation agreeing that judgment would enter for the plaintiffs, and that they would seek to enforce the judgment against Liberty only. Pursuant to the judgment, the insureds assigned their rights under the policy to the plaintiffs and directed their defense counsel to provide the plaintiffs with copies of all communications with Liberty regarding coverage under the policy, redacted as necessary to protect any applicable privilege. During discovery in the plaintiff’s action against Liberty, the plaintiffs sought the production of all communications between Liberty and the insureds’ defense counsel in the prior action, and the insureds instructed Liberty as to which of those communications to withhold as protected by the attorney-client privilege. Liberty, wishing to use certain portions of the designated privileged documents to defend itself in the underlying action, claimed that the insureds waived the privilege as to all communications concerning the merits of the plaintiffs’ claims by selectively disclosing to the plaintiffs privileged communications on that subject. The trial court agreed and found that the insureds had waived the privilege as to all communications concerning the merits of the plaintiffs; claims, clearing the way for Liberty to use those communications in the underlying action. The insureds then filed a writ of error with the Appellate Court to challenge the trial court’s discovery order. The insureds argued to the Appellate Court that the trial court improperly concluded that they waived the attorney-client privilege because: 1) the communications were produced pursuant to a court order; 2) Liberty had a duty to preserve the privilege and, therefore, could not have waived the insureds’ privilege by producing the communications; and, 3) the trial court abused its discretion in finding that the privilege was waived without holding an evidentiary hearing or reviewing the relevant communications. The Appellate Court agreed with the insureds’ final claim and, accordingly, granted the writ of error and remanded the case for an evidentiary hearing. Notably, as matter of first impression, the Appellate Court decided that the “subject matter waiver rule” would apply as an exception to the attorney-client privilege. Pursuant to this rule, the voluntary disclosure of a privileged attorney-client communication constitutes a waiver of the privilege as to all other communications concerning the same subject matter when the trial court determines that the waiver was intentional and that fairness dictates that the disclosed and undisclosed communications be considered together. Courts have characterized the reasoning of this rule as the sword and the shield approach, in that a litigant should not be able to disclose portions of privileged communications with his attorney to gain a tactical advantage in litigation (the sword), and then claim the privilege when the opposing party attempts to discover the undisclosed portion of the communication or communications relating to the same subject matter (the shield). On remand, the Court conducted an in camera review and provided a detailed analysis of the various communications that were the subject of the discovery dispute. The Court considered the context in which each communication had been made, including on issues such as settlement discussions and the merits of the underlying claims. Based on its analysis, the Court found that an intentional waiver of the attorney-client privilege had occurred. The waived communications pertained to settlement value and case merits. The Court noted that it would be unfair to Liberty for the insureds to provide the plaintiffs with the “sword” that permits them to prove their claim against Liberty while depriving Liberty, on the basis of privilege, the “shield” afforded by the documents that contradicts the reasonableness of the settlement demand. The Court concluded that disclosure of the entirety of certain communications was required by principles of fairness, and ordered the disclosure of the redactions that had been identified.
Superior Court – Suit Limitations Period – COVID-19 Executive Order In Brar v. Allstate Ins. Co., the plaintiff filed an action seeking Uninsured Motorist (“UM”) benefits in connection with a motor vehicle accident that occurred on December 6, 2018. Pursuant to both the Connecticut General Statutes and the terms of the applicable insurance policy, the suit limitations period expired on December 6, 2021. However, plaintiff did not commence suit against her Allstate until April 1, 2022. Allstate filed a motion for summary judgment on the basis that the action was barred the suit limitations period. The plaintiff asserted that her claim was not barred due to the effect of the Connecticut Governor’s Executive Order No. 7G, issued on March 19, 2020 relative to the COVID-19 pandemic and which suspended, for the duration of the public health and civil preparedness emergency, unless earlier modified or terminated by the Governor, all time requirements, statutes of limitation or other limitations relating to service of process. Allstate argued that this action was distinguishable from a recent case where a Superior Court judge ruled that Executive Order No. 7G tolled the statute of limitations for purposes of a negligence action. Specifically, Allstate contended that in the present case, the plaintiff was bound by the three year suit limitations period contained in the insurance policy, which was different from a suit limitations period mandated by statute. The Court elected to follow the reasoning of another recent Superior Court opinion, French v. Vocasek et al, which similarly dealt with a UM claim. As in the French case, the Court found that Executive Order 7G was not a “law impairing the obligation of contracts” as would be prohibited by the United States Constitution, Article I, § 10. The Court noted that the ability of the State to limit restrictions imposed by private contracts in the event of an emergency, such as a pandemic, is particularly strong when the party drafting the contract—here, an insurer—is already subject to state regulatory power. The Court reasoned that when Allstate drafted its insurance policy contract, it did so with knowledge of the State’s regulatory power. The issuance of Executive Order 7G was determined to be a reasonable response to the COVID-19 emergency, consistent with the State’s power to protect the health of its citizens during an emergency. The Court therefore denied Allstate’s motion for summary judgment and ruled that plaintiff’s action was timely filed.