Opinion
No. CV06-4011494S
August 6, 2007
MEMORANDUM RE MOTIONS FOR SUMMARY JUDGMENT NOS. 106, 114 and 116
FACTS
In September 2006, the plaintiff, Electric Insurance Company, commenced this declaratory judgment action against the defendants, Daniel J. Santo, Donna S. Santo, Rafaele Fasulo and Pasqualina Fasulo, pursuant to General Statutes § 52-29 and Practice Book § 17-54 et seq. In the complaint, the plaintiff alleges the following facts. The plaintiff issued a homeowners insurance policy to the Santos for a residence in Waterbury, Connecticut covering the period from May 1, 2003 to May 1, 2004. In July 2003, the Santos sold the property to the Fasulos. In August 2005, the Fasulos filed an action against the Santos and two other parties in which they assert claims against the Santos for negligent and intentional misrepresentation, fraudulent nondisclosure, common-law bad faith, breach of contract, and negligent and intentional infliction of emotional distress. All of these claims are premised on misrepresentations that the Santos allegedly made to the Fasulos prior to the sale regarding the condition of the property. Donna Santo sent the Fasulos' complaint in the underlying action to the plaintiff and asked it to defend and indemnify her therein.
In the summons, this defendant is listed as Rafaele Fasulo. In the complaint and subsequent pleadings and motions, he is identified as Raffaele Fasulo.
That matter remains pending in this judicial district. See Fasulo v. Santo, Superior Court, judicial district of Waterbury, Docket No. CV 05 4006058.
The plaintiff alleges that it is not required to do so for the following reasons: the Fasulos do not allege that they sustained injuries that are covered by the policy in that they do not allege that they suffered "bodily injury," "property damage" or "personal injury," or that they were injured as a result of an "occurrence" as those terms are defined in the insurance policy; to the extent that the Fasulos' allegations can be construed to allege property damage, their claims are excluded from coverage under the policy's exclusions for property owned by the insureds and for injuries and damages that were expected or intended by the insureds. Accordingly, the plaintiff asks the court to declare that it does not have a duty to defend or to indemnify the Santos in the underlying action according to the terms of the policy.
On February 7, 2007, the court granted the plaintiff's motion for default for failure to plead as to Daniel Santo. Accordingly, the name Santo as used hereafter refers to Donna Santo. The plaintiff filed a motion for summary judgment on February 1, 2007. On March 12, 2007, Santo and the Fasulos each filed a memorandum in which they object to the plaintiff's motion for summary judgment and move for summary judgment. The plaintiff filed an objection to the defendants' motions on April 10, 2007. All three motions for summary judgment were heard by the court on April 23, 2007.
Santo filed a single document in which she joins in the Fasulos' objection to the plaintiff's motion, their motion for summary judgment and their memorandum.
The plaintiff's motion for summary judgment initially appeared on the short calendar on February 25, 2007. The court, Upson, J., granted it on February 28, 2007. On March 26, 2007, the court granted Donna Santo's motion to open and set aside the order. According to the record, Santo and the Fasulos had filed motions for extension of time to file responses to the plaintiff's motion, which should have been granted by the clerk pursuant to Practice Book § 17-45. This would have extended the time on which the motion appeared on the short calendar.
DISCUSSION
"Practice Book § 17-49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party . . . The party moving for summary judgment has the burden of showing the absence of any genuine issue of material fact and that the party is, therefore, entitled to judgment as a matter of law." (Internal quotation marks omitted.) Grey v. Stamford Health System, Inc., 282 Conn. 745, 750, 924 A.2d 831 (2007).
For purposes of their motions for summary judgment, the parties agree that the plaintiff issued a homeowners insurance policy to the Santos. The plaintiff contends that it is entitled to summary judgment because the plain language of the policy demonstrates that it does not have, as a matter of law, a duty to defend or indemnify the Santos in that the Fasulos' claims against the Santos are not premised on the types of injuries covered by the policy, i.e., bodily injuries, property damage, personal injuries, or injuries caused by an occurrence as these terms are used in the policy. Furthermore, the plaintiff contends that, to the extent the Fasulos have alleged that they suffered from these types of injuries, their claims are excluded from coverage pursuant to the policy's exclusion for damage to property owned by the insured. The defendants counter that a comparison of the Fasulos' amended complaint in the underlying action to the policy at issue demonstrates that the plaintiff does, as a matter of law, have a duty to defend and indemnify Santo in that action. In its reply and objection to the defendants' motion for summary judgment, the plaintiff raises the additional argument that even if the Fasulos have alleged that they suffered injuries that are covered by the policy, it is still entitled to summary judgment because none of their injuries occurred while the policy was in effect.
"The question of whether an insurer has a duty to defend its insured is purely a question of law, which is to be determined by comparing the allegations of [the underlying] complaint with the terms of the insurance policy." (Internal quotation marks omitted.) Wentland v. American Equity Ins. Co., 267 Conn. 592, 599 n. 7, 840 A.2d 1158 (2004). According to our Supreme Court, "[a]n insurer's duty to defend, being much broader in scope and application than its duty to indemnify, is determined by reference to the allegations contained in the [underlying] complaint . . . The obligation of the insurer to defend does not depend on whether the injured party will successfully maintain a cause of action against the insured but on whether he has, in his complaint, stated facts which bring the injury within the coverage. If the latter situation prevails, the policy requires the insurer to defend, irrespective of the insured's ultimate liability . . . It necessarily follows that the insurer's duty to defend is measured by the allegations of the complaint . . . Moreover, [i]f an allegation of the complaint falls even possibly within the coverage, the insurance company must defend the insured." (Citations omitted; emphasis in original; internal quotation marks omitted.) DaCruz v. State Farm Fire Casualty Co., 268 Conn. 675, 687-88, 846 A.2d 849 (2004).
The Santos' insurance policy with the plaintiff must be examined in light of the standards that apply to such policies. "The [i]nterpretation of an insurance policy . . . involves a determination of the intent of the parties as expressed by the language of the policy . . . [including] what coverage the . . . [insured] expected to receive and what the [insurer] was to provide, as disclosed by the provisions of the policy . . . [A] contract of insurance must be viewed in its entirety, and the intent of the parties for entering it derived from the four corners of the policy . . . [giving the] words . . . [of the policy] their natural and ordinary meaning . . . [and construing] any ambiguity in the terms . . . in favor of the insured . . ." (Internal quotation marks omitted.) Hartford Casualty Ins. Co. v. Litchfield Mutual Fire Ins. Co., 274 Conn. 457, 463, 876 A.2d 1139 (2005).
The policy contains the following provisions. The liability coverages provision in section II of the policy states: "COVERAGE E — Personal Liability If a claim is made or a suit is brought against an `insured' for damages because of `bodily injury' or `property damage' caused by an `occurrence' to which this coverage applies [the plaintiff] will: 1. Pay up to our limit of liability for the damages for which the `insured' is legally liable . . . [A]nd 2. Provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent . . ." In the definitions section, the term "occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period, in: `Bodily injury'; or `Property damage.'" The term "bodily injury" is defined as "bodily harm, sickness or disease, including required care, loss of services and death that results." The term "property damage" is defined as "physical injury to, destruction of, or loss of use of tangible property." The CONDITIONS section that applies to section II repeats that "[t]his policy only applies to `bodily injury' or property damage' in Section II, which occurs during the policy period." The exclusion that the plaintiff relies upon provides that personal liability coverage does not apply to "`bodily injury' or `property damage' . . . [a]rising out of a premises: (1) Owned by an `insured' . . ."
In an undated endorsement, the definition of bodily injury was amended to include "personal injury," which is defined as "injury arising out of one or more of the following offenses: (1) false arrest, detention or imprisonment, or malicious prosecution; (2) libel, slander or defamation of character; or (3) invasion of privacy, wrongful eviction or wrongful entry."
In their amended complaint in the underlying action, the Fasulos allege, inter alia, the following: they purchased the residence from the Santos on July 18, 2003; prior to that date, the Santos negligently and/or fraudulently made representations to them regarding the condition of the property, which the Santos knew or should have known were false; the Fasulos relied upon these representations in deciding to buy the property; after they purchased the property, the Fasulos learned that certain of these representations were false; they have been damaged in that they are not able to use the woodstove and chimney, and may not be able to use other portions of the property, they have and will incur costs in remedying the conditions, they have both suffered from emotional distress and Pasqualina Fasulo has suffered from hives and problems with her equilibrium.
"Jurisdictions differ with regard to which version of a complaint should be considered in determining an insurer's duty to defend . . . Some courts have held that a court must refer only to the latest amended pleadings in determining the insurer's duty to defend . . . while others have held that an insurer's duty to defend is set by the allegations contained in an initial pleading and that duty is not extinguished by later filings tending to indicate that claims against [the] insured are not covered by the policy . . .
"While neither Connecticut state courts nor the Second Circuit have spoken on this issue, the Court follows the holding of the Fifth Circuit in John Deere [Ins. Co. v. Truckin' U.S.A., 122 F.3d 270, 273 n. 1 (5th Cir. 1997)] and will consider only the latest filed . . . complaints in order to determine [the insurer's] duty to defend . . . As the Fifth Circuit stated in Rhodes [v. Chicago Ins. Co., 719 F.2d 116, 119 (5th Cir. 1983]: "A complaint which does not initially state a cause of action under the policy, and so does not create a duty to defend, may be amended so as to give rise to such a duty . . ." (Citations omitted; internal quotation marks omitted.) Nationwide Mutual Ins. Co. v. Mortensen, 222 F.Sup.2d 173, 182 (D.Conn. 2002). See also Fortin v. Hartford Underwriters Ins. Co., Superior Court, complex litigation docket at Middletown, Docket No. X04 CV 03 0103483 (April 6, 2005, Quinn, J.).
The first question is whether the Fasulos have alleged conduct by the Santos that caused them property damage. It appears that Connecticut appellate courts have not addressed the question of whether claims premised upon misrepresentations made by the insured to a buyer regarding the condition of the property constitute this type of damage as the relevant terms are used in homeowners insurance policies, thus requiring the insurer to defend the insured. One Superior Court decision addressing the issue relied in part on authority from another jurisdiction in concluding that the insurer did not have a duty to defend its insured in an action premised on the insured's failure to disclose to buyers that his property was infested with termites. Thompkins v. New London County Mutual Ins. Co., Superior Court, judicial district of Tolland, Docket No. CV 97 0062684 (February 15, 2000, Sullivan, J.). The court concluded that such claims allege "no potential for liability that arguably comes within the scope of the insurance coverage provided by [the insurer]." (Internal quotation marks omitted.) CT Page 13959 Id.
In other jurisdictions, many courts have concluded that such claims do not constitute property damage as the term is used in this and similarly worded policies. As the federal circuit court explained in one such case, after judgment had entered in favor of the buyer and against the insured in the underlying action, "[t]he [insureds'] negligent misrepresentations did not cause a property damage to the house . . . Neither did the [insureds'] actions to conceal the cracks in the house cause any property damage to the house. The structural flaws in the house constitute tangible property damage, but these flaws predate the occurrence of concealment and misrepresentations by which the [insureds] incurred liability. The [buyers'] judgment covered the intangible losses incurred when the [buyers] relied to their economic detriment upon the [insureds'] misrepresentations. These damages are pecuniary in nature and are not property damage within the meaning on the [plaintiff's] insurance policies." St. Paul Fire Marine Ins. Co. v. Lippincott, 287 F.3d 703, 706 (8th Cir. 2002).
"The decision in St. Paul is not isolated. It has been recognized that courts are virtually unanimous in their holdings that damages flowing from misrepresentations and/or fraud have no basis [as] property damage; rather, the only cognizable damages from such torts are economic and contractual in nature and as such do not fall within the scope of coverage afforded by [homeowners] policies. State Farm Fire and Cas. Co. v. Brewer, 914 F.Sup. 140, 142 (S.D.Miss. 1996) (citing Safeco Ins. Co. of America v. Andrews, 915 F.2d 500 (9th Cir. 1990)). Accord Allstate Ins. Co. v. Morgan, 806 F.Sup. 1460 (N.D.Cal. 1992); Allstate Ins. Co. v. Chaney, 804 F.Sup. 1219 (N.D.Cal. 1992); Allstate Ins. Co. v. Hansten, 765 F.Sup. 614 (N.D.Cal. 1990); State Farm Fire and Cas. Co. v. Gwin, 658 So.2d 426 (Ala. 1995); Devin v. United Serv. Auto Assoc., 6 Cal.App. 4th 1149, 8 Cal.Rptr.2d 263 (1992); Dixon v. National Am. Ins. Co., 411 N.W.2d 32 (Minn. [Ct.App.] 1987); Qualman v. Bruckmoser, 163 Wis.2d 361, 471 N.W.2d 282 (Wis. [Ct.App.] 1991)." Aluise v. Nationwide Mutual Fire Ins. Co., 218 W. Va. 498, 506, 625 S.E.2d 260, 268 (2005). But see Sheets v. Brethren Mutual Ins. Co., 342 Md. 634, 645-46, 679 A.2d 540 (1996) (insurer required to defend insureds in suit premised on their misrepresentation as to capacity of septic system, which allegedly caused buyer with family too large for system to move in and use system, causing system to break down, and resulted in buyer loss of use of system).
In Aluise, the homeowners insurance policy, like the Santos' policy, "provided coverage for property damage or bodily injury sustained at the [insureds'] home. The [buyers] sought damages for economic losses they sustained as a result of the negligent or intentional failure of the [insureds] to disclose defects in the home at the time of the sale. The claims asserted by the [buyers] simply do not trigger an occurrence as defined under the policy. As one court appropriately noted, `to find coverage existed in this case would be to find that based on an act of sale, a homeowner's insurer becomes the warrantor of the condition of the insured property. This is not the type of coverage which is contemplated by . . . homeowner's policies.' Lawyer v. Kountz, 716 So.2d 493, 398 (La.Ct.App. 1998), [writ denied, 731 So.2d 264 (La. 1998)]." Aluise v. Nationwide Mutual Fire Ins. Co., supra, 218 W.Va. 507. The court also concluded that, because "[t]hese allegations simply do not fall within the scope of the policy [they] therefore did not trigger a duty to defend." Aluise v. Nationwide Mutual Fire Ins. Co., supra, 218 W. Va. 508.
Moreover, courts have reached the same conclusion in cases in which, as in the present case, the buyers allege that the misrepresentations caused property damage in the form of their loss of the use of the property. See Yoder v. Safeco Ins. Co. of America, United States District Court, Docket No. 05 CV 01358 (E.D.Ark. March 7, 2006). As explained by one court, while the policy at issue, like the plaintiff's policy "includes `loss of use' as a form of `property damage,' this fact does not alter the principle that a claim for negligent misrepresentation in connection with the sale of a home is a claim for economic or contractual damages, not property damages." Id. See also State Farm Lloyds v. Kessler, 932 S.W.2d 732, 737 (Tex.App. 1996), writ denied, (Tex. June 12, 1997).
Pursuant to this persuasive reasoning and authority, the Fasulos have not alleged claims of property damage under the terms of the policy. While the Santos' alleged misrepresentations regarding the condition of the property may have caused the Fasulos to incur economic losses, the misrepresentations did not damage the property or cause them loss of use thereof.
The next question is whether the Fasulos' allegation that Pasqualina Fasulo suffered from hives and equilibrium problems due to the Santos' alleged misrepresentations is sufficient to trigger the plaintiff's duty to defend Santo in an action for bodily injury. It bears repeating that the policy specifically provides that "[t]his policy only applies to `bodily injury' . . . which occurs during the policy period." Therefore, this policy is what is known as an "occurrence-basis" policy. As our Supreme Court has explained, "`According to the express language of the occurrence basis [comprehensive general liability policy], the insurer is obligated to defend claims and pay for covered bodily injury . . . where the injury is caused and takes place during the policy period. Thus, the occurrence-basis policy is geared to paying claims for losses that take place during the policy period and result in the policyholder's legal liability. This means that the time of the negligent acts causing the injury . . . is not determininative of the insurer's obligation to defend and pay. Rather, there must be injury from an occurrence during the policy period to trigger occurrence policy coverage . . .' J. Stempel, Law of Insurance Contract Disputes (Sup. 2002) § 14.09[a][1], p. 14-41." Security Ins. Co. of Hartford v. Lumbermens Mutual Casualty Co., 264 Conn. 688, 697 n. 12, 826 A.2d 107 (2003).
In their complaint, the Fasulos allege that they relied upon the Santos' misrepresentations in deciding to buy the property and learned of the actual conditions that form the basis for their complaint "subsequent to their purchase of the property . . ." The plaintiff provided the court with evidence the Santos cancelled the policy on July 18, 2003, the date that they sold the property to the Fasulos. They did so by sending a cancellation notice to the plaintiff, in accordance with the condition of the policy which states that the insured "may cancel this policy at any time . . . by letting us know in writing of the date cancellation is to take effect." Accordingly, it is apparent that Pasqualina Fasulo's bodily injuries did not occur during the policy period. See Lawyer v. Kountz, supra, 716 So.2d 498; Tiedmann v. Nationwide Mutual Fire Ins. Co., 164 Conn. 439, 445, 324 A.2d 263 (1973). Therefore, the Fasulos' suit is not premised on an occurrence that caused bodily injuries during the policy period.
CONCLUSION
Because the Fasulos do not allege claims against the Santos that qualify as claims for property damage or bodily injury as those terms are used in the plaintiff's policy, the plaintiff does not have a duty to defend the Santos in the underlying action. It necessarily follows that it also does not have a duty to indemnify the Santos in that action because, "where there is no duty to defend, there is no duty to indemnify . . ." (Internal quotation marks omitted.) DaCruz v. State Farm Fire Casualty Co., supra, 268 Conn. 688. The court grants the plaintiff's motion for summary judgment and denied the defendants' motions for summary judgment.
It is therefore not necessary for the court to address the plaintiff's additional arguments that it does not have a duty to defend the Santos because the underlying action is not premised on an "occurrence" as that term is used in the policy and the policy specifically excludes claims arising out of property owned by the insured.