Opinion
HHDCV146054554S
12-11-2015
Hartford Casualty Insurance Co. a/s/o IQ Telecom, LLC v. Stephen Sapienza
UNPUBLISHED OPINION
MEMORANDUM OF DECISION RE MOTION TO STRIKE (#120)
Sheila A. Huddleston, Judge.
The defendant, Stephen Sapienza, moves to strike the plaintiff's claim for treble damages under General Statutes § 52-264 on the ground that the plaintiff, as subrogee of the plaintiff's former employer, is not entitled to an award of treble damages based on that statute. The plaintiff objects, arguing that (1) a motion to strike is not the proper vehicle to oppose a prayer for relief; (2) the defendant failed to file a memorandum of law with its motion to strike; and (3) the plaintiff's claim is a proper claim under General Statutes § 52-118, which allows an assignee to sue in its own name if it alleges in the complaint that it is the bona fide owner of the chose in action and sets out how it acquired title to the action. The court agrees with the defendant that an insurer that has paid a claim is not entitled to seek treble damages under § 52-264, and, accordingly, the claim for treble damages is stricken.
Procedural History
The plaintiff, Hartford Casualty Insurance Company, brought this action in two counts to recover a $10,000 payment it had made to its insured, IQ Telecom, LLC (IQ). Its first count seeks reimbursement pursuant to its status as subrogee and assignee of IQ (count one, paragraph 11), and its second seeks reimbursement on equitable grounds (count two, paragraph 11). The original complaint did not seek treble damages. The plaintiff subsequently requested leave to amend its complaint to add a claim for treble damages pursuant to the civil theft statute. The defendant objected on the ground that treble damages are not available to an insurer that is seeking reimbursement of a payment made to an insured. The court overruled the objection on the ground that substantive challenges to the legal sufficiency of a complaint should be raised by way of a motion to strike rather than an objection to the amendment. The defendant thereafter filed a " Motion to Strike--Plaintiff's Request to Amend Complaint dated May 15, 2015." The plaintiff objected. In its objection, it noted that despite the caption, the motion to strike in fact seeks to strike the prayer for relief that claims treble damages. The motion to strike and objection were argued at the short calendar on August 17, 2015.
The summons and the captions of the original and amended complaints identify the plaintiff as " Hartford Casualty Insurance Company." The first paragraph of the complaint states that " Hanover Insurance Group is a corporation authorized to do business within the State of Connecticut." Because all other references in the complaint to the plaintiff appear to refer to Hartford Casualty Insurance Company, the court assumes that the reference to Hanover Insurance Group in paragraph 1 is a scrivener's error.
Facts Alleged in the Second Amended Complaint
The operative complaint alleges the following facts that are relevant to the motion to strike: The defendant was employed as a bookkeeper for IQ until August 26, 2013. His responsibilities included managing money accounts, controlling checking accounts, and acting in a fiduciary capacity. Over a two-year period before August 26, 2013, the plaintiff misappropriated approximately $117,000.00 from IQ by forging his name to many checks and by stealing money in other ways. After IQ discovered the theft, it submitted a claim to the plaintiff, its insurer, seeking recovery of $10,000.00 under its policy with the plaintiff. The sum it sought was the limit of insurance policy coverage that it had for employee dishonesty. After an investigation, the plaintiff paid its insured $10,000.00 under the policy, and IQ assigned its right to recovery of that sum to the plaintiff. The plaintiff has been unsuccessful in recovering reimbursement from the defendant.
Analysis
Practice Book § 10-39 provides in relevant part: " A motion to strike shall be used whenever any party wishes to contest: . . . (2) the legal sufficiency of any prayer for relief . . ." The plaintiff recognized, in its objection to the motion, that the intent of the motion was to strike the prayer for treble damages. The court agrees. Practice Book § 10-39 expressly authorizes the use of the motion to strike to challenge the legal sufficiency of a prayer for relief.
The plaintiff argues that the defendant's motion should be denied because the defendant failed to file a memorandum of law as required by Practice Book § 10-39(c). The court notes that the defendant is self-represented, and Connecticut's courts are solicitous of the rights of self-represented parties. See Practice Book § 1-8. (" The design of these rules being to facilitate business and advance justice, they will be interpreted liberally in any case where it shall be manifest that a strict adherence to them will work surprise or injustice.") The court further notes that the defendant's motion invokes the principles of law that apply to the issue at hand in a manner sufficient to put the plaintiff on notice of his arguments. The court concludes that in these circumstances, the failure to file a separate memorandum of law is not fatal to the court's consideration of the defendant's motion.
The defendant argues that the civil theft statute invoked by the plaintiff authorizes an " owner" of property that was stolen to recover treble damages, but the plaintiff was not the owner of the property that was stolen. It was, instead, paid an insurance premium for accepting the risk of insuring IQ up to $10,000, and it is exercising only its right to subrogation. The defendant further claims that the " make whole" doctrine applies because the insured, IQ, has recovered the full amount of its loss.
Equitable Subrogation or Assignment
The court turns first to the defendant's claim that the plaintiff is not entitled to recover treble damages because the plaintiff was not the owner of the funds that were stolen, but merely asserts rights under principles of subrogation. The plaintiff claims, to the contrary, that it is entitled to recover treble damages as an " assignee" of the insured's claim pursuant to General Statutes § 52-118. To resolve this dispute, the court must first determine the nature of the plaintiff's claim--that is, under what principles of subrogation it is made. This requires a consideration of whether the plaintiff's cause of action against the defendant arises under " conventional subrogation" or " equitable subrogation." " [S]ubrogation allows a party who has paid a debt to step into the shoes of another . . . to assume his or her legal rights against a third party to prevent that party's unjust enrichment." (Internal quotation marks omitted.) Fireman's Fund Ins. Co. v. TD Banknorth Ins. Agency, Inc., 309 Conn. 449, 455, 72 A.3d 36 (2013). " The law has recognized two types of subrogation: conventional; and legal or equitable . . . Conventional subrogation can take effect only by agreement and has been said to be synonymous with assignment. It occurs where one having no interest or any relation to the matter pays the debt of another, and by agreement is entitled to the rights and securities of the creditor so paid . . . By contrast, [t]he right of [legal or equitable] subrogation is not a matter of contract; it does not arise from any contractual relationship between the parties, but takes place as a matter of equity, with or without an agreement to that effect . . . The object of [legal or equitable] subrogation is the prevention of injustice. It is designed to promote and to accomplish justice, and is the mode which equity adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good conscience, should pay it . . . As now applied, the doctrine of [legal or] equitable subrogation is broad enough to include every instance in which one person, not acting as a mere volunteer or intruder, pays a debt for which another is primarily liable, and which in equity and good conscience should have been discharged by the latter." (Citation omitted; internal quotation marks omitted.) Wasko v. Manella, 269 Conn. 527, 532-33, 849 A.2d 777 (2004).
General Statutes § 52-118 provides as follows: " The assignee and equitable and bona fide owner of any chose in action, not negotiable, may sue thereon in his own name. Such a plaintiff shall allege in his complaint that he is the actual bona fide owner of the chose in action, and set forth when and how he acquired title."
As applied to insurance carriers, " insurers that are obligated by a preexisting contract to pay the losses of an insured proceed in a subsequent action against the responsible party under the theory of equitable subrogation, and not conventional subrogation . . . This is because the insurer, as well as the insured, has a preexisting financial interest in the outcome of the litigation . . . In sum, while [a] right of true [equitable] subrogation may be provided for in a contract . . . the exercise of the right will . . . have its basis in general principles of equity rather than in the contract, which will be treated as being merely a declaration of principles of law already existing." (Citations omitted; emphasis in original; internal quotation marks omitted.) Id., 533-34; see also Hartford Accident & Indemnity Co. v. Chung, 37 Conn.Supp. 587, 592, 429 A.2d 158 (1981) (" [t]he right of legal subrogation is not a matter of contract; it does not arise from any contractual relationship between the parties, but takes place as a matter of equity, with or without an agreement to that effect").
In the present case, the plaintiff alleges in its second amended complaint that IQ, after discovering the theft, " turned to the plaintiff as its insurance company and submitted an insurance claim to [the plaintiff]" for $10,000, which was " the limit of insurance policy coverage [IQ] had for employee dishonesty . . ." Given these allegations, it is clear that the plaintiff " was not acting as a mere volunteer; rather, it was obligated by a preexisting contract of insurance to pay the losses of its insured." Westchester Fire Ins. Co. v. Allstate Ins Co., 236 Conn. 362, 372, 672 A.2d 939 (1996). Accordingly, principles of equitable subrogation rather than principles of conventional subrogation or assignment govern this case. See id.
Turning to the limits on a subrogee's right to recovery, " [u]nder the doctrine of equitable subrogation, [a] subrogee has no rights against a third person beyond what the subrogor had." (Internal quotation marks omitted.) Allstate Ins. Co. v. Palumbo, 296 Conn. 253, 260, 994 A.2d 174 (2010). Our Supreme Court has described the doctrine as involving an insurance carrier " stepping into the shoes of the party it paid in order to recover the payments that it made [ to the insured ], and thus to prevent the unjust enrichment of the party whose debt it paid." (Emphasis added.) Westchester Fire Ins. Co. v. Allstate Ins. Co., supra, 236 Conn. 367; see also Wasko v. Manella, supra, 269 Conn. 537 (" under traditional principles of subrogation, if an insured brings an action against a negligent party, an insurer generally is entitled to recover the amount it paid to the insured " [emphasis added]). Similarly, in Aetna Casualty & Surety Co. v. Associates Transports, Inc., 1973 OK 62, 512 P.2d 137 (Okla. 1973), a case relied on in Westchester Fire Ins. Co., the Oklahoma Supreme Court observed that an insurer, upon paying for the loss of its insured, becomes " subrogated . . . to the extent of the amount paid, to the assured's right of action against the tortfeasor . . ." (Emphasis added.) Id., 139.
In an analogous case, Fidelity & Deposit Co. of Maryland v. Bradley, Superior Court, judicial district of Hartford, Docket No. CV-94-0544726, (December 22, 1997, Mulcahy, J.), the plaintiff insurer sought treble damages pursuant to § 52-564 based on the defendant's theft of the insured's property through the falsification of reimbursement documents. The court struck the request for treble damages, writing: " [I]n a subrogation action the insurer/subrogee's recovery is predicated upon the amounts[] paid to its insured; recovery of sums double and/or treble the monetary losses actually incurred by the insurer and insured . . . is, in my view, inconsistent with the purpose and concept of subrogation." Id.
Other Connecticut courts have similarly held that under principles of equitable subrogation an insurer's subrogation rights are limited to recovering the amount paid to its insured. See Commonwealth Land Title Ins. v. Close, Jensen & Miller, P.C., Superior Court, judicial district of Hartford, Docket No. CV-06-5003046-S (November 5, 2008, Satter, J.T.R.) (46 Conn. L. Rptr. 602, 605) (" [u]pon payment of a loss, an insurer generally is entitled to be subrogated to the extent of the payment on the loss to any rights that the insured may have against any third person" [emphasis added; internal quotation marks omitted]); Forster v. Advanced Electronic Services, Inc., Superior Court, judicial district of New Britain, Complex Litigation Docket, Docket No. X-03-CV-01-0510854-S (October 15, 2002, Aurigemma, J.) (33 Conn. L. Rptr. 314, 318) (granting motion for summary judgment as to request for punitive damages, and observing that plaintiff insurer's " subrogation rights do not extend beyond the payments made to discharge its obligation to its insured, " and that " [t]o allow the recovery of punitive damages in this case would contravene the purpose of subrogation and produce a windfall for [the insurer]"); Greene v. Black & Decker (U.S.), Inc., Superior Court, judicial district of Middletown, Docket No. CV-95-75137 (March 11, 1998, Hodgson, J.) (21 Conn. L. Rptr. 431, 432) (Equitable subrogation " does not apply to an attempt to recover more than what was paid to the insured party. To allow an insurer to sue for damages that it has not in fact paid to its insured would not be the equitable shifting of a debt to the person who should be required to pay it because it caused the damage; rather, an insurer seeking to recover over and above its own payment is exercising an assignment of the cause of action of the injured party." [Emphasis in original.]); Utica Mutual Ins. Co. v. Denwat Corp., 778 F.Supp. 592, 594 (D.Conn. 1991) (striking insurer's request for punitive damages because " the subrogee is entitled to indemnity only to the extent of the money actually paid to discharge the obligation" [internal quotation marks omitted]).
In view of the foregoing authority, it apparent that the plaintiff, as IQ's equitable subrogee, is entitled to recover from the defendant only the value of the $10,000 insurance claim paid to IQ under the policy of insurance. Permitting treble damages would unjustly enrich the plaintiff. Treble damages, therefore, are unavailable in this case.
The plaintiff makes reference in its second amended complaint and opposing memorandum of law to its status as an " assignee" of a portion of IQ's claim against the defendant, but does not explain the significance of this characterization in terms of whether it permits the plaintiff to recover treble damages. None of the cases cited by the plaintiff with regard to general principles governing assignees involves a claim for punitive or treble damages. In any event, as discussed above, the factual allegations of the plaintiff's complaint establish that the plaintiff is an equitable subrogee, not an assignee, of IQ. Our Supreme Court has explained that conventional subrogation is " synonymous with assignment" and " occurs where one having no interest or any relation to the matter pays the debt of another, and by agreement is entitled to the rights and securities of the creditor so paid." (Emphasis added; internal quotation marks omitted.) Wasko v. Manella, supra, 269 Conn. 532. Thus, conventional subrogation--and, by extension, assignment--does not apply to " insurers that are obligated by a preexisting contract to pay the losses of an insured" because in that situation " the insurer . . . has a preexisting financial interest in the outcome of the litigation." (Emphasis altered.) Id., 533. By virtue of the preexisting contract of insurance between the plaintiff and IQ, pursuant to which the plaintiff paid out a $10,000 insurance claim to IQ, the plaintiff's cause of action arises under principles of equitable subrogation rather than principles of assignment.
Applicability of the " Make Whole" Doctrine
The defendant also contends that the plaintiff's enforcement of its subrogation rights is subject to the " make whole" doctrine. The plaintiff did not address this argument.
" The make whole doctrine . . . restrict[s] the enforcement of an insurer's subrogation rights until after the insured has been fully compensated for her injuries, that is . . . made whole." (Internal quotation marks omitted.) In re DeLucia, 261 B.R. 561, 567 (Bankr.D.Conn. 2001), quoting Barnes v. Independent Automobile Dealers Ass'n of California Health & Welfare Benefit Plan, 64 F.3d 1389, 1394 (9th Cir. 1995); see also United States v. Lara, United States District Court, Docket No. 3:08cr-00169 (VLB), (D.Conn. November 6, 2009) ('the insurer may enforce its subrogation rights only after the insured has been fully compensated for all of its loss'); J. Parker, 'The Made Whole Doctrine: Unraveling the Enigma Wrapped in the Mystery of Insurance Subrogation, ' 70 Mo.L.Rev. 723, 737 (2005) ('[I]n the event of a subrogation dispute between the insurer and its insured, the insured has priority of rights to collect from the responsible third party. Thus, [when] the insured's recovery from both the insurer and [the] tortfeasor is less than or equal to its loss the insurer forfeits its right to subrogation') . . . [T]he equitable principle underlying the [make] whole [doctrine] is that the burden of loss should rest on the party paid to assume the risk, and not on an inadequately compensated insured, who is the least able to shoulder the loss." (Internal quotation marks omitted.) Fireman's Fund Ins. Co. v. TD Banknorth Ins. Agency, Inc., supra, 309 Conn. 456-57.
Here, the plaintiff's subrogation rights are unquestionably subject to the make whole doctrine, but the current pleadings do not allow the court to determine whether the doctrine is applicable in this case. The second amended complaint does not allege that IQ has recovered damages from the defendant sufficient to fully reimburse its losses. In ruling on the present motion to strike, the court cannot look beyond the four corners of the complaint to resolve this factual issue. See Hartford Casualty Ins. Co. v. Continental Casualty Co., Superior Court, judicial district of Hartford, Complex Litigation Docket, Docket No. CV-13-6037635-S (April 7, 2014, Sheridan, J.) (denying motion to strike based on make whole doctrine where it was unclear from complaint whether insured had been made whole). Accordingly, the make whole doctrine is not a proper basis for striking the second amended complaint or the request for treble damages. The defendant is not precluded from asserting this argument at trial if it is properly pleaded.
Conclusion
The motion to strike the claim for treble damages is granted because, as an equitable subrogee, the plaintiff cannot recover more than it paid. Consideration of the applicability of the " make whole" doctrine is not permitted at this time because the complaint does not allege that the insured recovered its full damages.