Opinion
No. CV 06-4022710 S
September 8, 2009
MEMORANDUM OF DECISION
This action for equitable contribution and unjust enrichment arises out of a dispute between two insurance companies over payments made to repair a building damaged by fire at 810 Woodward Avenue in New Haven. The fire occurred in the early morning hours of March 5, 2005. At the time of the fire, the building was owned by Angelo DiRienzo and leased to Nical, Inc. d/b/a Fireside Restaurant (Nical). Nical operated a restaurant in the building and was the sole tenant of the property when the fire occurred. The fire started outside of the building, on a wooden deck adjacent to the building, after the restaurant had closed and employees had departed for the night. The fire spread to the building and caused significant damage rendering the premises unfit for occupation. The parties agree that there is no evidence that the cause of the fire was as a result of the operation of the restaurant.
The lease governing the relationship between the landlord, DiRienzo, and the tenant, Nical, was initially entered into by DiRienzo and Nical's predecessor in interest on September 29, 1993. Nical assumed the obligations under the lease by assignment on January 23, 1996.
Paragraph 23 of the lease states: "Landlord shall maintain and keep in effect adequate fire and hazard insurance on the Leased Premises." The lease was amended on October 1, 2002, and the following relevant provisions were added: "(3) Paragraph 23 is hereby amended to reflect that the Tenant shall maintain and keep in effect adequate fire and hazard insurance on the Leased Premises; (4) All other terms and conditions of the Lease not changed or amended by this Agreement shall continue in full force and effect during the First Renewal Term of the Lease." Both parties were in compliance with the lease provisions requiring maintenance of fire insurance at the time of the fire, that is both maintained at the time of the fire, fire insurance on the building. At the time of the fire, plaintiff Scottsdale Insurance Company (Scottsdale) insured Nical under a commercial general liability and property insurance policy, and defendant Underwriters at Lloyd's, London (Underwriters) insured DiRienzo under a similar policy. Nical made a claim for losses — including building damage, loss of business personal property and loss of income — under Scottsdale's policy and DiRienzo made a claim for loss of business income under Underwriters' policy. The defendant's policy included a declarations page describing the business at the address as "Lessors Risk — Restaurant." This same phrase was also used in the description of the premises on the supplemental declarations page in the defendant's policy. Both policies provided fire insurance coverage for the building at 810 Woodward Avenue. The plaintiff's policy insured the building in the amount of $234,000; the defendant's policy in the amount of $200,000.
Both parties' policies included identical "other insurance" clauses stating the following:"[1.] You may have other insurance subject to the same plan, terms, conditions and provisions as the insurance under this Coverage Part. If you do, we will pay our share of the covered loss or damage. Our share is the proportion that the applicable Limit of Insurance under this Coverage Part bears to the Limits of Insurance of all insurance covering on the same basis. [2.] If there is other insurance covering the same loss or damage, other than that described in 1. above, we will pay only for the amount of covered loss or damage in excess of the amount due from that other insurance, whether you can collect on it or not. But we will not pay more than the applicable Limit of Insurance."
Both parties examined the damage caused by the fire. A damage estimate prepared for Scottsdale by United Cleaning Restoration, LLC, the company that ultimately repaired the building, estimated the cost of repairing the building at $269,605.08. Scottsdale paid Nical's claimed losses via a series of checks with the last payment made on June 30, 2005. The payments to Nical included amounts reaching Scottsdale's building coverage limit of $234,000, as well as additional benefits for loss of business income and loss of business personal property. Underwriters paid DiRienzo's claim for loss of income but did not make any payments for the damage to the building.
On July 22, 2005, Scottsdale demanded contribution from Underwriters for its proportionate of the fire loss, which Underwriters refused to pay. Scottsdale then commenced this action against Underwriters on September 15, 2006. Scottsdale requests relief in the amount of $107,850.60, which represents Underwriters' pro rata share of the total loss of $234,000.
The issue in this matter is whether the plaintiff proved the necessary elements to support its claim of equitable contribution under the facts of the case. Broadly, the plaintiff asserts that the defendant is equitably liable for the payments it made to repair the building because both parties shared a common obligation in insuring the structure against fire damage. The defendant disputes the plaintiff's characterization of the situation and argues that the parties are not jointly bound because they insured different risks for different persons, and therefore the parties lack the necessary "identity of interest."
The defendant makes four specific arguments in support of its contention that the plaintiff failed to establish a claim for equitable contribution: (1) the plaintiff failed to establish that a joint liability and common obligation existed; (2) the plaintiff failed to prove that the parties insured the same persons or the same interest; (3) that the plaintiff's reliance on the "other insurance" clause in the defendant's policy is barred by operation of the "volunteer" doctrine; (4) that the lease does not create a right of action in favor of the plaintiff. The plaintiff argues that it has established that there were two insurance policies in effect at the same time, for the same risk of loss, for the same building and for the benefit of the same persons. The plaintiff also argues that the "volunteer" doctrine is inapplicable in this matter, and that the identical "other insurance" clauses in the parties' respective policies cancel each other out resulting in a requirement of pro rata payment.
The court agrees with the plaintiff that, as a matter of equity under the principles of contribution, the defendant should share in the cost of reimbursement for damages to the building in question. The court further agrees that the "volunteer" doctrine is inapplicable in this action and that the "other insurance" clauses are mutually repugnant and therefore cancel each other out, resulting in a requirement of pro rata contribution based on the total limit of insurance provided in each party's respective policy with regards to building damages.
Connecticut courts have long recognized claims for equitable contribution. "The right of action for contribution, which is equitable in origin, arises when, as between multiple parties jointly bound to pay a sum of money, one party is compelled to pay the entire sum. That party may then assert a right of contribution against the others for their proportionate share of the common obligation." (Internal quotation marks omitted.) Security Ins. Co. of Hartford v. Lumbermens Mutual Casualty Co., 264 Conn. 688, 714 (2003); Hanover Ins. Co. v. Fireman's Fund Ins. Co., 217 Conn. 340, 353 (1991); Kaplan v. Merberg Wrecking Corp., 152 Coon. 405, 412 (1965). "Contribution does not rest upon contract, but on the broad equitable principle that equality is equity." Bulkeley v. House, 62 Conn. 459, 467 (1893).
In Hanover, the plaintiff insurer sought reimbursement from a second insurer for benefits the plaintiff paid its insured under a fire insurance policy. The trial court denied the plaintiff's claim for contribution on two grounds: first, that the plaintiff had not been legally obligated to pay the entire fire loss and was barred from seeking contribution under the "volunteer" doctrine; and second, that the plaintiff had failed to establish an equitable basis for its claim. Although the Supreme Court ultimately affirmed the trial court's decision on the ground that the plaintiff's claim was time-barred, the contribution claim was also discussed.
The Hanover court affirmed the trial court's decision on the contribution claim by examining several equitable considerations that it determined the trial court may have relied upon in reaching its decision. The court noted that the plaintiff's untimely assertion of its contribution claim and the fact that the two policies in question covered the same loss by an "entirely fortuitous and unanticipated" overlap rather than an intentional dual coverage could have guided the trial court's decision. Hanover Ins. Co. v. Fireman's Fund Ins. Co., supra, 217 Conn. 355-56. Neither of these limiting factors identified by the Hanover court is present in this case. Here, the plaintiff promptly and timely requested contribution from the defendant after making the payments that it determined it owed Nical, and the policies were not replacing one another but rather intentionally coexistent pursuant to the terms of the lease.
Of more relevance to the issues in this case is that the Hanover court declined to address the trial court's conclusion that the plaintiff's claim was barred by the "volunteer" doctrine. The "volunteer" doctrine is a decisional principle that provides that when an insurer not legally obligated to pay more than its share of the loss nevertheless does so, the insurer is thereafter barred from seeking contribution because it "volunteered" to make the payment. The majority in Hanover held that, "[a]lthough the doctrine that denies a `volunteer' a right to contribution has been criticized, we have not had the occasion to confront this issue directly and we need not decide it in this case." Id. 354. The majority, however, noted that "[a] number of courts have either criticized or refused to apply the `volunteer' doctrine on the ground that it rewards recalcitrant insurers and inhibits the swift settlement of claims." Id., 354 n. 11.
Justice Shea, dissenting in Hanover, explained why the "volunteer" doctrine should not govern a claim for equitable contribution. "The majority eschews reliance upon the only ground specifically articulated in the memorandum of decision for denying the contribution claim: `The plaintiff acted as a volunteer when it made full payments to . . . the insured.' Because I disagree with the grounds advanced by the majority to support the judgment, I must express my agreement with the more recent cases and commentators that have rejected the application of the volunteer doctrine in a situation like this one in which the insurer seeking contribution has no basis for contesting its own coverage of the entire loss except that the pro rata clause in its policy may obligate it to pay only a portion thereof if a dispute over duplicate coverage by another insurer is ultimately resolved by a finding of such coverage, as in this case. Adherence to the volunteer doctrine in such circumstances would encourage insurance companies to withhold payments until disputes involving other insurance were resolved in court. It would often compel the insured to bring suit for breach of contract against both insurers when one of them would have paid the entire loss but for concern over preserving its claim for contribution. As one commentator has indicated, the application of the volunteer doctrine in the pro rata clause context stems from `[a] failure to perceive clearly that contribution is based on unjust enrichment.' 3 G. Palmer, Law of Restitution (1978) § 1.5(d)." Hanover Ins. Co. v. Fireman's Fund Ins. Co., supra, 217 Conn. 356-57 (Shea, J., dissenting).
It is necessary in this case to resolve the question left unresolved in Hanover. This court agrees that the "volunteer" doctrine is inapplicable to the facts of this case, where, as Justice Shea described, "the insurer seeking contribution has no basis for contesting its own coverage of the entire loss except that the pro rata clause in its policy may obligate it to pay only a portion thereof if a dispute over duplicate coverage by another insurer is ultimately resolved by a finding of such coverage." Here, both policies contain identical pro rata clauses, Scottsdale properly accepted coverage liability under the terms of its policy and promptly demanded contribution. Indeed, Scottsdale was obligated to pay Nical's claims, and it would create an undesirable incentive to deny valid coverage in the future if Scottsdale were deemed a mere volunteer under these circumstances. As a matter of Connecticut law and public policy, the "volunteer" doctrine does not and should not apply under these circumstances.
As Scottsdale cannot be deemed to have voluntarily paid for the entire loss, the court must address the central issue in dispute, namely whether it would be equitable for Underwriters to contribute to payments under the facts of this case and the extent of its contribution. The defendant argues that the plaintiff has failed to establish a joint liability or common obligation because each party insured a different interest in the property, namely that of the tenant and the landlord, and because the two policies were not written to benefit the same party. The plaintiff argues that it provided evidence establishing that there were five shared "identities" between the insurance policies that together provide a joint liability: a coverage of the same risk for loss as a result of fire, at the same location, in effect at the same time, using identical terms, and covering the same structure. "It is a prerequisite to a claim for contribution that the party seeking contribution and the party or parties from whom it is being sought share a common liability or burden, and that the party seeking contribution has discharged more than his or her fair share of the common liability or burden." 18 C.J.S. 8, Contribution § 4 (2007).
In support of its argument, the defendant cites to decisions that have strictly applied a four-part test designed by Arizona courts: "before pro rata contribution may be required between insurers providing concurrent coverage, the policies must cover (1) the same parties, (2) in the same interest, (3) in the same property, (4) against the same casualty." Granite State Ins. Co. v. Employers Mutual Ins. Co., 125 Ariz. 275, 278, 609 P.2d 90 (1980); see Western Agricultural Ins. Co. v. Industrial Indemnity Ins. Co., 172 Ariz. 592, 594, 838 P.2d 1353 (1992); Mutual Ins. Co. v. American Casualty Co., 189 Ariz. 22, 26, 938 P.2d 71 (1996); Indiana Ins. Co. v. Sentry Ins. Co., 437 N.E.2d 1381, 1388 (1982) (adopting Arizona test). "In Granite, the court held that the four-part test was satisfied and contribution was appropriate where the two policies in question both covered the same house against losses by fire and the same party was insured under one of the policies as a named insured and under the other as a mortgagee payee." Western Agricultural Ins. Co. v. Industrial Indemnity Ins. Co., supra, 172 Ariz. 594.
In Western Agricultural Ins. Co. v. Industrial Indemnity Ins. Co., supra, 172 Ariz. 592, under facts highly similar to this case, the court held that contribution was inappropriate because where a lessor and an owner of fire-damaged property held separate policies, the policies did not cover the same parties or the same interest. In contrast to this case, however, the Western court also relied on the fact that "the lease between [the lessor and lessee] specifically stated that neither the lessor nor the lessee would be liable to the other for loss or damages to the leased premises or the contents thereof from fire." Id., 595. In this case, the lessor and lessee were explicitly required to each obtain fire insurance. Furthermore, the same Arizona appellate court declined to apply the four part test in Mutual Ins. Co. v. American Casualty Co., supra, 189 Ariz. 22, 25-28, instead permitting a claim for equitable contribution using a broader three-part test: "(1) the two insurers must insure the same risk; (2) neither can be the primary insurer; and (3) the loss sustained must be caused by the risk insured against."
The plaintiff argues for the application of a broader view of identity of insurable interest, and cites in support of its argument to California Food Service Corp., Inc. v. Great American Ins. Co., 130 Cal.App.3d 892, 182 Cal.Rptr. 67. In that case, the court determined that the insurers of a lessee and sublessee, respectively, were required to contribute to claims arising from a fire on the leased property. The lessee's insurer paid out a claim for the fire-related damages and then sought contribution from the sublessee's insurer. The court concluded that, even though the policies named distinct insureds, equitable contribution was appropriate "based on the common sense notion that where two indemnitors share equal contractual responsibility for a loss, the selection of which indemnitor is to bear the loss should not be left to the sometimes arbitrary choice of the loss claimant . . . More importantly, the indemnitor should not be given the incentive to avoid paying a just claim in hopes that the claimant will obtain payment from the coindemnitor." (Citation omitted.) Id., 901.
None of the cases cited by either party is a perfect factual match to this case, General principles of contribution law, which both parties cite in support of their arguments and the court has examined at length, provide contradictory guidance because the common elements for a contribution claim vary by jurisdiction. See 15 Couch on Insurance (3d Ed. 1995) §§ 217-218, pp. 217-5 to 218-37; 8A J. Appleman J. Appleman, Insurance Law and Practice (1981) § 4921, pp. 513-42. Fundamentally, however, the issue of identity of insurable interest requires a balancing of the equities of a given case, with an eye towards the purpose of a contribution claim "Equitable contribution permits reimbursement to the insurer that paid on the loss for the excess it paid over its proportionate share of the obligation, on the theory that the debt it paid was equally and concurrently owed by the other insurers and should be shared by them pro rata in proportion to their respective coverage of the risk. The purpose of this rule of equity is to accomplish substantial justice by equalizing the common burden shared by coinsurers, and to prevent one insurer from profiting at the expense of others." Fireman's Fund Ins. Co. v. Maryland Casualty Co., 65 Cal.App.4th 1279, 1293,77 Cal.Rptr.2d 296 (1998).
After consideration of the various authorities and caselaw from other jurisdictions, the court is not persuaded that a tenant and a landlord necessarily insure different risks that cannot be reconciled under the doctrine of equitable contribution. The four part test promoted by the defendant is too rigid to encompass the varying circumstances under which a claim for equitable contribution may properly be made, including the facts of this case. Although the parties in this case held separate insurance policies with distinct named insureds, both policies covered the identical structure against the identical risk of loss, namely fire damage. When the building was damaged, both Nical and DiRienzo were injured: Nical lost the ability to operate its restaurant and DiRienzo suffered a reduction in the value of the property he owned, When the building was repaired, both Nical and DiRienzo benefitted: Nical could reopen its restaurant and DiRienzo regained the value of his property. Both parties took out insurance policies pursuant to valid lease terms requiring the duplicate coverage, and either party could have made equally valid claims pursuant to their policies for the fire loss. There is sufficient identity of insurable interest to meet the requirement of a common obligation and joint liability, thus supporting a claim for equitable contribution. As in this case, where a lessor and lessee both paid premiums to insure the same building against the same risk, it is only equitable for each insurer to contribute to the loss arising out of that common obligation and joint liability.
The parties dispute the impact of the "other insurance" clauses in their respective policies. The plaintiff argues that if the court determines that there is a sufficient basis for contribution, the "other insurance" clauses should cancel each other out and a pro rata payment order would be appropriate. The defendant argues that any argument the plaintiff makes regarding the "other insurance" clause in the defendant's policy is irrelevant because the parties' contracts do not insure the same person. As the plaintiff has established a basis for its contribution claim and the defendant's "other insurance" clause could limit the defendant's liability, the court will briefly consider the impact of the "other insurance" clauses as they appear in the parties' respective policies.
"`[O]ther insurance' clauses are valid for the purpose of establishing the order of coverage between insurers, as long as their enforcement does not compromise coverage for the insured." Aetna Casualty Surety Co. v. CNA Ins. Co., 221 Conn. 779, 783, 606 A.2d 990 (1992). "Public policy is not violated when `other insurance' clauses are used for the purpose of establishing the order of payment between insurers. When the insured is afforded full indemnification for a loss, there is no public policy issue controlling how insurers divide coverage among themselves." Id., 785.
"An excess `other insurance' clause purports to make an otherwise primary policy excess insurance should another primary policy cover the loss in question." 15 Couch on Insurance (3d Ed. 1995) § 219:33, p. 219-36. "Historically, courts often found that competing other insurance clauses were irreconcilable and ordered that the insurers pro rate the loss. Indeed, this view still has many adherents today. However, the modem trend disfavors resolution of disputes among insurers based solely on the `other insurance' clauses of the respective policies without regard to lie intent of the parties as evidenced in the general coverage pattern. Courts now favor the `total policy insuring intent' test in accordance with which the function and intent of the various policies are examined to determine whether logic dictates that they be ranked in a particular order. Under the `total policy insuring intent' test, a policy designed to cover the risk in question takes precedence over a policy which only incidentally covers that risk." 15 Couch on Insurance (3d Ed. 1995) § 219:4, pp. 219-51 to 219-53.
Whether applying the traditional view that identical "other insurance" clauses are mutually repugnant and therefore irreconcilable, or applying the "total policy insuring intent" test, the result is the same. The parties both have identical excess "other insurance" clauses that state in relevant part: "[2.] If there is other insurance covering the same loss or damage, other than that described in 1. above, we will pay only for the amount of covered loss or damage in excess of the amount due from that other insurance, whether you can collect on it or not." The respective policies in question in this case could reasonably be construed as the "other insurance" policies as described in the clause. Both parties' policies were intended to be primary policies providing coverage against fire loss for the building at 810 Woodward Avenue. The court has not identified any evidence to suggest that either policy was intended to be "true" excess insurance, such as an umbrella coverage policy above and beyond a primary policy. Rather, both parties have utilized identical pro forma excess insurance clauses to try to convert their primary policies into secondary policies.
A reading of the policies shows that both parties had the same intent regarding the function of their policies and their excess insurance clauses, and the result is for the two clauses to cancel each other out: neither policy can be considered excess and both must be considered primary. "Where two primary policies both contain excess `other insurance' clauses, the excess clauses are generally treated as mutually repugnant and the loss is pro-rated between the insurers." 15 Couch on Insurance (3d Ed. 1995) § 219:47, p. 219-57. The appropriate remedy is a pro rata division of the liability based on the respective policy limits. See Sacharko v. Center Equities Ltd. Partnership, 2 Conn.App. 439, 479 A.2d 1219 (1984) ("[w]here two policies contemplate the particular risk equally, liability will be prorated based on the total policy limits"); see also Security Ins. Co. of Hartford v. Lumbermens Mutual Casualty Co., supra, 264 Conn. 697-99 (affirming trial court decision applying pro rata method in equitable contribution decision).
One additional matter was raised at trial and in the parties' briefs. The parties disagree over the importance of the phrase "Lessors Risk — Restaurant" as it is used in the defendant's policy. The defendant insinuates that this phrase should be interpreted to support its argument that the risk each party insured was so distinct that the policies did not cover the same risk for purposes of contribution. The plaintiff argues that the phrase is evidence that the Underwriters policy clearly covered damage to the restaurant.
"Under our law, the terms of an insurance policy are to be construed according to the general rules of contract construction . . . The determinative question is the intent of the parties, that is, what coverage the . . . [insured] expected to receive and what the [insurer] was to provide, as disclosed by the provisions of the policy . . . If the terms of the policy are clear and unambiguous, then the language, from which the intention of the parties is to be deduced, must be accorded its natural and ordinary meaning . . . However, [w]hen the words of an insurance contract are, without violence, susceptible of two [equally reasonable] interpretations, that which will sustain the claim and cover the loss must, in preference, be adopted . . . [T]his rule of construction favorable to the insured extends to exclusion clauses . . ."Put differently, [a]lthough policy exclusions are strictly construed in favor of the insured . . . the mere fact that the parties advance different interpretations of the language in question does not necessitate a conclusion that the language is ambiguous . . . The interpretation of an insurance policy is based on the intent of the parties, that is, the coverage that the insured expected to receive coupled with the coverage that the insurer expected to provide, as expressed by the language of the entire policy . . . The words of the policy are given their natural and ordinary meaning, and any ambiguity is resolved in favor of the insured . . . The court must conclude that the language should be construed in favor of the insured unless it has `a high degree of certainty' that the policy language clearly and unambiguously excludes the claim." (Citations omitted; internal quotation marks omitted.) Liberty Mutual Ins. Co. v. Lone Star Industries, Inc., 290 Conn. 767, 795-96, 967 A.2d 1 (2009).
The court finds the phrase "Lessor's Risk — Restaurant," as used in the defendant's policy, to be ambiguous. The phrase is subject to multiple reasonable interpretations and herefore the court interprets the words in the manner that will cover the loss. Liberty Mutual Ins. Co. v. Lone Star Industries, Inc., supra, 290 Conn. 795-96. The court interprets the phrase to mean that the defendant insured DiRienzo for his interest in the structure, as distinguished from the insurable business personal property that was the responsibility of Nical, the restaurant operator. As both parties had an interest in the structure, it is reasonable that both parties insured against damage to the structure. The defendant did not insure for Nical's lost income or restaurant-specific property within the building, but it did insure DiRienzo against potential injury to the structure that he owned. This interpretation is further reinforced by the fact that DiRieno undisputedly paid a premium to specifically insure the building — as distinguished from the premium paid to insure loss of business income as noted in the supplemental declarations page of the Underwriters policy — up to an amount of $200,000.
In addition to its claim for contribution, the plaintiff has made a claim for unjust enrichment. "Unjust enrichment applies wherever justice requires compensation to be given for property or services rendered under a contract, and no remedy is available by an action on the contract . . . A right of recovery under the doctrine of unjust enrichment is essentially equitable, its basis being that in a given situation it is contrary to equity and good conscience for one to retain a benefit which has come to him at the expense of another . . . With no other test than what, under a given set of circumstances, is just or unjust, equitable or inequitable, conscionable or unconscionable, it becomes necessary in any case where the benefit of the doctrine is claimed, to examine the circumstances and the conduct of the parties and apply this standard . . . Unjust enrichment is, consistent with the principles of equity, a broad and flexible remedy . . . Plaintiffs seeking recovery for unjust enrichment must prove (1) that the defendants were benefitted, (2) that the defendants unjustly did not pay the plaintiffs for the benefits, and (3) that the failure of payment was to the plaintiffs' detriment." (Internal quotation marks omitted.) Vertex, Inc. v. Waterbury, 278 Conn. 557, 573, 898 A.2d 178 (2006). As contribution is founded in large part on concepts of unjust enrichment and, indeed, unjust enrichment is a broader equitable catch-all that encompasses contribution, the plaintiff's claim would also succeed for the equitable reasons already stated.
For the foregoing reasons, the following calculations are made:
TBTABLE
Scottsdale $234,000 Coverage (53.91% of total)
Underwriters $200,000 Coverage (49.09% of total)
Total $434,000 Coverage (100%)
TB/TABLE
Payment to Nical for fire damages in it's rounded amount of $234,000.00 of which Underwriters should have paid 46.09% or $107,850.60. Demand was made on July 22, 2005 on Underwriter. Court finds that said sum of $107,850.60 should have been paid by Underwriter and Court awards a judgment for said sum of $107,850.60 plus interest at the rate of eight (8)% cost per annum in the amount of 35,638.69, totaling $143,489.29 plus taxable costs.