Opinion
No. X04 CV-02-103527 S
September 27, 2004
MEMORANDUM OF DECISION RE MOTION TO STRIKE
Defendant's motion to strike count four of the complaint asserts that multiple instances of alleged insurer misconduct related to two separate claims by the same insured under the same insurance policy cannot support a claim for damages pursuant to CUTPA, the Connecticut Unfair Trade Practices Act, CGS § 42-110b et seq. premised on violations of CUIPA, the Connecticut Unfair Insurance Practices Act, CGS § 38a-815 et. seq. Defendant claims that such allegations do not meet the threshold requirement for the cause of action based on § 38a-816(6), entitled unfair claim settlement practices, as they do not constitute a "general business practice." For the reasons set forth in detail below, the court grants the motion to strike as the court concludes that the allegations are insufficient to show a prevalent or customary business practice as required by statute.
I FACTS ALLEGED
Plaintiff, Southridge Capital Management, LLC, hereafter Southridge, a financial advisory services company, alleges in its amended complaint that the defendant, Twin City Fire Insurance Co., hereafter Twin City, issued it a professional and directors and officers liability policy. The complaint states that Twin City wrongfully denied coverage after Southridge provided notice of four separate lawsuits filed against it and Twin City refused to provide a defense to such suits. In these underlying cases, certain of plaintiff's clients claim that the plaintiff manipulated the stock prices of their companies to which entities related to the plaintiff had provided financing. This was done by means of "short selling" certain stocks in order for the plaintiff to procure favorable prices for the purchase of additional shares of stock from these companies. All four suits arise out of two incidents of claimed wrongdoing by Southridge. The present complaint alleges that the defendant Twin City failed to respond promptly in writing to plaintiff's claim notices concerning the four underlying lawsuits, that it denied coverage for spurious reasons, and later provided different and new reasons for the denial of coverage.
Nanopierce Technologies v. Southridge Capital Mgmt., LLC, Internet Law v. Southridge Capital Mgmt. LLC; Brewer v. Southridge Capital Mgmt., LLC; Hoagland v. Southridge Capital Mgmt, LLC.
These facts implicate General Statutes § 38a-816(6), which defines unfair and deceptive acts in relevant part, as follows: ". . . (b) failing to acknowledge and act with reasonable promptness upon communications with respect to claims arising under insurance policies . . . (d) refusing to pay claims without conducting a reasonable investigation based upon all available information . . . (f) not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear . . ."
The relevant count of the amended complaint, the fourth count, incorporates the specific factual allegations reviewed above and states that by such conduct, Twin City violated CUIPA. The count states that the "defendant committed or performed such violations . . . with such frequency as to indicate a general business practice." The complaint alleges that such violations of CUIPA are violations of CUTPA and are wrongful, willful, and wanton and offend public policy. Multiple acts of insurer misconduct are alleged, in this lawsuit, but such acts arise out of the handling of two separate claims for the same policyholder under the same insurance policy.
Paragraph 28 of Count four of the amended complaint. Paragraph 27 asserts that the defendant was prohibited from engaging in any unfair insurance practice under CUIPA.
Paragraphs 29 and 30 of the amended complaint.
A. Legal Standard
"The purpose of a motion to strike is to contest . . . the legal sufficiency of the allegations of any [complaint] . . . to state a claim upon which relief can be granted." (Internal quotation marks omitted.) Peter-Michael, Inc. v. Sea Shell Associates, 244 Conn. 269, 270, 709 A.2d 558 (1998). In ruling on a motion to strike, the trial court examines the complaint "construed in favor of the plaintiffs, to determine whether the [pleading party has] stated a legally sufficient cause of action." (Internal quotation marks omitted.) Dodd v. Middlesex Mutual Assurance Co., 242 Conn. 375, 378, 698 A.2d 859 (1997). When deciding the motion, "the court is limited to the facts alleged in the complaint." (Internal quotation marks omitted.) Faulkner v. United Technologies Corp., 240 Conn. 576, 580, 693 A.2d 293 (1997). "[I]f facts provable in the complaint would support a cause of action, the motion to strike must be denied . . ." (Citation omitted; internal quotation marks omitted.) Lombard v. Edward J. Peters, Jr., P.C., 252 Conn. 623, 626, 749 A.2d 630 (2000).
Such favorable construction does not extend, however, to legal opinions or conclusions stated in the complaint, but only to factual allegations and the facts "necessarily implied and fairly provable under the allegations." Forbes v. Ballaro, 31 Conn.App. 235, 239, 624 A.2d 389 (1993). Conclusory statements or statements of legal effect not supported by allegations of fact will not enable a complaint to withstand a motion to strike. Mingachos v. CBS, Inc., 196 Conn. 91, 108, 491 A.2d 368 (1985); Fortini v. New England Log Homes, Inc., 4 Conn.App. 132, 134-35, 492 A.2d 545 cert. dismissed, 197 Conn. 801 (1985).
B. CUTPA/CUIPA Violations
On a motion to strike the court carefully scrutinizes the factual allegations and the facts "necessarily implied and fairly provable under the allegations." Forbes v. Ballaro, 31 Conn.App. 235, 239, 624 A.2d 389 (1993). "In a CUTPA or CUIPA claim, the insurer's liability is ordinarily based on its conduct in settling or failing to settle the insured's claim and on its claims settlement policies in general. The factual inquiry focuses, not on the nature of the loss and the terms of the insurance contract, but on the conduct of the insurer." (Internal quotation marks omitted.) Heyman Associates No. 1 v. Insurance Co. of Pennsylvania, 231 Conn. 756, 790, 653 A.2d 122 (1995).
Our well-established law holds that isolated instances of insurer misconduct are exempt from coverage under CUIPA. In Mead v. Burns, 199 Conn. 651, 663, 509 A.2d 11 (1986), the court noted that a violation of CUIPA may be actionable as an unfair trade practice under the Connecticut Unfair Trade Practices Act (CUTPA). See also Lees v. Middlesex Ins. Co., 229 Conn. 842, 850-51, 643 A.2d 1282 (1994), a plaintiff may bring a private cause of action under CUTPA for a violation of CUIPA. Proof is required that the insurer has engaged in unfair claim settlement practices with such frequency as to indicate a general business practice. As to what constitutes a general business practice, the Lees court at page 849 noted: "[i]n requiring proof that the insurer has engaged in unfair settlement practices with such frequency as to indicate a general business practice, the legislature has manifested a clear intent to exempt from coverage under CUIPA isolated instances of insurer misconduct." The court observed in a footnote that: "[t]he term `general business practice' is not defined in the statute, so [courts] may look to the common understanding of the words as expressed in a dictionary . . . `General' is defined as `prevalent, usual [or] widespread' . . . and `practice' means `[p]erformance or application habitually engaged in . . . [or] repeated or customary action.'" Lees v. Middlesex Ins. Co., supra, 229 Conn. 849 n. 8. Nonetheless, there is no appellate court guidance as to what specific facts and circumstances are sufficient to support such a cause of action.
Southridge asserts that Twin City's wrongful denial of coverage demonstrates a general business practice, relying on three unreported Superior Court cases. The cases cited stand for the proposition that multiple acts of insurer misconduct in the handling of a single claim may survive a motion to strike and adequately state cause of action under the statute. See Lake Hills Village Condo Assn. v. Prudential-LMI Commercial Insurance Co., Superior Court, judicial district of Waterbury, Docket No. 93431 (May 11, 1990, McDonald, J.) ( 1 Conn. L. Rptr. 617); Combustion Engineering v. Salka Sons, Inc., Superior Court, judicial district of New Haven, Docket No. 287811 (December 13, 1990, Dorsey, J.) ( 3 Conn. L. Rptr. 597), Sansone v. Esis, Inc., Superior Court, judicial district of New Haven at New Haven, Docket No. CV 92-327409 (January 6, 1993, Maiocco, J.) ( 8 Conn. L. Rptr. 171). Unfortunately, such cases do not assist Southridge in its objection to the motion to strike. They were all decided before Lees and are no longer persuasive. Lees concluded that even multiple instances of insurer misconduct, where related to only one claim, are insufficient to meet the threshold requirement for a cause of action premised on 38a-816(6), as they are not indicia of general business practices.
More recent superior court cases, which have permitted a CUIPA claim in a CUTPA count, are also of no assistance to the plaintiff. Such cases have denied motions to strike where each such action contained allegations that the defendant insurance company had violated CUIPA with respect to other insureds' claims. See Suski v. Peerless Ins. Co., Superior Court, judicial district of New Britain at New Britain (February 8, 1999, Robinson, J.); Ferriolo v. Nationwide Insurance, Superior Court, judicial district of New Haven at New Haven, Docket No. 403433 (March 11, 1998, Hartmere, J.); and Nuzzo v. Nationwide Mutual Insurance Co., Superior Court, judicial district of New Haven at New Haven, Docket No. 394015 (July 1, 1998, Silbert, J.). Each court held that the plaintiffs, by specifically pleading other instances of misconduct by the defendant as to other insureds in unrelated matters had sufficiently stated a cause of action under CUIPA.
Even the Superior court cases cited by the defendant are factually distinguishable. Each of them involved a single underlying incident which gave rise to the insurer misconduct under consideration. See Kupersmith v. Executive Risk Specialty Insurance Company, Superior Court, judicial district of Waterbury at Waterbury, Docket No. X01 CV00-01600775 (January 26, 2001, Hodgson, J.); Rowlands v. Commodore Commons Condominium Assn., Superior Court, judicial district of Ansonia/Milford at Milford, Docket No. 63281 (January 13, 1999, Curran, J.); Bergen v. Standard Fire Insurance Co., Superior Court, judicial district of Ansonia/Milford at Milford, Docket No. CV93-044099S (February 22, 1995, Thompson, J.); Butler v. Bankers Shippers Ins. Co., Superior Court, judicial district of Waterbury, Docket No. 131722 (January 8, 1998, Murray J.). The Rowlands court noted that courts "have opined that the mishandling of even several policies and different claims by the insurer does not constitute a `general business practice' if the individual claims relate to a single incident."
In the case before this court, on the one hand there is not a single underlying incident that gave rise to the alleged acts of insurer misconduct, there are two such incidents. On the other hand, there are no allegations of any insurer misconduct in the handling of other insureds' claims. There is one insured, Southridge, who made two claims under one policy of insurance and alleged Twin City engaged in multiple acts of misconduct in its claims handling processes. The court concludes that the alleged facts are more akin to isolated incidents of insurer misconduct which the Lees court concluded the Legislature had intended to exempt from the ambit of CUIPA's prohibitions. Two incidences of alleged insurer misconduct concerning the same policy of insurance and the same insured do not present facts that fit the definition of "a general business practice" as discussed in Lees. The court concludes that count four of the amended complaint does not allege sufficient facts to demonstrate that such insurance practices are "prevalent" or "widespread" enough to constitute a general business practice as required by § 38a-816(6). The court therefore grants the motion to strike the count in its entirety as well as the related prayers for relief.
BY THE COURT
BARBARA M. QUINN, Judge