Prucker v. American Economy Insurance Co.

Full title: Rhonda PRUCKER et al. v. AMERICAN ECONOMY INSURANCE COMPANY et al.

Court: Superior Court of Connecticut

Date published: May 31, 2019

CV186013630S (Conn. Super. Ct. May. 31, 2019)

Opinion

CV186013630S

05-31-2019

Rhonda PRUCKER et al. v. AMERICAN ECONOMY INSURANCE COMPANY et al.

Farley, J.

UNPUBLISHED OPINION

OPINION

Farley, J.

The plaintiffs, Rhonda and Michael Prucker, have brought this action against five insurance companies that insured their home from June 1995 through July 2017. Their claim, like the insurance claims of many other homeowners in northeast Connecticut, arises out of the deteriorating condition of their basement walls caused by the presence of pyrrhotite in the aggregate material used in the concrete. Pyrrhotite oxidizes and expands, causing the concrete basement walls to crack and deteriorate. The plaintiffs allege that this process is irreversible and will ultimately reduce the concrete to rubble with the result that the entire home will cave into the basement. The plaintiffs assert causes of action against each of the defendants for breach of contract; breach of the implied duty of good faith and fair dealing (bad faith); and violation of the Connecticut Unfair Trade Practices Act (CUTPA) and the Connecticut Unfair Insurance Practices Act (CUIPA) (CUTPA/CUIPA). The defendant Harleysville Preferred Insurance Company (Harleysville) has moved to strike counts fourteen and fifteen, which respectively assert claims of bad faith and CUTPA/CUIPA against Harleysville. As discussed below, the court concludes that the plaintiffs have adequately pleaded these causes of action and the motion to strike is denied.

ALLEGATIONS OF THE COMPLAINT AS TO HARLEYSVILLE

The plaintiffs have owned their home in Stafford Springs since 1995 and insured it with the defendants. Harleysville provided the plaintiffs with homeowners insurance from July 1, 2016 to July 1, 2017. During this period, the plaintiffs discovered cracks in their basement walls and hired an engineer to inspect them. The engineer confirmed that the basement walls are made of concrete that contains pyrrhotite. Pyrrhotite, when exposed to water and air, causes a chemical reaction which, in turn, causes concrete to expand and break apart. This process of deterioration is irreversible and will ultimately lead to the complete failure of the concrete until the home caves into the basement. The condition of the plaintiffs’ home has already progressed to the point that there is a substantial impairment of the structural integrity of the basement walls.

Harleysville’s policy provides coverage for "collapse" without explicitly defining that word. The policy does stipulate that "[c]ollapse does not include settling, cracking, shrinking, bulging, or expansion." It also does not include "[l]oss to ... [a] foundation [or] retaining wall ... unless the loss is a direct result of the collapse of a building." The plaintiffs asserted a claim for coverage to Harleysville in May 2017, or prior thereto, and commenced this lawsuit on December 22, 2017. At the time they filed suit, Harleysville had not affirmed or denied coverage, but the plaintiffs claim an anticipatory breach of contract by Harleysville because Harleysville has denied similar claims by other homeowners and, the plaintiffs allege, Harleysville will deny their claim as well.

Count Fourteen of the complaint alleges that Harleysville has breached the implied duty of good faith and fair dealing in several ways. The plaintiffs allege Harleysville has:

deliberately delayed its coverage decisions despite knowing it will deny the plaintiff’s claim;

refused to properly apply the collapse provision in the insurance policy;

wrongfully attempted to avoid its coverage obligations;

ignored rulings by state and federal courts in Connecticut that similar damage "should be covered" under similar policy language; and

acted arbitrarily, wantonly, recklessly and with a dishonest purpose towards the plaintiffs in attempting to avoid its coverage obligations on meritorious claims, intentionally placing its own interests above those of the plaintiffs.

Count Fifteen of the complaint asserts a CUTPA/CUIPA claim based on unfair claims settlement practices, including:

issuing a false and misleading denial of coverage, in light of the language of the insurance policy and prior case law construing that language, in violation of General Statutes § 38a-816(6)(A);

failing to affirm or deny coverage within a reasonable time after proof of loss statements were completed, in violation of General Statutes § 38a-816(6)(E);

not attempting in good faith to effectuate a prompt, fair and equitable settlement of their claim in which liability was reasonably clear based on the policy language and prior case law construing that language, in violation of General Statutes § 38a-816(6)(F); and

compelling them to institute litigation to recover the amounts due to them to repair and replace their basement walls, General Statutes § 38a-816(6)(G).

The plaintiffs allege that Harleysville has engaged in these unfair practices as part of a general business practice to systematically and uniformly deny similar claims, even though state and federal courts in Connecticut have repeatedly denied insurance companies’ motions to dismiss such claims covered by the same policy language, and despite a jury’s verdict in favor of a homeowner in one such case in the District Court for the District of Connecticut. In support of its allegation that Harleysville took the above actions as part of a general business practice, the plaintiffs reference a putative class action against many insurers, including Harleysville, making the same allegations on behalf of other policyholders seeking coverage for the same deteriorating concrete problem the plaintiffs face.

DISCUSSION

I. Applicable 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.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003). "A motion to strike admits all facts well pleaded; it does not admit legal conclusions or the truth or accuracy of opinions stated in the pleadings." (Emphasis in original; internal quotation marks omitted.) Faulkner v. United Technologies Corp., 240 Conn. 576, 588, 693 A.2d 293 (1997). "A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged." (Internal quotation marks omitted.) Santorso v. Bristol Hospital, 308 Conn. 338, 349, 63 A.3d 940 (2013).

"[W]hat is necessarily implied [in an allegation] need not be expressly alleged ... It is fundamental that in determining the sufficiency of a complaint challenged by a defendant’s motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted ..." (Citations omitted.) Commissioner of Labor v. C.J.M. Services, Inc., 268 Conn. 283, 292-93, 842 A.2d 1124 (2004). "The modern trend, which is followed in Connecticut, is to construe pleadings broadly and realistically, rather than narrowly and technically ... Although essential allegations may not be supplied by conjecture or remote implication ... the complaint must be read in its entirety in such a way as to give effect to the pleading with reference to the general theory upon which it proceeded ... As long as the pleadings provide sufficient notice of the facts claimed and the issues to be tried and do not surprise or prejudice the opposing party, we will not conclude that the complaint is insufficient ..." (Internal quotation marks omitted.) J.D.C. Enterprises, Inc. v. Sarjac Partners, LLC, 164 Conn.App. 508, 512-13, 137 A.3d 894, cert. denied, 321 Conn. 913, 136 A.3d 1274 (2016).

II. Plaintiffs’ Bad Faith Claim

"[I]t is axiomatic that the ... duty of good faith and fair dealing is a covenant implied into a contract or a contractual relationship ... In other words, every contract carries an implied duty requiring that neither party do anything that will injure the right of the other to receive the benefits of the agreement ... The covenant of good faith and fair dealing presupposes that the terms and purpose of the contract are agreed upon by the parties and that what is in dispute is a party’s discretionary application or interpretation of a contract term ...

"To constitute a breach of [the implied covenant of good faith and fair dealing], the acts by which a defendant allegedly impedes the plaintiff’s right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith ... Bad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one’s rights or duties, but by some interested or sinister motive ... Bad faith means more than mere negligence; it involves a dishonest purpose." (Citations omitted; internal quotation marks omitted.) De La Concha of Hartford, Inc. v. Aetna Life Insurance Co., 269 Conn. 424, 432-33, 849 A.2d 382 (2004).

The implied covenant of good faith and fair dealing "is not implicated by conduct that does not impair contractual rights." Capstone Building Corp. v. American Motorists Insurance Co., 308 Conn. 760, 795, 67 A.3d 961 (2013). "Because bad faith actions [against insurers] require the denial of benefits under the policy, we must analyze the plaintiffs’ ... cause of action based on the actual terms of the insuring agreement." Id., 796. Unless the alleged bad faith actions "led to a denial of a contractually mandated benefit" there is not a viable bad faith claim. Id.

There is some variance among 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 and another applies a less stringent standard accepting factual allegations from which an inference of bad faith may be drawn. See Kowalchuk v. Travelers Personal Security Insurance Co., Superior Court, judicial district of New Britain, Docket No. CV-11-6012608-S (June 4, 2014, Shortall, J.T.R.) (58 Conn.L.Rptr. 336). In accordance with the above discussion of the applicable standard on a motion to strike, this court agrees with those courts that have adopted a less stringent standard. Id. Nevertheless, the court also recognizes a complaint that alleges a mere coverage dispute is insufficient to state a cause of action for bad faith. Jazlowiecki v. Nationwide Insurance Company of America, Superior Court, judicial district of Hartford, Docket No. CV-12-6036618-S (January 3, 2014, Huddleston, J.).

A number of the plaintiffs’ allegations supporting their bad faith claim are conclusory rather than fact driven. The plaintiffs’ allegations that Harleysville "refused to properly apply the collapse provision in the insurance policy" and "wrongfully attempted to avoid its coverage obligations in bad faith" and, in doing so, "acted arbitrarily, wantonly, recklessly and with a dishonest purpose" are either conclusory or merely restate the claim that Harleysville breached the contract. See Steven Auto, LLC v. National Casualty Co., Superior Court, judicial district of Waterbury, Docket No. CV-14-6023906-S (February 11, 2016, Roraback, J.); Jazlowiecki v. Nationwide Insurance Company of America, supra, Superior Court, Docket No. CV-12-6036618-S. The plaintiffs’ allegation that Harleysville delayed affirming or denying coverage, without accompanying facts indicating an improper motive for the delay, is also insufficient. Steven Auto, LLC v. National Casualty Co., supra, Superior Court, Docket No. CV-14-6023906-S; Corriveau v. Aetna Casualty & Surety Co., Superior Court, Docket No. CV-91-0388036-S (March 15, 1996, Sheldon, J.) (1996 WL 156109).

The foregoing allegations are legally insufficient to state a bad faith claim. The plaintiffs, however, also allege that in refusing to affirm coverage Harleysville "knew of and chose to ignore the rulings by state and federal courts in Connecticut that similar damage should be covered under similar policy language." The inference is that Harleysville has no legitimate basis for denying coverage, that it knew the law requires it to provide coverage and purposely chose to ignore its legal contractual obligations. The plaintiffs make this allegation in light of the numerous court decisions denying dispositive motions filed by insurers seeking to dispose of cases involving both the same policy language used by Harleysville to provide coverage for collapse and factual circumstances similar to those faced by the plaintiffs with respect to their basement walls. See Dino v. Safeco Insurance Company of America, Superior Court, judicial district of Tolland, Docket No. CV-16-6010428-S (June 28, 2018, Farley, J.) (66 Conn.L.Rptr. 652), and cases cited therein.

It is important to recognize that the cases referenced by the plaintiffs do not conclude there is coverage for these claims under the policy language in question. They do conclude that there may be coverage where it is established as a factual matter that the deterioration of the concrete has resulted in a "substantial impairment of structural integrity" of the building or part of the building pursuant to Beach v. Middlesex Mutual Assurance Company, 205 Conn. 246, 532 A.2d 1297 (1987). In Beach the court, finding the undefined term "collapse" ambiguous, adopted a default definition of the term to include "any substantial impairment of the structural integrity of a building." Id., 252. The insurers, including Harleysville, dispute the applicability of that standard to their policy language, but virtually all lower state and federal courts in Connecticut have concluded otherwise. The question is now pending before the Connecticut Supreme Court in Karas v. Liberty Insurance Corp., Connecticut Supreme Court, Docket No. SC 20149 and Vera v. Liberty Mutual Ins. Co., Connecticut Supreme Court, Docket No. SC 20178. Even if that remains the applicable standard following the Connecticut Supreme Court’s resolution of these cases, however, it does not follow that there is coverage in this case under Harleysville’s policy or in any other similar case unless the substantial impairment of structural integrity standard is satisfied. That is a disputed factual issue in virtually all of these cases.¹

1 In addition to court rulings denying dispositive motions, the plaintiffs also reference one similar case that was tried to a jury and resulted in a verdict in favor of the policyholder. Bacewicz v. NGM Insurance Co., United States District Court, Docket No. 3:08-CV-1530 (JCH) (D.Conn.). Before this court, however, another similar case was tried to a jury and resulted in a verdict in favor of the insurer. Musgrave v. Twin City Insurance Co., Superior Court, judicial district of Tolland, Docket No. CV-15-6009840-S, appeal pending, Connecticut Appellate Court, Docket No. AC 40897.

The plaintiffs assert their bad faith claim in a legal context that remains unresolved, although the legal issues have been uniformly resolved in favor of policyholders at the trial court level. If one assumes these trial court determinations will be upheld by the Connecticut Supreme Court and, as the plaintiffs allege and the trial court decisions arguably support, Harleysville knew its legal position was erroneous, it is plausible that the plaintiffs will prove Harleysville denied coverage in bad faith. To do so the facts must also show that the plaintiffs’ home clearly had suffered a substantial impairment of structural integrity as a result of the deteriorating concrete at the time they filed their claim.

In light of the foregoing, the court cannot conclude that the plaintiffs’ bad faith claim, as alleged, is legally insufficient insofar as it asserts the law and the facts were so clear that Harleysville had no good faith basis to decline coverage for their loss. In the context of a motion to strike, the court must construe the allegations of the complaint in the manner most favorable to the plaintiffs. The court must accept the truth of the allegations that the plaintiffs’ home has suffered a substantial impairment of structural integrity, that the collapse coverage is applicable and that Harleysville refused to provide coverage even though the facts and the law clearly required it. Whether the plaintiff can prove these allegations is another matter, not to be determined on a motion to strike. Halloran v. Harleysville Preferred Insurance Co., United States District Court, Docket No. 3:16-CV-00133 (VAB) (D.Conn. November 8, 2018); Compare Gabriel v. Liberty Mutual Fire Insurance Co., United States District Court, Docket No. 3:14-CV-01435 (VAB) (D.Conn. September 28, 2015) (denying motion to dismiss bad faith claim in a deteriorating concrete case based on similar allegations) with Gabriel v. Liberty Mutual Fire Insurance Co., United States District Court, Docket No. 3:14-CV-01435 (VAB) (D.Conn. December 29, 2017) (granting summary judgment on the same bad faith claim).

III. Plaintiffs’ CUTPA/CUIPA Claims

Harleysville moves to strike the plaintiffs’ CUTPA/CUIPA claim, arguing that the plaintiffs have failed to alleged a general business practice, as required to establish an unfair claims settlement practice pursuant to General Statutes § 38a-816(6). All of the plaintiffs’ CUTPA/CUIPA allegations arise out of § 38a-816(6), which requires proof that the defendant has performed any of the statute’s specified unfair claims practices "with such frequency as to indicate a general business practice." This means the plaintiffs must allege more than just a singular failure to settle their claim, they must allege the defendant has engaged in the same unfair practice in the processing of other claims. Lees v. Middlesex Insurance Co., 229 Conn. 842, 849, 643 A.2d 1242 (1994) ("[T]he legislature has manifested a clear intent to exempt from coverage under CUIPA isolated instances of insurer misconduct").

Before evaluating the sufficiency of the plaintiffs’ allegations in this case, it is once again necessary to consider the degree of specificity required to satisfy the requirement that the complaint allege a general business practice. Again there is no appellate authority and trial courts do not apply a uniform standard. Many courts have held that, at the pleading stage, it is sufficient to allege specific violations of CUIPA in the context of the claim at issue in the case and accompany that with a broad allegation that the insurer committed these acts as part of a general business practice. Other courts have applied a more stringent standard, emphasizing that Connecticut is a fact pleading state that considers conclusive allegations legally insufficient. See R. Langer, J. Morgan, & D. Belt, 12 Connecticut Practice Series, Unfair Trade Practices § 3.13 Insurance, Notes 26 and 28 (collecting cases).

A principal rationale underlying the application of a more lenient standard is the difficulty plaintiffs face in establishing liability on a claim of unfair claims settlement practices before having had an opportunity to conduct discovery. See Active Ventilation Products, Inc. v. Property & Casualty Insurance Company of Hartford, Superior Court, judicial district of Hartford, Docket No. CV-08-5023757-S (July 15, 2009, Shortall, J.T.R.). Weighing against this consideration is the concern that a mere notice pleading standard will impose an undue burden on insurance companies and the courts turning every insurance dispute into a costly and burdensome fishing expedition. Id. Other courts, while acknowledging the impracticality of requiring a substantial degree of specificity from a plaintiff at the pleading stage, nevertheless require more than just a conclusory allegation that the defendant has committed unfair claims settlement acts as part of a general business practice. Belamose Business Park, LLC v. Peerless Insurance, Superior Court, judicial district of Hartford, Docket No. CV-12-6036488-S (August 31, 2015, Huddelston, J.). Even those cases applying a stricter standard, however, also recognize that the practical difficulty plaintiffs face at the pleading stage "may well warrant a low factual threshold for the sufficiency of an alleged CUTPA/CUIPA violation." Id.

This court’s view is that more than just a conclusory allegation of a general business practice is required to state a cause of action for unfair claims settlement practices in pursuit of a CUTPA/CUIPA claim. There must be some factual predicate underlying the claim, but a degree of leniency is appropriate when evaluating the sufficiency of such factual allegations at the pleading stage. In the absence of appellate authority on the subject, it is useful to consider how federal district courts in Connecticut have treated CUTPA/CUIPA claims on motions to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, in light of the requirements of Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).² Under modern federal pleading standards, not only must a complaint provide sufficient notice of a claim, it must include factual allegations sufficient to support the plausibility of the claim and "enough fact[s] to raise a reasonable expectation that discovery will reveal evidence" substantiating the claim. Bell Atlantic Corp. v. Twombly, supra, 550 U.S. 556. Applying that standard, federal district courts have found allegations similar to those asserted by the plaintiffs in this case sufficient to survive a challenge to their legal sufficiency.

2 See Tindall v. Travelers Property Casualty Corp., Superior Court, judicial district of Hartford, Docket No. CV-15-6061108-S (October 7, 2016, Peck, J.T.R.) (finding no material difference between federal pleading standards and the applicable standard for pleading CUTPA/CUIPA unfair claims settlement practices under Connecticut’s fact pleading requirements).

Connecticut’s federal district courts have declined to follow state court decisions sustaining the legal sufficiency of CUTPA/CUIPA unfair claims settlement practice claims that rely on a conclusory allegation that the defendant has committed those acts as part of a general business practice. Corteau v. Teachers Insurance Company, 243 F.Supp.3d 215, 219 (D.Conn. 2017); Panciera v. Kemper Independence Insurance Co., United States District Court, Docket No. 3:13-CV-1009 (JBA) (D.Conn. April 29, 2014). They have rejected that standard as too lenient to satisfy the requirements of Ashcroft and Bell . See Ashcroft v. Iqbal, supra, 556 U.S. 662 and Bell Atlantic Corp. v. Twombly, supra, 550 U.S. 544. These courts, however, have sustained the legal sufficiency of CUTPA/CUIPA unfair claims settlement practice claims where there is some reference in the complaint to the denial of similar claims based on similar practices. Panciera v. Kemper Independence Insurance Co., supra, United States District Court, Docket No. 3:13-CV-1009; Ainsworth v. Amica Mutual Insurance Co., United States District Court, Docket No. 3:16-CV-01139 (MPS) (D.Conn. September 17, 2018); Clark v. Amica Mutual Insurance Co., United States District Court, Docket No. 3:16-CV-1573 (JBA) (D.Conn. June 6, 2018); Liston-Smith v. CSAA Fire & Casualty Insurance Co., United States District Court, Docket No. 3:16-CV-00510 (JCH) (D.Conn. October 25, 2016); Gabriel v. Liberty Mutual Fire Insurance Co., United States District Court, Docket No. 3:14-CV-01435 (VAB) (D.Conn. September 28, 2015); Karas v. Liberty Insurance Corp., 33 F.Supp.3d 110, 117 (D.Conn. 2014). Each of these cases involves claims arising out of deteriorating concrete, like the plaintiffs’ claims in this case, and allegations that the defendant insurers are routinely denying such claims on "false and misleading" grounds. The complaints in these cases reference the denial of similar claims by other insureds ranging from one other instance to as many as five other instances.

In attempting to satisfy the general business practice requirement, beyond reciting the statutory language, the plaintiffs in this case allege Harleysville’s "systematic and uniform denial" of similar claims involving the same policy language. They reference a putative class action lawsuit on this same subject matter brought against multiple insurers including Harleysville, with two named plaintiffs asserting claims against Harleysville. Halloran v. Harleysville Preferred Insurance Co., United States District Court, Docket No. 3:16-CV-00133 (VAB) (D.Conn.). These allegations are sufficient to allege a general business practice. They are factual in nature and are not perfunctory. They confine the scope of the alleged general business practice to a relatively discrete set of policyholders whose claims bear a very close resemblance to their own, thus mitigating concerns about unbridled fishing expeditions that might be allowed to proceed in any insurance dispute under the more lenient standard adopted by some state courts. See Caporale v. Prudential Insurance Company of America, United States District Court, Docket No. 3-07-CV-00855 (JCH) (D.Conn. January 25, 2008) (claim that other beneficiaries of an annuity established to resolve litigation were being similarly mistreated was sufficient to satisfy general business practice requirement).

Based on the foregoing discussion, the court concludes that the plaintiffs have sufficiently alleged that Harleysville’s actions are part of a general business practice.

CONCLUSION

The plaintiffs have alleged sufficient facts to state causes of action for bad faith and for unfair claims settlement practices pursuant to CUTPA/CUIPA.