Opinion
No. CV 06-5002071
January 25, 2007
MEMORANDUM OF DECISION RE PLAINTIFF'S MOTION TO STRIKE SPECIAL DEFENSES AND COUNTERCLAIMS
FACTS
The plaintiff, Standard Fire Insurance Company, (Standard Fire) filed a four-count revised complaint on May 5, 2006, against the defendants, Charles Drummey, an attorney, and Murtha Cullina, LLP, (Murtha) a law firm. It is alleged that Drummey was a partner in Murtha and acted as an agent on its behalf. Standard Fire brought this action as subrogee for its insured, Dorothy Archibald. The complaint alleges one count of negligence and one count of legal malpractice against each defendant.
It further alleges that prior to January 30, 2004, Drummey and Murtha had an attorney-client relationship with Archibald. As part of the relationship, the defendants held Archibald's power of attorney which, in part, obligated them to inspect and maintain her property located at 78 Ledyard Road in West Hartford, Connecticut. On or about January 30, 2004, Drummey inspected the property and discovered that a water pipe had ruptured causing substantial water damage. Standard Fire claims that these damages were caused by the defendant's negligence and legal malpractice.
Pursuant to a contract of insurance between Standard Fire and Archibald, Standard Fire reimbursed Archibald for the damages. As a result of the payment, Standard Fire alleges that it has an equitable right of subrogation for the claims of Archibald against Drummey and Murtha.
On June 2, 2006, the defendants filed an answer denying the allegations of the complaint. They also filed three special defenses, two counterclaims and a cross claim.
The third special defense was not challenged by Standard Fire in this motion to strike.
The cross claim is against HUB International Personal Insurance, Ltd., alleged to be an agent of Standard Fire. The cross claim is not subject to this motion to strike.
In the first special defense, the defendants allege that because of Drummey's power of attorney, they were an insured under Standard Fire's policy covering Archibald's property. As an insured, they could not be sued by their insurer. The second special defense alleges that although Drummey represents Archibald in legal matters, "his role as an agent under the power of attorney with regard to the property does not involve the practice of law."
In the first counterclaim, the defendants allege that Drummey had extensive conversations regarding the policy covering Archibald's property with HUB International Personal Insurance, Ltd. (HUB), an agent of Standard Fire. These conversations, coupled with HUB's knowledge of the power of attorney, created a duty to advise the defendants that Drummey should have been formally listed as an insured. This failure to adequately advise Drunmey and to list him as an insured is alleged to be negligence by Standard Fire. The second counterclaim alleges that because Drummey should have been considered an insured under the policy, Standard acted in bad faith by bringing this action against its insured.
On August 31, 2006, Standard Fire filed a motion to strike the first and second special defenses and both counterclaims, on the grounds that: (1) the defendants may not assert counterclaims against Standard Fire in this subrogation action; (2) the defendants are not an insured under the policy of insurance, so they may not assert a claim of bad faith against Standard Fire; (3) if the court concludes that the defendants may assert a claim of bad faith against Standard Fire, the defendants have failed to allege facts sufficient to sustain a cause of action for bad faith; (4) the defendants may not assert a claim of negligence against Standard Fire because Standard Fire owed no legal duty to the defendants; and (5) the defendants' first and second special defenses are legally insufficient. On October 3, 2006 the defendants filed a memorandum of law opposing the motion to strike and disputing Standard's arguments.
DISCUSSION
"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). Practice Book § 10-39(a)(1) and (5) provide that a motion to strike may be used to contest: "the legal sufficiency of the allegations of any complaint, counterclaim or cross claim, or of any one or more counts thereof, to state a claim upon which relief can be granted, or . . . the legal sufficiency of any answer . . . or any part of that answer including any special defense contained therein . . ." To determine the sufficiency of a pleading attacked by a motion to strike, "all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted." (Internal quotation marks omitted.) Violano v. Fernandez, 280 Conn. 310, 318, 907 A.2d 1188 (2006). The court must construe the pleading "in [a] manner most favorable to sustaining its legal sufficiency . . ." (Citation omitted.) Bouchard v. People's Bank, 219 Conn. 465, 471, 594 A.2d 1 (1991). Where the facts provable under the allegations would not support a special defense or counterclaim, then the motion to strike must be granted. Alarm Applications Co. v. Simsbury Volunteer Fire Co., 179 Conn. 541, 545, 427 A.2d 822 (1980).
SPECIAL DEFENSES
Standard Fire moves to strike the first two special defenses on the ground that they are legally insufficient. Specifically, Standard Fire argues that the court should strike the first special defense because the allegations are inconsistent with the allegations in the revised complaint, namely that the defendants were insured under the policy between Standard Fire and Archibald. Likewise, Standard Fire argues that the allegation in the second special defense, that the defendants were not practicing law when they acted under the power of attorney, directly conflicts with the allegation in the revised complaint that the defendants' conduct constituted legal malpractice. Standard Fire also argues that the definition of what is "the practice of law" is a question of law and therefore, is not properly asserted as a special defense. The defendants deny that the special defenses are inconsistent with the complaint and argue that the defenses merely demonstrate that the plaintiff has no cause of action.
"[A] plaintiff can [move to strike] a special defense . . ." Nowak v. Nowak, 175 Conn. 112, 116, 394 A.2d 716 (1978). "Generally speaking, facts must be pleaded as a special defense when they are consistent with the allegations of the complaint but demonstrate, nonetheless, that the plaintiff has no cause of action." (Emphasis added.) Almada v. Wausau Business Ins. Co., 274 Conn. 449, 456, 876 A.2d 535 (2005); see Practice Book § 10-50. "The fundamental purpose of a special defense, like other pleadings, is to apprise the court and opposing counsel of the issues to be tried, so that basic issues are not concealed until the trial is underway." (Internal quotation marks omitted.) Almada v. Wausau Business Ins. Co., supra, 274 Conn. 456.
Although Practice Book § 10-50 does not explicitly prohibit special defenses that plead facts that are inconsistent with the allegations of the complaint, Connecticut courts have found that they are improper. See CT Page 1525 Mitchell v. Guardian Systems, Inc., 72 Conn.App. 158, 167, 804 A.2d 1004, cert. denied, 262 Conn. 903, 810 A.2d 269 (2002); Lamothe v. Midstate Medical Center, Superior Court, judicial district of New Haven at Meriden, Docket No. CV 05 4002893 (October 4, 2006, Taylor, J.) ( 42 Conn. L. Rptr. 139). The more appropriate method of pleading facts that are inconsistent with the allegations of the complaint is through a denial of the specific allegations of the complaint. Doing so adequately apprises the court and the parties of the contested issues while avoiding the potential for jury confusion. Lamothe v. Midstate Medical Center, supra, 42 Conn. L. Rptr. 140.
In the first special defense, the defendants assert that because Drummey was acting under the power of attorney given by Archibald, the insured, he had a reasonable expectation that he was also an insured under the policy. As an insured, they claim that Standard Fire cannot sue them. Standard fire argues that this claim is inconsistent with the allegations of the complaint that the insurance policy was between Standard Fire and Archibald.
Reading this special defense in the manner most favorable to sustaining its legal sufficiency, the special defense is not inconsistent with the allegations of the complaint. In fact, the defendant's answer admits the allegations of paragraph eleven of the complaint which deals with the insurance contract between Standard Fire and Archibald. The defendants are not making the inconsistent claim that the insurance policy was not between Standard Fire and Archibald, but are claiming that they should also be considered an insured. For this reason, the motion to strike the first special defense should be denied.
Standard Fire has not claimed that this special defense is not legally valid, but only that it should be stricken because it is inconsistent with the allegations of the complaint. Because "grounds other than those specified should not be considered by the trial court in passing upon a motion to strike" (internal quotation marks omitted) Gazo v. Stamford, 255 Conn. 245, 259, 765 A.2d 505 (2001); the validity of the special defense should not be considered by the court. Other courts have, however, not accepted the validity of identical claims. See One Beacon Insurance v. Nardiello, Superior Court, judicial district of Waterbury, Docket No. CV 03 0175726 (May 5, 2004, Matasavage, J.) ( 36 Conn. L. Rptr. 893).
The defendants allege in their second special defense that "[w]hile Mr. Drummey is also a practicing attorney who represents Mrs. Archibald in legal matters, his role as an agent under the power of attorney with regard to the property does not involve the practice of law." This allegation is clearly inconsistent with the allegations of the revised complaint which alleges, "all services . . . performed by defendant Drummey were in connection with [the] attorney-client relationship . . ."
In order "[t]o state a claim for legal malpractice [a plaintiff] must [demonstrate] that there was an attorney-client relationship, that the attorney was negligent in his representation of the client and that this negligence caused [the plaintiff] some loss." (Internal quotation marks omitted.) Kadlick v. Barrett, Superior Court, judicial district of Stamford-Norwalk, Docket No. CV 00 0176156 (March 16, 2001, Karazin, J.). Apparently, the defendants are arguing that property management pursuant to a power of attorney does not constitute the practice of law, in an attempt to eliminate the element that there must be an attorney-client relationship. By doing this, the defendants would improperly place the burden of proof on this element on both Standard Fire and on themselves. See Lamothe v. Midstate Medical Center, supra, 42 Conn. L. Rptr. 140-42. Such an approach risks jury confusion of the issues and therefore, is inappropriate as a special defense. Id.
Thus, the court grants Standard Fire's motion to strike the second special defense. The claims made in this special defense are appropriately raised through the defendants' denial of the allegations of the complaint concerning the alleged legal malpractice of the defendants. They do not need to be repeated by way of a special defense.
COUNTERCLAIMS
Standard Fire also moves to strike the defendants' two counterclaims. With respect to both counterclaims, Standard Fire argues that because it is a subrogee standing in the place of its insured, it is subject only to defenses that are available against the insured, not counterclaims. Standard Fire also argues that the court should strike the negligence claim because Standard Fire owes no duty to an agent of its insured. Finally, Standard Fire argues that the court should strike the bad faith claim because the defendants were not an insured and because the defendants have failed to allege the necessary facts for a bad faith claim.
The defendants counter that they can assert a counterclaim against Standard Fire because the counterclaims are based on the conduct of Standard Fire, the subrogee, rather than the conduct of the insured. Furthermore, the defendants argue that the power of attorney created an agency relationship between Drummey and Archibald whereby Standard Fire owed a duty to Drummey. Lastly, the defendants contend that by virtue of the power of attorney and the expectation of the parties, they have alleged a proper cause of action for bad faith when Standard Fire sued its own insured in violation of public policy.
Practice Book § 10-10 provides that: "In any action for legal or equitable relief, any defendant may file counterclaims against any plaintiff . . . provided that each such counterclaim . . . arises out of the transaction or one of the transactions which is the subject of the plaintiff's complaint . . ." "[A] counterclaim is a cause of action existing in favor of the defendant against the plaintiff and on which the defendant might have secured affirmative relief had he sued the plaintiff in a separate action . . . A motion to strike tests the legal sufficiency of a cause of action and may properly be used to challenge the sufficiency of a counterclaim." (Citations omitted; internal quotation marks omitted.) Fairfield Lease Corp. v. Romano's Auto Service, 4 Conn.App. 495, 496, 495 A.2d 286 (1985).
Standard Fire asserts that both counterclaims should be stricken because a subrogee, suing in this case on behalf of its insured, may not be the subject of counterclaims. It is undisputed that "any defense which a wrongdoer has against the insured is good against the insurer subrogated to the rights of the insured . . . [A]s a qualification [however] to the concept that the subrogated insurer stands in the identical position as the insured subrogor . . . the subrogee is not subject to counterclaims which the wrongdoer could have asserted had he been sued by the insured." (Citation omitted; internal quotation marks omitted.) Royal Ins. Co. v. Prudential Residential Services, L.P., Superior Court, judicial district of Stanford-Norwalk at Stamford, Docket No. CV 01 0185458 (February, 13, 2003, Adams, J.) ( 34 Conn. L. Rptr. 59, 60). "[W]hile a subrogee succeeds to the rights of the insured and is subject to all defenses which would have been available against the insured, a counterclaim is not one of these rights or defenses and, therefore, cannot be asserted against a nonparty to the action." (Internal quotation marks omitted.) Royal Ins. Co. v. Prudential Services, L.P., supra, 34 Conn. L. Rptr. 60. This is because "[t]he jurisdiction of the trial court is limited to those parties expressly named in the action coming before it." (Internal quotation marks omitted.) Exley v. Connecticut Yankee Greyhound Racing, Inc., 59 Conn.App. 224, 234, 755 A.2d 990, cert. denied, 254 Conn. 939, 761 A.2d 760 (2000). A defendant may, however, assert a counterclaim against a subrogee plaintiff when the claim "is based upon the plaintiff's alleged conduct, and not upon that of its insured." Royal Ins. Co. v. Prudential Services, L.P., supra, 34 Conn. L. Rptr. 61.
See also Seaco Ins. Co. v. Devine Bros., Inc., Superior Court, judicial district of Fairfield, Docket No. CV 00 0374721 (June 13, 2001, Skolnick, J.) ( 29 Conn. L. Rptr. 742).
Such is the case in this matter. Both of the counterclaims are based upon the conduct of Standard Fire, rather than the actions of Archibald. The defendants allege that Standard Fire sued them in bad faith, and that Standard Fire was negligent in not insuring Drummey. Neither of these claims rely on any conduct of the insured, Archibald. In addition, to not allow these counterclaims against Standard Fire would run counter to Practice Book § 10-10 which allows counterclaims to be pursued so long as they "[arise] out of the transaction or one of the transactions which is the subject of the plaintiff's complaint . . ." The counterclaims should, therefore, not be stricken in that they are based on Standard Fire's conduct.
Standard Fire moves to strike the defendants' first counterclaim based on negligence on the ground that it owes no legal duty to the defendants. The "essential elements of a cause of action in negligence are well established: duty; breach of that duty; causation; and actual injury." (Internal quotation marks omitted.) Violano v. Fernandez, supra, 280 Conn. 335 n. 13. "The existence of a duty is a question of law and only if such a duty is found to exist does the trier of fact then determine whether the defendant violated that duty in the particular situation at hand . . . [T]he test for the existence of a legal duty of care entails (1) a determination of whether an ordinary person in the defendant's position, knowing what the defendant knew or should have known, would anticipate that harm of the general nature of that suffered was likely to result, and (2) a determination, on the basis of a public policy analysis, of whether the defendant's responsibility for its negligent conduct should extend to the particular consequences or particular plaintiff in the case . . . The first part of the test invokes the question of foreseeability, and the second part invokes the question of policy." (Internal quotation marks omitted.) Neuhaus v. Decholnoky, 280 Conn. 190, 217-18, 905 A.2d 1135 (2006). Examination of the foreseeability prong is unnecessary if it is determined that no duty of care exists based on the public policy prong. Id., 218.
In their counterclaim, the defendants characterize Standard Fire's duty as "a duty to advise Mr. Drummey that he should have been formally listed as an insured." They further claim that Standard Fire was negligent for not listing the defendants as an insured on Archibald's policy. Although they cite general agency principles, the defendants offer no legal support for their claim that Standard Fire owed them, as agents for Archibald, any of the duties alleged.
Although the power of attorney created a formal agency relationship between Archibald and Drummey, this does not establish that Standard Fire owed the same duties to both. The defendants have not offered any public policy reason that would warrant Standard Fire having a duty to advise them personally, even though they acted as Archibald's agent. A public policy that would give insurance companies a duty to advise agents of its insured clients, in their personal capacity, would subject insurance companies to a multitude of unwarranted new duties and potential liabilities. No law can be found that would suggest such a duty. Therefore, the court grants Standard Fire's motion to strike the defendants' first counterclaim of negligence. There is no duty running from Standard Fire to the defendants under the facts pleaded, even when viewed in the manner most favorable to sustaining their legal sufficiency.
Standard Fire also moves to strike the defendants' second counterclaim alleging bad faith. The defendants' bad faith claim is based on a violation of what is "termed the antisubrogation rule. Under that rule, an insurer has no right of subrogation against its own insured for a claim arising from the very risk for which the insured was covered . . . In other words, an insurer may not step into the shoes of its insured to sue a third-party tortfeasor — if that third party also qualifies as an insured under the same policy . . ." (Citations omitted; internal quotation marks omitted.) ELRAC, Inc. v. Ward, 96 N.Y.2d 58, 76, 748 N.E.2d 1, 724 N.Y.S.2d 692 (2001). The defendants claim that because they were an implied insured under the policy, Standard Fire acted in bad faith to bring this action against them.
If this claim were recognized in Connecticut, the defendants would presumably have to show: (1) that the defendant qualifies as "insured"; and (2) that the plaintiff violated the antisubrogation rule by bringing suit against the defendant.
No case can be found in Connecticut recognizing this claim.
"[S]ubrogation, as an equitable doctrine, invokes matters of policy and fairness." DiLullo v. Joseph, 259 Conn. 847, 853, 792 A.2d 819 (2002). Subrogation actions by insurers are not allowed against tenants for damage caused by the tenants, unless such a scenario is specifically covered in the lease. See Middlesex Mutual Assurance Co. v. Vaszil, 279 Conn. 28, 37, 900 A.2d 513 (2006). Subrogation actions are generally prohibited against tenants because "to hold a tenant of a multiunit building liable in subrogation to repay the landlord's insurer for damages to the premises not only would be beyond the ordinary expectations of parties . . . but would also amount to economic waste." Id., 35. The defendant argues that this principal should be extended beyond tenants, to also bar subrogation actions against persons who acted pursuant to a power of attorney.
In a case with facts almost identical to the present case, the court considered the issue of extending "insured" status to a holder of a power of attorney. One Beacon Insurance v. Nardiello, Superior Court, judicial district of Waterbury, Docket No. CV 03 0175726 (May 5, 2004, Matasavage, J.) ( 36 Conn. L. Rptr. 893) Nardiello also involved a subrogation action by an insurance company against someone who acted under a power of attorney for negligent supervision of a home where frozen pipes burst. Id. The same claim was made as is argued here, that the defendant was an insured under the policy. The court observed that "no cases have held that an agent is an insured under the insurance policy of a principal by virtue of the agency relationship." Id., 894. The court also declined to extend the policy in DiLullo v. Joseph, supra, 259 Conn. 847, which is applicable to tenants, to holders of a power of attorney. Id., 894-95.
Reiterated in Middlesex Mutual Assurance Co. v. Vaszil, supra, 279 Conn. 28.
The court rejects the defendants' claim that because they acted pursuant to a power of attorney they were entitled to insured status. The defendants do not argue that Drummey's name was included in Archibald's policy or that Drummey fit the definition of "insured" within the policy. The defendants simply argue that because Standard Fire knew of Drummey's power of attorney, and because of their numerous conversations regarding the policy, "Drummey had a reasonable expectation that his actions on [Archibald's] behalf were covered by the policy." For this reason, the defendants have failed to plead that Standard Fire acted in bad faith against them, an insured.
Even if they were an insured, the defendants have failed to plead an action in bad faith in general. "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." (Internal quotation marks omitted.) Jones v. H.N.S. Management Co., 92 Conn.App. 223, 227, 883 A.2d 831 (2005). No facts are pleaded which would support fraud, dishonesty or a similar motive.
Because the defendants have failed to plead sufficient facts that they were an insured under the policy, and failed to plead a bad faith action in general, Standard Fire's motion to strike the defendant's second counterclaim alleging bad faith should be granted.
CONCLUSION
The court denies the motion to strike the first special defense; grants the motion to strike the second special defense and grants the motion to strike both counterclaims.