Opinion
No. CV 03-0826680 S
April 1, 2004
MEMORANDUM OF DECISION ON MOTION FOR SUMMARY JUDGMENT
In this case, plaintiff Allstate Insurance Company ("Allstate") has brought suit against defendants Diem T. Pham Le and Lam T. Le, joint holders of an Allstate homeowners insurance policy ("the Policy"), and co-defendants Gary and Claudia Atkinson, a married couple who have sued defendant Lam T. Le ("Mr. Le") for money damages in a separate lawsuit now pending in this Court entitled Atkinson v. Le, No. CV 02-0820264S ("the underlying action"), to obtain a declaratory judgment that Allstate has no duty under the Policy either to defend Mr. Le in the underlying action or to indemnify him for any judgment obtained against him therein.
In Count One of its Complaint, Allstate alleges, more particularly, that it has no duty under the Policy to indemnify Mr. Le for damages awarded to the Atkinsons in the underlying action because the Atkinsons' "claim [in that action is] . . . for injuries sustained as a result of Gary Atkinson being struck in the face with a metal pipe by Lam Le while both were at their place of employment." (Compl. Count I ¶ 6.) Such a claim, it contends,
8. . . . does not come within the scope of coverage provided by the Policy because:
(a) the claim does not arise from an occurrence within the meaning of the [P]olicy;
(b) the claim falls within ¶ 1 of the portion of the Policy entitled We Do Not Cover Under Coverage X in that any bodily injury or property damages was intended by or may reasonably be expected to result from the intentional or criminal acts or omissions of Lam Le, regardless of whether the damages was of a different kind or degree then that intended or reasonably expected or whether Lam Le was actually charged with or convicted of a crime; [and]
(c) the claim falls within ¶ 12 of the portion of the policy entitled Losses We Do Not Cover Under Coverage X in that any bodily injury or property damage arises out of the past or present business activities of Lam Le.
( Id. ¶ 8.) These same allegations are repleaded in Count Two of the plaintiff's Complaint as a partial basis for its claim that it has no duty to defend Mr. Le in the underlying action. ( Id. Count II ¶¶ 6, 8.) Finally, in Count Three of the Complaint, the plaintiff alleges that even if it does have a duty to defend and indemnify Mr. Le in connection with the underlying action, it cannot be required to indemnify him for any punitive damages and/or attorneys fees that may be awarded to the Atkinsons therein because such damages awards are uninsurable as a matter of public policy under Connecticut law. ( Id. Count III ¶ 8.)
The Les have answered the plaintiff's Complaint by admitting the essential historical facts upon which the plaintiff's claims are based but denying that the plaintiff is thereby entitled to a declaratory judgment that it need not defend or indemnify Mr. Le in connection with the underlying action. (See Defendants Lam T. Lee (sic) and Diem T. Le Answer to Plaintiff's Complaint For Declaratory Relief (10/8/03) ("Les' Answer").) Among the facts admitted by the Les is that the Atkinsons' underlying "claim against Lam Le [is] for injuries sustained as a result of Gary Atkinson being struck in the face with a metal pipe by Lam Le while both were at their place of employment." ( Id., 1-2.)
The Atkinsons, who have appeared separately in this action, have made similar answers to the essential allegations of the plaintiff's Complaint. (Answer (10/9/03) ("Atkinsons' Answer") at 1.) They too have thus admitted the plaintiff's allegation, as pleaded in Paragraph 6 of Counts One and Two of its Complaint, that their underlying "claim against Lam Le [is] for injuries sustained as a result of Gary Atkinson being struck in the face with a metal pipe by Lam Le while both were at their place of employment." ( Id., 1-2.)
The case is now before this Court on the plaintiff's Motion for Summary Judgment dated October 28, 2003. In its Motion, Allstate asks this Court to rule that it is entitled to judgment as a matter of law on its claims that it has no duty to defend or indemnify Lam Le in connection with the underlying action on the ground that the Atkinsons' claim in that action is based upon conduct that lies "fully within the business activities exclusion of the Allstate Insurance Company policy and/or is not an (sic) covered accident or fall, within the intentional/criminal acts exclusion of the Allstate Insurance Policy." (Mot. Summ. J. at 1.) The plaintiff has supported its Motion with two memoranda of law and the following documentation: certified transcripts of the depositions of Lam T. Le and Gary Atkinson, which were taken on September 15, 2003; and a certified copy of the subject insurance Policy. The Les have objected to the plaintiff's Motion and supported their objection with an opposing memorandum of law and the following additional documentation: a copy of the Atkinsons' Complaint in the underlying action dated September 25, 2002 ("Underlying Complaint"); and an affidavit from defendant Lam T. Le dated November 17, 2003.
The Les also submitted certified copies of the deposition transcripts of Lam Le and Gary Atkinson as well as a certified copy of the subject insurance Policy.
I
"Practice Book § 384 [now § 17-49] provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law . . . Miller v. United Technologies Corp., 233 Conn. 732, 744-45, 660 A.2d 810 (1995). In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party . . . Id. at 745. The party seeking summary judgment has the burden of showing the absence of any genuine issue [of] material facts which, under applicable principles of substantive law, entitle him to a judgment as a matter of law; D.H.R. Construction Co. v. Donnelly, 180 Conn. 430, 434, 429 A.2d 908 (1980); and the party opposing such a motion must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact. Practice Book § 381 [now § 17-46] . . . Suarez v. Dickmont Plastics Corp., 229 Conn. 99, 105, 639 A.2d 507 (1994)." Witt v. St. Vincent's Med. Ctr., 252 Conn. 363, 368, 746 A.2d 753 (2000) (citation omitted; internal quotation marks omitted).
Declaratory judgments are governed by General Statutes § 52-29 and Connecticut Practice Book §§ 17-54, 17-55. Declaratory judgment is an appropriate method for determining whether an insurer has a duty to defend or indemnify an insured in an underlying action. St Paul Fire Marine Ins. Co. v. Shernow, 22 Conn. App. 277, 381, 577 A.2d 1093 (1990). "The purpose of a declaratory judgment action is to secure an adjudication of rights where there is a substantial question in dispute or a substantial uncertainty of legal relations between the parties." Id. at 380-81 (quoting Conn. Ass'n of Health Care Facilities, Inc. v. Worrell, 199 Conn. 609, 613, 508 A.2d 743 (1986)). "It is axiomatic that no insurer is bound to provide indemnification or defense beyond the scope of the coverage described in the insurance contract, the policy." Id. at 381 (quoting Plasticrete Corp. v. Am. Policyholders Ins. Co., 184 Conn. 231, 235-36, 439 A.2d 968 (1981)).
II
In this State it is well settled that "[t]he question of whether an insurer has a duty to defend its insured is purely a question of law, which is to be determined by comparing the allegations [in the underlying] complaint with the terms of the insurance policy." Cmty. Action for Greater Middlesex County, Inc. v. Am. Alliance Ins. Co., 254 Conn. 387, 395, 757 A.2d 1074 (2000). "An insurer's duty to defend, being much broader in scope and application than its duty to indemnify, is determined by reference to the allegations contained in the [underlying] complaint . . . The obligation of the insurer to defend does not depend on whether the injured party will successfully maintain a cause of action against the insured but on whether he has, in his complaint, stated facts which bring the injury within the coverage. If the latter situation prevails, the policy requires the insurer to defend, irrespective of the insured's ultimate liability . . . It necessarily follows that the insurer's duty to defend is measured by the allegations of the complaint . . . Hence, if the complaint sets forth a cause of action within the coverage of the policy, the insurer must defend. Indeed, if an allegation of the complaint falls even possibly with the coverage, then the insurance company must defend the insured. On the other hand, if the complaint alleges a liability which the policy does not cover, the insurer is not required to defend." Id. at 398-99 (citations omitted; internal quotation marks omitted).
Applying this analysis to the allegations of the Atkinsons' Underlying Complaint, it is clear beyond question that the plaintiff has a duty to defend Mr. Le in the underlying action. This conclusion arises from a comparison of the terms of the subject insurance Policy with the allegations of the Underlying Complaint.
The Policy provides, in relevant part, as follows:
Losses We Cover Under Coverage X:
Subject to the terms, conditions and limitations of this policy, Allstate will pay damages which an insured person becomes legally obligated to pay because of bodily injury or property damage arising from an occurrence to which this policy applies, and is covered by this part of the policy.
We may investigate or settle any claim or suit for covered damages against an insured person. If an insured person is sued for these damages, we will provide a defense with counsel of our choice, even if the allegations are groundless, false or fraudulent. We are not obligated to pay any claim or judgment after we have exhausted our limit of liability.
It further provides the following definition of the term "occurrence":
Definitions Used In This Policy:
9. "Occurrence" — means an accident, including continuous or repeated exposure to substantially the same general harmful conditions during the policy period, resulting in bodily injury or property damage.
Under these provisions, the defendant is entitled to a defense in the underlying action if the Underlying Complaint states any claim against him, however groundless, for "covered damages" without also stating facts that clearly defeat his claim for coverage under any other terms, conditions or limitations of the subject insurance Policy. Among the claims for which a defense must be provided are claims for damages for any bodily injury allegedly arising from an accident during the policy period.
In the First Count of their Underlying Complaint, the Atkinsons make the following claim for damages on behalf of Gary Atkinson against Mr. Le:
1. On or about January 26, 2001 at approximately 7:00 a.m., the Plaintiff, GARY ATKINSON was lawfully at his place of employ located at 651 Day Hill Road, Windsor, Connecticut.
2. At said time and place, the Defendant, LAM LE, was also at said place of employ.
3. On that date and at that time and place, the Defendant, LAM LE, approached the Plaintiff and struck the Plaintiff, GARY ATKINSON, on the face with a metal pipe, thereby causing the Plaintiff to suffer the serious injuries, losses and damages as hereinafter more fully set forth.
4. The Defendant was negligent in striking the Plaintiff in one or more of the following ways:
a. The Defendant failed to appreciate the danger involved in swinging his arm while holding the metal pipe, knowing that the Plaintiff was in close proximity to the Defendant;
b. The Defendant failed to use caution when he swung his arm while holding the metal pipe in close proximity to the Plaintiff;
c. The Defendant dangerously swung his arm while holding a metal pipe in close proximity to the [P]laintiff;
d. The Defendant failed to keep a proper lookout when he s[w]ung his arm while holding a metal pipe in close proximity to the Plaintiff.
(Underlying Compl. ¶¶ 1-4.) So pleaded, the Atkinsons' First Count plainly sounds in common-law negligence. It thus states a claim for covered damages for bodily injury arising from an accident. Because it is not disputed that the subject insurance Policy was in full force and effect at the time of Mr. Le's alleged negligence, he is entitled to a defense in the underlying action unless other facts pleaded in the Underlying Complaint clearly and unambiguously establish that he is barred or excluded from coverage under other terms, conditions or limitations of the Policy.
Plaintiff Allstate has urged this court to rule that Mt. Le is not entitled to a defense in the underlying action because the claims made against him in that action are excluded from coverage under the "business activities exclusion" of the subject insurance Policy. The basis for this argument, however, is not that the allegations of the Underlying Complaint clearly establish the applicability of the "business activities exclusion" to the Atkinsons' otherwise covered claim, which clearly and concededly is not so, but rather that the undisputed facts of the underlying action, as developed in pretrial discovery, necessarily bring the claim within that exclusion as a matter of law.
The "business activities exclusion" of the Policy provides as follows:
Losses We Do Not Cover Under Coverage X:
* * *
12. We do not cover bodily injury or property damage arising out of the past or present business activities of an insured person.
We do cover the occasional or part-time business activities of an insured person who is a student under 21 years of age.
The Policy defines the term "business," in relevant part as follows:
Definitions Used In This Policy:
6. "Business" — means:
a) any full or part-time activity of any kind engaged in for economic gain including the use of any part of any premises for such purposes . . .
The controlling authority in this jurisdiction regarding the business activities exclusion of a homeowner's insurance policy is Pacific Indemnity Insurance Co. v. Aetna Casualty Surety Co., 240 Conn. 26, 688 A.2d 319 (1997). In Pacific Indemnity, the Connecticut Supreme Court declared "that the term business pursuits encompassed two elements, continuity and profit motive. As to the first, there must be a customary engagement or a stated occupation; as to the latter, there must be shown to be such activity as a means of livelihood; gainful employment; means of earning a living; procuring subsistence or profit; commercial transactions or engagements." Id. at 30. Under this rule, an otherwise covered tort claim is excluded from coverage under a homeowners insurance policy only if it arose from any continuous activity carried on by the alleged tortfeasor as gainful employment or a means of earning a living.
An alleged tortfeasor cannot be denied a defense in a civil lawsuit based upon an exclusion in his homeowners insurance policy unless the allegations made against him in that lawsuit fall clearly and unambigously within the scope of that exclusion. Here, then, where it has been suggested that the defendant has no right to a defense in the Atkinsons' underlying action because his alleged conduct there at issue falls within the business activities exclusion of his Allstate homeowners insurance policy, this Court must examine the allegations of the Underlying Complaint to determine if his alleged conduct, as described therein, clearly and unambiguously arose from any continuous activity carried on by him as gainful employment or a means of earning a living. For the following reasons, it did not.
In this declaratory judgment action, as previously noted, Allstate has pleaded and both the Les and the Atkinsons have admitted that the Atkinsons' underlying "claim against Lam Le [is] for injuries sustained as a result of Gary Atkinson being struck in the face with a metal pipe by Lam Le while both were at their place of employment." (Les' Answer at 1-2; Atkinsons' Answer at 2.) This admission, however, goes only the factual underpinnings of the Atkinsons' claims against Mr. Le, not to the essential allegations of their Underlying Complaint against him. Such allegations, in fact, have been carefully crafted to avoid any suggestion that both Ms. Le was at his place of employment or engaging in activities related to his employment when he engaged in the conduct alleged in the Underlying Complaint. Therefore, since it cannot be determined from the face of the Underlying Complaint whether or not that conduct arose out of Mt. Le's employment or other business activities on his part, his right to a defense in the underlying action cannot be defeated by the business activities exclusion of his homeowners insurance Policy.
The plaintiff, through counsel, prudently made this concession both in his legal memoranda and at oral argument on the pending Motion.
The theoretical basis for this seemingly wholesale departure from settled principles of Connecticut insurance law, as described at length above, can be found in a footnote to Justice Katz's 1995 decision for the Connecticut Supreme Court in Heyman Associates No. 1 v. Insurance Co. of Penn., 231 Conn. 756, 769 n. 17; 653 A.2d 122 (1995). There, in a declaratory judgment action to determine if the defendant insurers owed the plaintiff a duty to defend or indemnify it, under commercial liability insurance policies containing absolute pollution exclusions, in connection with a federal administrative proceeding to assess responsibility for an oil spill from the plaintiff's property into Stamford Harbor, the Supreme Court commented as follows in upholding the trial court's granting of the defendants' motion for summary judgment:
Because we hold that the defendants owe no duty to indemnify the plaintiff for damages arising from the fuel oil spill, we also conclude that they owe no duty to defend the plaintiff from claims arising from those damages. See, e.g., Alderman v. Hanover Ins. Group, 169 Conn. 603, 610, 363 A.2d 1102 (1975) (duty to defend arises if policy covers particular claim). We acknowledge the plaintiff's citation to cases holding that an insurer's duty to defend is broader than its duty to indemnify, but we are unpersuaded that such authority is relevant when, as in this case, the exclusion clearly and unambiguously excludes coverage for fuel oil spilled into Stamford Harbor. CT Page 5448
Id. Based upon this footnote, Allstate contends that this Court can properly rule that it has no duty to defend Mr. Le in the underlying action if it first determines, based upon historical facts not pleaded in the Underlying Complaint, that Allstate has no duty to indemnify Mr. Le in connection with the Atkinsons' underlying claims.
The Court disagrees with the plaintiff's analysis for two important reasons. First, although the words of the quoted footnote suggest otherwise, the Heyman Court actually used traditional duty-to-defend analysis to reach its conclusion that the defendant insurers had no duty, under the subject insurance policies, to defend the plaintiff in the federal administrative proceeding at issue in that case. That is, it actually resolved that issue by comparing the claim made against the plaintiff in that proceeding, as set forth in the letter from the United States Coast Guard by which that proceeding was initiated, with the terms of the subject insurance policies, to determine if that claim fell "even possibly" within the coverage of those policies. Concluding that it did not, the Court reasonably found that the defendants owed the plaintiff no duty to defend it against that claim.
As described by the Heyman Court, the Coast Guard's letter unambiguously informed the plaintiff that the incident in question involved a spill of fuel oil from the plaintiff's property into Stamford Harbor. The letter — which was the functional equivalent in that proceeding of the Underlying Complaint in this declaratory judgment action — informed the plaintiff that, "as the party responsible for the spill, it was liable for, among other things, removal costs and damages resulting from th[e] incident"; id. at 759; and "required . . . inter alia, [that] the plaintiff `[i]dentify and remediate' the oil's impact on the water, shoreline and affected wildlife." Id. Finally, the letter "explained [to the plaintiff] that under the Federal Water Pollution Control Act, [its] failure to remediate the incident or to comply with necessary administrative orders would subject it to substantial civil penalties." Id. at 760.
The Coast Guard's letter expressly stated that the administrative proceeding concerned the leaking of "a large quantity of fuel oil had leaked from the plaintiff's property into Stamford Harbor." Heyman Assoc. No. 1, supra, 231 Conn. at 759.
The quoted portion of the letter read as follows:
As the responsible party for this incident, you are hereby directed to take the following initial actions:
1. Remove fuel product from the storm drain system along its entirety . . . without causing further pollution of the harbor. CT Page 5453
2. Identify and remediate any ground saturation resulting from [the] incident.
3. Continue the cleanup operation initiated by the Federal On-Scene Coordinator of the East Branch of Stamford Harbor. This cleanup operation involves removal of any remaining floating fuel product, the cleanup of any impacted shoreline area or any other floating or fixed structure or vessel, whether public or private. Specific direction concerning the remaining harbor cleanup operation will be provided by the Federal On-Scene Coordinator's representative.
4. Respond to and provide treatment for any wildlife impacted by this pollution incident.
5. Isolate and drain all fuel from the existing fuel system supplying the Boilers . . .
Upon ascertaining from the letter — not from pretrial discovery about the incident or from other independent efforts to investigate the facts underlying it — that the claim against the plaintiff concerned a fuel oil spill which the plaintiff had been ordered to clean up and remediate, the Court then examined the language of the plaintiff's insurance policies to determine if there could ever be coverage thereunder for such a claim. Concluding that any spill of fuel oil, of any kind or description, necessarily constitutes "pollution," within the meaning of the subject insurance policies, and that there could never be coverage for any claim involving pollution under the absolute pollution exclusions in those policies, the Heyman Court decided that the defendant insurers owed the plaintiff no duty to defend it against the Coast Guard's claim.
The Supreme Court's analysis of the duty to defend in Heyman thus involved no departure from the standard approach long taken by Connecticut courts. Instead, it simply evaluated the plaintiff's right to a defense by comparing the Coast Guard's "claim" against the plaintiff, as "pleaded" in its original letter initiating the administrative proceeding, with the language of the subject insurance policies under which a duty to defend was claimed. Because that letter clearly and unambiguously stated a claim for costs to clean up pollution, which was indisputably excluded from coverage by the absolute pollution exclusion of the subject insurance policies, the Heyman Court's decision that the defendant insurers had no duty to defend the plaintiff insured was actually based upon the Coast Guard's pleaded claim, not upon any unpleaded historical facts.
The second reason for rejecting the plaintiff's analysis of the above-referenced footnote in Heyman is that since the footnote was written, it has not been cited by any court for the novel proposition the plaintiff here advances. To the contrary, in every duty-to-defend case decided by our Supreme Court since Heyman, the Court has consistently invoked and applied the traditional rule, without modification or qualification, invariably basing its duty-to-defend determinations solely upon the allegations of the underlying complaint. Schilberg Integrated Metals Corp. v. Cont'l Cas. Co., 263 Conn. 245, 255-57, 819 A.2d 773 (2003); Board of Education v. St. Paul Fire Marine Ins. Co., 261 Conn. 37, 40-49, 801 A.2d 752 (2002); QSP, Inc. v. Aetna Cas. Sur. Co., 256 Conn. 343, 349-52, 355, 360, 363, 373, 773 A.2d 906 (2001); Cmty. Action for Greater Middlesex County, Inc., supra, 254 Conn. at 397-400; Moore v. Cont'l Cas. Co., 252 Conn. 405, 409, 725 A.2d 994 (2000); Springdale Donuts, Inc. v. Aetna Cas. Sur. Co., 247 Conn. 801, 805-06, 809, 811, 814, 724 A.2d 1117 (1999); Imperial Cas. Indem. Co. v. State, 246 Conn. 313, 318, 323-31, 714 A.2d 1230 (1998); Flint v. Universal Mach. Co., 238 Conn. 637, 642-43, 679 A.2d 929 (1996). The Supreme Court's silence on that subject makes it clear that the Heyman footnote was never intended to modify existing law.
For the foregoing reasons, the Court hereby rejects the plaintiff's argument that it should abandon traditional analysis of a Connecticut insurer's duty to defend by looking past the claims pleaded against the insured in the underlying action to the evidence on which those pleaded claims are based. Here, because Count One of the Atkinsons' Underlying Complaint states a viable claim of negligence which, if proved as pleaded, does not clearly fall within some exclusion to coverage under Mr. Le's Allstate insurance Policy, Allstate has a duty to defend him in that action even if it can never be required to indemnify him for any judgment obtained against him therein.
III
In light of its rejection of the plaintiff's claim that it has no duty to defend Ms. Le in the underlying action, the Court has determined, and the parties have agreed, that that action should be tried to verdict before this Court decides if the plaintiff has any duty to indemnify Mr. Le for any judgment that may be obtained against him therein. All further proceedings on the second, duty-to-indemnify portion of this Motion are therefore stayed until final judgment is rendered in the underlying action, when, if there is a verdict for the Atkinsons, the parties can supplement their original submissions in light of the evidence presented and facts actually found in that proceeding.
IT IS SO ORDERED this 1st day of April 2004.
Michael R. Sheldon