Opinion
113296/07.
Decided August 4, 2008.
Marshall Potashner, Jaffe Asher LLP, Plaintiff.
Timothy D. Kevane, Sedgwick, Detert, Moran Arnold LLP, Defendant — National Union Fire Insurance Company of Pittsburgh, PA.
Charles Booth, Ford Marrin Esposito Witmeyer Gleser LLP, Defendant — Mitsui Sumitomo Insurance Company of America.
This action arises from a dispute involving insurance coverage. Plaintiffs claims that defendants Mitsui Sumitomo Insurance Company of America ("Mitsui") and National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union") wrongly refused to acknowledge plaintiffs Home Properties Apple Hill ("Apple Hill") and Home Properties, Inc. ("Home Properties") as additional insureds under certain insurance policies and failed to defend and indemnify Apple Hill and Home Properties in a separately commenced personal injury action. Plaintiff Liberty Surplus Insurance Company ("Liberty") brings this action both on its behalf and also as subrogee of Apple Hill and/or Home Properties.
Mitsui and National Union each move to dismiss the fifth, sixth and seventh causes of action in the Amended Complaint for failure to state a cause of action (motion sequence numbers 001 and 002, respectively). CPLR § 3211 (a) (7). Plaintiffs oppose each motion in its entirety.
Since the arguments made in each motion overlap one another, these motions are hereby consolidated for consideration by the court in this single decision.
Relevant facts
Plaintiffs allege the following facts in the Amended Complaint: a personal injury lawsuit entitled Rose Gordon, et al. v. Home Properties Apple Hill LLC, et al., Docket No. NNH-CV06-5002335, was commenced in February 2006 in Connecticut Superior Court, Judicial District of New Haven (the "personal injury action"). The plaintiffs in the personal injury action allege that Rose Gordon ("Gordon"), a Connecticut resident, sustained serious bodily injuries in an accident which led to her death on April 2, 2004, when she exited from an elevator in a building located in Hamden Connecticut (the "building").
The defendants in the personal injury action were Apple Hill, Home Properties, and Hontz Elevator Company, Inc. ("Hontz"). The building was owned by Apple Hill on the date of Gordon's accident and Home Properties is a member of Apple Hill. Hontz, a Connecticut corporation, entered into an agreement with Apple Hill and Home Properties to maintain the elevators in the building. Pursuant to Hontz's agreement with Apple Hill and Home Properties, Hontz was required to name each entity as an additional insured under its insurance contract. Hontz obtained a commercial general liability insurance policy providing Commercial Liability Coverage from Mitsui, policy No. PKG312101701, effective on the date of Gordon's accident (the "Mitsui policy"). The Mitsui policy provides as follows:
The Insurance provided to the Additional Insured is limited as follows:
1.That person or organization is only an Additional Insured with respect to liability arising out of
a.premises you own, rent, lease, or occupy; or
b."your work" for that Additional Insured by you or for you.
Hontz also obtained a commercial umbrella liability policy, No. BE 2349135, from National Union, effective on the date of Gordon's accident (the "National Union policy"). The National Union policy provides as follows:
E.Insured means each of the following, to the extent set forth:
. . .
4.Any person or organization, other than [Hontz], included as an additional insured in the policies listed in the Schedule of Underlying Insurance but not for broader coverage than is available to such person or organization under such underlying policies.
. . .
7.Any person, organization, trustee or estate to whom [Hontz is] obligated by a written Insured Contract to provide insurance such as is afforded by this policy but only with respect to:
a. liability arising out of operations conducted by [Hontz] or on [Hontz'] behalf; or
b. facilities owned or used by [Hontz].
Liberty issued a liability policy, No. EGL-NY-199504-023, effective on the date of the accident, to Home Properties as the first Named Insured (the "Liberty policy"). Pursuant to the Liberty policy, Liberty was required to provide liability coverage to Home Properties and Apple Hill in excess of a $250,000 self-insured retention for "each Occurrence". The Liberty policy contains an "Other Insurance" provision that provides, in pertinent part, as follows:
(d) This insurance is excess over any other valid and collectible insurance that applies to any claim or "suit" to which this insurance applies, whether such other insurance is written on a primary, excess, contingent or any other basis (except if that other insurance is specifically written to apply excess of this insurance), and this insurance will not contribute with any other such insurance.
The personal injury action was settled for a total sum of $2.5 million. The settlement in the personal injury action was paid as follows: [1] Liberty, on behalf of Home Properties and/or Apple Hill — $1,000,000; [2] Mitsui on behalf of Hontz — $1,000,000; and [3] National Union on behalf of Home Properties and/or Apple Hill — $500,000. Liberty then commenced this action on its own behalf and as subrogee of Apple Hill and/or Home Properties to the extent that it was required to fund the settlement in the personal injury action and to pay for Apple Hill's and/or Home Properties' defense in the personal injury action.
In so far as is relevant to these motions, plaintiffs allege in their complaint that the defendants each breached the duty of good faith and fair dealing (fifth cause of action) and their fiduciary duty (sixth cause of action). In the seventh cause of action, plaintiffs allege that the defendants each willfully violated the Connecticut Unfair Insurances Practices Act ("CUIPA"), (C.G.S § 38a-816), and Connecticut Unfair Trade Practices Act ("CUTPA"), (C.G.S § 42-110g [a]). On these causes of action plaintiffs seek compensatory damages amounting to $1.25 million, punitive damages and attorneys' fees.
Discussion
The gravamen of Mitsui and National Union's motions to dismiss is that because New York law applies to this case, the fifth, sixth and seventh causes of action are not cognizable. They argue that: [1] New York does not recognize an independent cause of action for an insurer's breach of the duty of good faith and fair dealing arising from a failure to provide coverage; [2] plaintiffs' prayer for punitive damages and attorneys' fees are insufficiently supported under New York law; [3] plaintiffs have inadequately pled the alleged fiduciary relationship in their sixth cause of action; and [7] the seventh cause of action, which is based on Connecticut statutes, cannot proceed. Plaintiffs argue that Connecticut law applies and that the claims as plead are recognized in such State.
On a motion to dismiss pursuant to CPLR § 3211, the pleading is to be afforded a liberal construction (see CPLR 3026; Leon v Martinez, 84 NY2d 83, 87). The court accepts the facts as alleged by plaintiff as true, affording them the benefit of every possible favorable inference ( EBC I, Inc v Goldman, Sachs Co. , 5 NY3d 11, 19; Sokoloff v Harriman Estates Development Corp., 96 NY2d 409, 414; P.T. Bank Central Asia v ABN AMRO Bank NV, 301 AD2d 373, 375-6 [1st Dept 2003]), unless clearly contradicted by evidence submitted in connection with the motion (see Zanett Lombardier, Ltd v Maslow , 29 AD3d 495 [1st Dept 2006]).
Choice of law issue
Since a genuine conflict of law exists here, the court will first address the issue of whether New York or Connecticut law should be applied to this case.
To determine the appropriate choice of law in a contract case, a court is required to apply the law of the state with the "most significant relationship to the transaction and the parties", under the "center of gravity" or "'grouping of contacts" test. Certain Underwriters at Lloyd's, London v. Foster Wheeler Corp. , 36 AD3d 17, 27 (1st Dept 2006) aff'd 9 NY3d 928 (2007) (quoting Zurich Ins. Co. v. Shearson Lehman Hutton, Inc., 84 NY2d 309, 317). In applying the "center of gravity" test, courts examine the following factors: [1] the place of contract; [2] the place of negotiation of the contract; [3] the place of performance; [4] the location of the subject matter of the contract; and [5] the domicile, residence, nationality, place of incorporation, and place of business of the parties ( Zurich Ins. Co. v. Shearson Lehman Hutton, Inc., supra; see also Restatement [Second] of Conflict of Laws § 188 [2]).
A court considering the aforementioned factors must focus on the contacts that are significant in the particular contract dispute ( Matter of Allstate Ins. Co. (Stolarz), supra at 226). A court should also consider public policies underlying conflicting laws that are readily identifiable and reflect strong governmental interests (see, Matter of Allstate Ins. Co. [Stolarz], 81 NY2d 219, 225).
A liability insurance contract should be governed by the law of the State which the parties understood to be the principal location of the insured risk unless, with respect to the particular issue, some other state has a more significant relationship to the transaction and the parties ( Zurich Ins. Co. v. Shearson Lehman Hutton, Inc., supra). Where, however, the policies cover risks in multiple states, the state of the insured's domicile is the considered the proxy for the principal location of the insured risk. Certain Underwriters at Lloyd's, London, supra: see also Munzer v. St. Paul Fire Mar. Ins. Co., 203 AD2d 770 (3d Dept 1994).
Applying these legal standards, the court finds that Connecticut is the principal location of the insured risk here based on the instant facts: Hontz' operations at the building located in Connecticut were insured under each policy. The personal injury action was litigated in Connecticut. The risks for which plaintiffs seek coverage as additional insureds arose from Hontz' work for Apple Hill and Home Properties performed only at the building located in Connecticut.
Moreover, although plaintiffs allege in the complaint that Apple Hill's principal place of business was in Rochester, New York, plaintiffs now maintain that Apple Hill's principal place of business is and/or was in Hamden, Connecticut, based upon the affidavit of Robert J. Blackburn ("Blackburn"). Blackburn, the Director of Risk Management for Home Properties, states that Apple Hill still exists, but was solely created to own the building in Hamden, Connecticut. Blackburn admits that the building was sold on December 23, 2004, but maintains that Apple Hill does not engage in any other business.
The First Department decision in Worth Constr. Co. Inc. v. Admiral Ins. Co. , 40 AD3d 423 [1st Dept 2007]) guides this court's analysis. Worth Constr. involved a coverage dispute between general contractor, as an additional insured on subcontractor's liability insurance policy. The insurance policy was issued by a New Jersey insurer to a New Jersey subcontractor, and the general contractor was a Connecticut corporation. The First Department held that New York law, rather than New Jersey law, should apply because the policy covered a New York construction site, and the underlying personal injury action arising from an accident at the site was being litigated in New York. The First Department also noted that Connecticut law should not apply simply because Worth, the general contractor, was a Connecticut corporation.
Worth Constr. Co. Inc. v. Admiral Ins. Co., 2005 WL 5749129 (Trial Order) (N.Y.Sup. Jun 06, 2005) (NO. 118180/03) affd in part and modfd in part 40 AD3d 423 [1st Dept 2007] revd App Div and reinstated trial order 10 NY3d 411(2008). See also decision of the Hon. Helen E. Freedman, Index No. 118180/03, dated December 1, 2004, wherein Judge Freedman wrote:
Here, New York's contacts with this action and the underlying personal injury lawsuit far outweigh New Jersey's. Murphy resides and was injured in New York, and is litigating in this State. Worth, a Connecticut corporation, is authorized to do business in New York, and any claims against it Murphy arise from Worth's role as a general contractor for the Project in New York.
In so holding, the First Department distinguished the facts in Worth Constr. from its earlier decision in Regional Import Export Trucking Co. v North Riv. Ins. Co. 149 AD2d 361 [1st dept. 1989]. Regional involved an insurance coverage dispute which required a choice of law analysis as between New York and New Jersey law. In Regional the court held that New Jersey law should apply because New Jersey was the principal location of the risk and the State most concerned with the outcome of the litigation. In fact, the only contact New York had "in Regional was the placing of the policy through a New York broker." Similar to the facts in Regional, the only contacts that New York has to the instant action is the fact that the plaintiffs and defendants are New York entities. The more significant contacts here are with Connecticut.
Defendants claim that because Home Properties and Apple Hill are New York entities with their principal places of business in New York, that the bright line rule in Certain Underwriters at Lloyd's, London, supra, would mandate the application of New York law. First, there is enough evidence on this record to support plaintiffs' allegation that Apple Hill's principal place of business is and/or was in Connecticut at all relevant times. Moreover, the bright-line rule in Certain Underwriter's, that the insured's principle place of business is a proxy for location of risk, only applies if there are multi state risks being insured. It is unclear on this record if the underlying policies obtained by Hontz cover multi state risks. Even assuming they did, the court in Certain Underwriters was focusing on the principle place of business of the primary insured. It did not deal with the issue of additional insureds, who did not have the same (or probably any) participation in the original negotiation of the policies, a touchstone consideration for Certain Underwriters' conclusion. Relying solely on the New York residence of Home Properties and Apple Hill as a proxy for location of risk would defeat the purpose of the "center of gravity" test and would be tantamount to considering a factor that is relatively insignificant in the context of this particular contract dispute (see i.e. Matter of Allstate Ins. Co. (Stolarz), supra at 226).
The court rejects defendants' argument that Liberty's residence or place of business is in any way relevant in this choice of law analysis. Liberty is a subrogee of Apple Hill and Home Properties seesk to enforce the rights of Apple Hill and Home Properties in their capacities as the alleged additional insureds. Subrogation rights, which arise from relationships outside the relevant insurance policies, do not impact at all on choice of law issues related to such policies.
Defendants' further argument, that New York's interest in regulating the conduct of insurers whose principal place of business is located within the State warrants the application of New York law, was squarely rejected by the First Department in Certain Underwriters at Lloyd's, London, supra. In so holding, the court stated:
In the case of a liability insurance policy covering risks in multiple states, the state of the insured's principal place of business has a greater concern with issues of policy construction and application bearing on the amount of available coverage than do the states where contracting, negotiation, or payment of the premium happened to occur ( id at 27).
The court also rejects National Union's argument that New York law should apply to the subject claims because "Connecticut's law is contrary or repugnant to New York's strong and unwavering public policy to not recognize" plaintiff's fifth and sixth causes of action. The cases cited by National Union merely identify a conflict of law between New York and Connecticut, and do not establish that such claims are so contrary or repugnant to New York's public policy that they cannot be enforced. There is no reason to hold that a mere disagreement between two jurisdictions is sufficient to find such an overriding public policy.
Accordingly, the "center of gravity" lies in Connecticut and there is no basis to find that New York has a more significant relationship to the transaction and the parties. Therefore, defendants' arguments that the fifth, sixth and seventh cause of action should be dismissed, which rely upon the application of New York as opposed to Connecticut law, are rejected.
Connecticut Law
Defendants alternatively argue that even under Connecticut Law, these claims cannot proceed. CPLR § 4511(a) provides that every court will take judicial notice of the common law, Constitutions and public statutes of every other state. Thus, this court proceeds to consider the arguments presented regarding Connecticut common and statutory law.
The fifth cause of action
Defendants argue that the fifth cause of action must be dismissed because, under Connecticut law, plaintiffs have failed to allege "a dishonest, interested or sinister motive." Under Connecticut law, "in every insurance contract there is an implied covenant of good faith and fair dealing and the failure of insurer to deal fairly and in good faith with its insured and, without proper cause, to compensate him for a loss covered by the policy, gives rise to a cause of action in tort for breach of that implied covenant" ( Grand Sheet Metal Products Co. v. Protection Mut. Ins. Co., 34 ConnSupp 46 [Conn Super 1977]). "[B]ad faith may include one party's performance or interpretation of the contract in a manner that evades its spirit and is unfaithful to its purpose, resulting in a denial of the justified expectations of the other party" ( Landry v. Spitz, 102 ConnApp 34 [Conn App 2007].
Specifically, plaintiffs allege that National Union breached the duty of good faith and fair dealing by: [1] structuring the settlement to benefit its own interests at the expense of plaintiffs; and [2] improperly and without any reasonable justification, denying coverage to Apple Hill and Home Properties under the National Union policy. Plaintiffs allege that Mitsui breached the duty of good faith and fair dealing by: [1] improperly favoring one insured, Hontz, to the detriment of its other insureds, Home Properties and Apple Hill, by attempting to exhaust its policy by payment on behalf of Hontz without any provision to protect Home Properties and Apple Hill's rights under the Mitsui policy or to contribute to the settlement on their behalf; and [2] improperly and without any reasonable justification, denying coverage to Apple Hill and Home Properties under the Mitsui policy.
Contrary to defendants' assertions, plaintiffs do in fact allege that the defendants acted in bad faith within the meaning of Landry v. Spitz, supra (see also Habetz v. Condon, 224 Conn 231 [Conn 1992]).
Accordingly, defendants' motions to dismiss the fifth cause of action is denied.
The sixth cause of action
Defendants argue that the sixth cause of action for breach of fiduciary duty is untenable under Connecticut law. Specifically, defendants contend that no fiduciary duty can exist where the parties are business entities that engaged in an arm's length transaction.
Under Connecticut law, to find the existence of a fiduciary duty, the relationship at issue must be examined. A "fiduciary or confidential relationship is characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other." Konover Development Corp. v. Zeller, 228 Conn. 206, 219 (1994); Dunham v. Dunham, 204 Conn. 303, 322 (1987). Integral to the existence of a fiduciary duty is that the superior position of one party is the keystone of the trust and confidence placed in that party by the other. Whether such a confidential relationship exists is usually a question for the finder of fact. Charter Oak Fire Ins. C. v. Blue sky Partnership, 2001 WL 1178318 (Superior Court 2001).
In the context of the relationship between insured and insurer, the trial courts of Connecticut have not yet recognized a fiduciary relationship, at least as it concerns first party claims. Quality Restoration Roofing Inc. v. United States Liability Ins., 2004 WL 2039799 (Superior Ct. 2004); Charter Oak Fire Ins. Co. V. Blue Sky Partnership, supra; Namerow v. Travelers Insurance Company, 23 Conn 291, 1998 WL 779567 (Superior Ct. 1998). Some courts have, at least in dicta, distinguished rights between insured and insurer on first party benefits from situations dealing with third party claims.Thus, Justice Melville, in Grazynski v. Hartford Ins. Co., ( 20 Conn 200 [Superior Ct. 1997]) held that "[w]hile there are circumstances, particularly when dealing with third party claims, in which fiduciary-like duties may be placed on the insurer to benefit the insured, such situations do not arise in first party disputes between insurer and insured." This particular dicta was cited with approval by Justice Berger in Charter Oak Fire Ins. Co. V. Blue Sky Partnership, supra.
At bar, the allegations concern defendants' actions insofar as they relate to the payment of third party benefits. There is no basis in Connecticut law to rule at this time that such a claim fails as a matter of law.
Accordingly, defendant's motion to dismiss the sixth cause of action is denied.
The seventh cause of action
Defendants argue that under Connecticut law, the seventh cause of action should be dismissed, because plaintiffs have failed to allege that the defendants conduct was part of a "general business practice." Plaintiffs argue that they have stated a cause of action, and alternatively, if the court finds the pleadings insufficient, plaintiffs seek leave to replead so that they may rectify any deficiencies.
CUTPA affords a private cause of action to individuals who suffer any ascertainable loss of money or property, real or personal, as a result of the use or employment of a prohibited method, act or practice ( Fink v. Golenbock, 238 Conn 183, 212, (Conn. 1996). In Mead v. Burns, 199 Conn 651, 663 (1986), the Connecticut Supreme Court determined that individuals may bring an action under CUTPA for violations of CUIPA. In order to sustain a CUIPA cause of action under CUTPA, a plaintiff must allege conduct that is proscribed by CUIPA.
In the seventh cause of action, plaintiffs allege that defendants violated CUIPA and CUTPA by: [1] misrepresenting the policy provisions in each respective policy which make Home Properties and Apple Hill an additional insured for the personal injury action; [2] failing to adopt and implement reasonable standards for the prompt investigation of claims for additional insured coverage under each respective policy; [3] refusing to pay the claim under the respective policy on behalf of Home Properties and Apple Hill without conducting a reasonable investigation based upon all available information; [4] failing to attempt in good faith to effectuate a prompt, fair and equitable settlement of the personal injury action; [5] compelling plaintiffs to commence this litigation to enforce their rights under each respective policy; [6] Mitsui failing to settle the personal injury action on behalf of Home Properties and Apple Hill in order to benefit Hontz, and National Union's structuring the settlement in a manner to protect its interests at plaintiff's expense; and [7] failing to promptly provide a reasonable explanation of the basis for defendants' respective denial of coverage.
Plaintiff's allegation that the defendants "fail[ed] to adopt and implement reasonable standards for the prompt investigation of claims for additional insured coverage under its policies" is sufficient to constitute a general business practice under CUIPA.
C.G.S.A. § 38a-816 provides, in pertinent part:
6) Unfair claim settlement practices.
. . .
(c) failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies;
Defendants' business practices and their frequency of failing to adopt and implement reasonable standards for the prompt investigation of claims for additional insured coverage "is a proper area for discovery, particularly as such information may only be in [the insurer's] possession" ( Guillory v. Allstate Ins. Co., 476 FSupp2d 171 [D. Conn. 2007]). Although on a dispositive motion pursuant to CPLR § 3212 or at trial, the burden will be on the plaintiffs to prove that the defendants frequently engaged in acts in violation of CUIPA and CUTPA, plaintiffs' burden at this point is far easier, which is to present facts that state a cause of action against the defendants. Argo Corp. v. Greater New York Mutual Insurance Company, 4 NY3d 332 (2005). Plaintiffs have easily met its burden because, at this stage, these facts are afforded every favorable inference. EBC I, Inc v Goldman, Sachs Co., supra.
Accordingly, defendants' motions to dismiss the seventh cause of action is denied.
Plaintiffs' claim for punitive damages and attorneys' fees
Defendants also argue that plaintiffs' prayer for punitive damages should be dismissed because plaintiff has failed to plead that the respective insurance policies were breached via conduct systematically aimed at the public and that plaintiffs' prayer for attorneys' fees should be dismissed because they are not recoverable.
Under Connecticut law, plaintiffs may recover "punitive damages or damages of any nature beyond the policy limits" in a tort cause of action alleging breach of good faith and fair dealing by an insurer (see Grand Sheet Metal Products Co. v. Protection Mut. Ins. Co., 34 ConnSupp 46 [Conn Super 1977]; cf. ACMAT Corp. v. Greater New York Mut. Ins. Co., 282 Conn 576 [Conn 2007]) and for an intentional breach of a fiduciary duty ( Hartley v. Boyd, 2007 WL 1413452, 2 [Conn.Super. 2007]). In addition, because CUIPA violations can be the basis for violations under the CUTPA ( Mead v. Burns, 199 Conn 651 [Conn. 1986]), punitive damages and attorneys' fees may be awarded (Conn Gen Stat § 42-110g; see i.e. United Technologies Corp. v. American Home Assur. Co., 118 FSupp2d 174 [D Conn 2000]).
Accordingly, defendants' motions to dismiss plaintiffs' prayer for punitive damages and attorneys fees on the fifth, sixth and seventh causes of action is hereby denied.
Conclusion
In accordance herewith, it is hereby:
ORDERED that the consolidated motions are denied in their entirety.
The court hereby schedules a preliminary conference in this matter for September 25, 2008 in Part 10 at 80 Centre Street, Room 122.
Any relief requested but not expressly addressed is hereby denied. This shall constitute the decision and order of the court.