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GL E-Note 09-26-2022


Connecticut Appellate Court Clarifies What Constitutes A “General Business Practice” Under the Connecticut Unfair Insurance Practices Act and the Massachusetts Supreme Court Holds Attorneys’ Fee Awarded Under Ch. 93A Are Not Insured Damages Under A General Liability Policy

By: Robert Laurie, Melicent Thompson, and Kaylee Navarra

Connecticut Appellate Court Clarifies “General Business Practice” Requirement for Statutory Bad Faith Claim in Connecticut.

 Like many states, Connecticut insureds can assert both common law and statutory “bad faith” claims against insurers. Connecticut statutory “bad faith” claims are pursued under the Connecticut Unfair Insurance Practices Act, Conn. Gen. Stat. § 38a-816(6) (“CUIPA”), pursuant to the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. § 42-110a et seq. (“CUTPA”), as CUIPA itself does not include a private right of action (taken together, frequently referred to as a “CUTPA/CUIPA claim”). In order to prevail on a CUTPA/CUIPA claim, an insured must specifically plead and then prove that an insurer engaged in a prohibited act and that the prohibited act is performed by the insurer with such frequency as to amount to a “general business practice.”

To date, Connecticut state trial court and federal court decisions addressing how to plead and prove a “general business practice” have not developed a clear standard. However, this month, in Harrigan v. Fidelity National Title Ins. Co., 214 Conn. App. 787 (Sept. 6, 2022), the Connecticut Appellate Court provided some valuable clarity as to what constitutes a “general business practice” under CUIPA. In that case, the insured asserted a CUTPA/CUIPA claim for an insurer’s alleged failure, among other claimed deficits, to act with reasonable promptness in the handling of a claim under a title insurance policy. The insured alleged that the insurer’s failure to promptly settle the claim and respond to communications in a timely fashion were part of its “general business practice” violative of CUIPA. The trial court ruled in favor of the insurer on the CUTPA/CUIPA claim on the ground that the evidence presented at the bench trial did not include any evidence that the insurer acted in bad faith at any time.

The insured appealed, arguing the trial court applied the wrong standard (whether plaintiff had established that the insurer acted in bad faith, rather than an analysis of alleged violations of specifically plead CUIPA provisions) and that if the correct standard had been applied, the record would have sufficiently demonstrated that the insurer violated CUIPA and that the insurer’s unfair practices were part of its general business practice.

 The Connecticut Appellate Court reviewed the evidence de novo and affirmed the lower court’s ruling, “albeit on different grounds.” The Appellate Court explained that the case was not about declination of coverage, only about the claim’s proper value. The Court agreed with the trial court that the only issues raised in the evidence presented at trial were whether the insurer: (1) failed to acknowledge and act promptly on communications regarding the claim; and/or (2) failed to act in good faith to effectuate a prompt, fair and equitable settlement. 

 The Appellate Court noted that the trial court’s conclusion that there was no evidence presented that the insurer acted in bad faith was based, in part, on the trial court’s assessment of the credibility of various insurer representative witnesses, which assessment the Appellate Court would not “second guess” on review. Therefore, the Appellate Court held that there specifically could not have been any failure by the insurer to act in good faith to effectuate prompt, fair and equitable settlement of the claim. Thus, the only issue remaining on appeal was whether the insured had presented sufficient evidence to prove a violation of the only remaining CUIPA provision in issue: failure to acknowledge and act promptly on communications regarding the claim.  

 The Appellate Court first explained that the insured could not prevail on the CUTPA/CUIPA claim without presenting sufficient evidence at trial that the claimed CUIPA violation (failure to acknowledge and act promptly on communications regarding the claim) occurred with such frequency so as to amount to a “general business practice.” The Court outlined the following factors for determining whether a “general business practice” violative of CUIPA has been established: (1) the degree of similarity between the alleged unfair practices in other instances and the practice allegedly harming the plaintiff; (2) the degree of similarity between the plaintiff’s insurance policy and the other victims’ policies; (3) the degree of similarity between the claims made under the plaintiff’s policy and those made by other alleged victims under their respective policies; and (4) the degree to which the defendant is related to other entities engaging in similar practices.

 The Court determined, using the factors outlined above, that each of the cases that the insured relied upon to demonstrate that the insurer’s delay was part of a general business practice was factually distinguishable from the insured’s own claim, in that the referenced cases involved different facts, different insurance policies in issue and/or different claims of unfair practices. Furthermore, the court determined that the delay in payment in the case at bar was the fault of both the insurer’s bureaucratic inefficiency and the insured’s own extensive delays in responding to the insurer’s correspondence and settlement offers.

Thus, Harrigan establishes a more concrete “similarity” standard that, for example, prohibits insureds from relying on dissimilar conduct as to a commercial professional liability or casualty claims as evidence of a prohibited practice involving a claim under a personal lines property policy. However, though Harrigan provides some clarity on that point, the Court also specifically left to the trial courts the determination as to just how “similar” the claims must be. 

 Furthermore, Harrigan does not resolve the uncertainty surrounding another perennial issue related to sufficient pleading and proving a CUTPA/CUIPA claim: whether an insured can simply rely upon allegations of similar prohibited conduct, or whether the relied upon cases must have involved adjudication of the insurer’s wrongdoing.

 Massachusetts Supreme Court Rules Attorneys’ Fees Awarded Under Consumer Protection Act Not Covered “Damages” Under CGL Policy.

 In Vermont Mutual Insurance Company v. Poirier, 490 Mass. 161 (Mass. Sup. Ct. July 6, 2022), the Supreme Judicial Court of Massachusetts held that attorneys’ fees awarded under Massachusetts General Laws ch. 93A (“Chapter 93A”) are not covered “damages” under a general liability insurance policy and are not “costs taxed against the insured.”

 The insureds obtained a liability policy for their cleaning business that provided coverage for “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ . . . to which this insurance applies.” The insureds were sued by customers who suffered respiratory problems because of the cleaning agents that the insureds used to clean a sewage spill in the customers’ basement. The customers sought damages against the insureds under Chapter 93A based on breach of the warranty of merchantability and the warranty of fitness for a particular purpose. Chapter 93A § 2 prohibits “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” Section 9 provides a private right of action for a person injured by a violation of Section 2 and permits the award of reasonable attorney’s fees and costs incurred in connection with such action.

 The trial judge in the underlying suit found the insureds’ business committed an unfair or deceptive act by breaching the implied warranty of merchantability and awarded the customers $272,248.67 for bodily injury and loss of consortium damages. Additionally, the trial court awarded $254,346.11 in attorneys’ fees and costs. 

 The insurer then paid the insureds for the bodily injury and loss of consortium damages but not the attorney’s fees and costs. The insurer commenced a declaratory judgment action in which the trial court ruled that the award of attorney’s fees fell into the policy’s coverage for “sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury.’”

The Supreme Judicial Court reversed on appeal, holding that the general liability policy did not cover attorneys’ fees. The Court reasoned that attorneys’ fees awarded under Chapter 93A are not “damages because of bodily injury” because “damages caused by bodily injury refer to the physical injuries and the money damages required to compensate them.” The Court further explained that attorneys’ fees reflect the cost of suing to recover the relief requested and are “a separate form of relief distinct from the award of damages.”