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Connecticut Supreme Court Resolves Twelve Year Unfair Trade Practices Litigation in Favor of The Hartford Fire Insurance Company

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In a long awaited decision, the Connecticut Supreme Court reversed a $35 million verdict against The Hartford Fire Insurance Company (“The Hartford”). Arties Auto Body, Inc., et al. v. The Hartford Fire Insurance Company, 317 Conn. 602 (2015). In doing so, the Court held that The Hartford did not violate the Connecticut Unfair Insurance Practices Act (“CUIPA”), the Connecticut Unfair Trade Practices Act (“CUTPA”) or public policy by requiring that their employee appraisers use the hourly labor rate of their Direct Repair Program (“DRP”) when negotiating with outside automobile body shops. The decision turned on whether Connecticut General Statutes § 38a-790-8 regulates an insurer’s conduct negotiating labor rates. The Court found that the statute did not regulate insurers’ conduct or support a CUTPA/CUIPA violation.

Under the DRP, automobile body repair shops contract with The Hartford for referrals and, in return, perform repairs at a rate set by The Hartford. Auto body repair shops who are not part of the program can negotiate their own rate with The Hartford and if the shop and The Hartford do not come to an agreement The Hartford can take the work elsewhere. At the time the trial commenced, the DRP rate was $46 per hour and Plaintiffs posted rates were $65 to $78. At trial, Plaintiffs conceded that customers rarely ever paid the posted rate and 99% or more of their work came from insurance companies, all of whom paid the same rate as The Hartford.

In 2003, Artie’s Auto Body, Skip’s Auto Body, and the Auto Body Association of Connecticut (“the Plaintiffs”) filed a class action on behalf of more than 1,000 independent automobile body repair shops in Connecticut against The Hartford alleging that The Hartford was artificially depressing the hourly labor rate by using the same hourly rate they used in the DRP with auto body repair shops that were not part of the program in violation of CUTPA, CUIPA and Connecticut public policy. More specifically, Plaintiffs argued that The Hartford’s conduct violated Connecticut public policy as set forth in Connecticut Regulations § 38a-790-8 which requires appraisers to approach the appraisal of damaged property without prejudice against or favoritism toward any party involved in order to make fair and impartial appraisals.

The jury found in favor of the Plaintiffs on their CUTPA claim and awarded approximately $14 million in compensatory damages. Thereafter, the court awarded Plaintiff’s $20 million in punitive damages and rendered judgment for Plaintiffs in the amount of $34,765,556.27. The Hartford appealed arguing that the trial court improperly denied its motion for directed verdict and its motion to set aside the verdict and for judgment notwithstanding the verdict because § 38a-790-8 does not prohibit the insurance practices at issue. The Supreme Court agreed and reversed the judgment of the trial court and remanded the case with direction to render judgment for The Hartford.

In reaching its decision, Supreme Court set forth the following principles which guided its analysis:

‘CUTPA is, on its face, a remedial statute that broadly prohibits unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce…. [CUTPA] provides for more robust remedies than those available under analogous common-law causes of action, including punitive damages … and attorney’s fees and costs, and, in addition to damages or in lieu of damages, injunctive or other equitable relief…. To give effect to its provisions, [General Statutes] § 42–110g(a) of [CUTPA] establishes a private cause of action, available to any person who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment of a method, act or practice prohibited by [General Statutes §] 42–110b….’…. CUIPA, which specifically prohibits unfair business practices in the insurance industry and defines what constitutes such practices in that industry; see General Statutes § 38a–816; does not authorize a private right of action but, instead, empowers the commissioner to enforce its provisions through administrative action. See General Statutes §§ 38a–817 and 38a–818. ‘In Mead v. Burns, 199 Conn. 651, 663, 509 A.2d 11 (1986), [however] this 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.’…. Thus, under Mead, ‘if a plaintiff brings a claim pursuant to CUIPA alleging an unfair insurance practice, and the plaintiff further claims that the CUIPA violation constituted a CUTPA violation, the failure of the CUIPA claim is fatal to the CUTPA claim.’

In [State v. Acordia, Inc., 310 Conn. 1, 31, 73 A.3d 711 (2013)], after observing that Mead had ‘strongly suggested’ but not expressly resolved whether the ‘legislative determinations as to unfair insurance practices embodied in CUIPA are the exclusive and comprehensive source of public policy in this area’; id., at 35, 509 A.2d 11; we concluded that, as a general rule, a plaintiff cannot bring a CUTPA claim alleging an unfair insurance practice unless the practice violates CUIPA. Id., at 31, 35–37, 509 A.2d 11. ‘Because CUIPA provides the exclusive and comprehensive source of public policy with respect to general insurance practices, we concluded that, unless an insurance related practice violates CUIPA or, arguably, some other statute regulating a specific type of insurance related conduct, it cannot be found to violate any public policy and, therefore, it cannot be found to violate CUTPA.’

317 Conn. 602, 623-24. The Court then went on to observe that although § 38a–790–8 reasonably may be characterized as regulating insurance related conduct insofar as it prescribes a standard of conduct for appraisers who estimate the cost to insurers of auto body repairs, that provision simply does not purport to regulate the conduct at issue. To the contrary, insurance companies have the right to negotiate the hourly rate they are willing to pay for the repairs and refuse to give their business to an automobile body repair shop with which they are unable to agree on a rate. The Court explained that the appraiser’s role is limited to an assessment of the automobile parts in need of repair and the number of hours to complete the repair job, whereas the rate to be paid is the subject of negotiation between the insurer and the shop, with the appraiser sometimes acting as the negotiator on behalf of his employer – the insurer. This division of authority, in the Court’s opinion, is not suspect or unfair or otherwise contravene the requirements of § 38a–790–8. Indeed, as the Court noted, there is no reason why appraisers when negotiating for the cost of automobile repairs on the behalf of their employers, would ever owe a duty of impartiality to the repair shop with whom they were negotiating – those businesses are capable of representing their own interests and are under no obligation to accept work that is not sufficiently remunerative.

Significantly, the Court’s decision built-on, and expressly approved, the analysis contained in two opinion letters issued by the Connecticut Insurance Commissioner which explained § 38a–790–8 did not support a CUTPA action.