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Federal Court Predicts Procedural Bad Faith Claim Viable Under Connecticut Law

Blogs, Insurance Coverage

In a recent decision Judge Haight of the United States District Court for the District of Connecticut predicted that the Connecticut Supreme Court would recognize a claim against an insurer for procedural bad faith, even if the insurer had no coverage obligations under the applicable insurance policy. Tucker v. American International Group, Inc., No. 3:09-CV-1499 (CSH), 2011 WL 6020851 (D. Conn. Dec. 2, 2011) (“Tucker II”).

The ruling in Tucker II follows an underlying judgment by District Judge Stefan Underhill in Tucker v. Journal Register East, No. 3:06-CV-307 (SRU), 2009 WL 426460 (D. Conn. Feb. 20, 2009) (“Tucker I”). In Tucker I, Judge Underhill granted a $4 million judgment in favor of the plaintiff, Teri Tucker (the “Plaintiff”), against her former employer, Journal Register East (“JRE”), for unlawful discharge. In Tucker II, the Plaintiff seeks to recover damages from her former employer’s insurers, American International Group, Inc. and National Union Fire Insurance Company of Pittsburgh, PA (collectively, the “Defendants”), pursuant to an employment practices liability insurance policy (the “EPL Policy”).

In Tucker II, the Plaintiff seeks compensatory and punitive damages for the Defendants’ failure to satisfy the judgment in her favor, alleging, inter alia, breach of the implied covenant of good faith and fair dealing and violation of the Connecticut Unfair Trade Practices Act (“CUTPA”). Subsequent to the filing of Tucker II, the Plaintiff settled with JRE. As part of the settlement agreement, JRE assigned all its rights under the EPL Policy to the Plaintiff, including any claims against the Defendants. The Defendants moved to bifurcate all claims unrelated to the question of whether coverage existed under the EPL Policy and to stay unrelated discovery, or, in the alternative, for a protective order to delay discovery unrelated to the question of coverage until there was a ruling on Defendants’ dispositive motion. In doing so, the Defendants sought to narrow permissible discovery to the threshold issue of whether there was coverage under the EPL Policy with respect to the Plaintiff’s claims. 

In support of their motion to bifurcate, the Defendants asserted that the action would be resolved by their motion for summary judgment, as no coverage existed for the Plaintiff’s claim. The Plaintiff countered, arguing that her tort claims of bad faith would survive even in the absence of proven insurance coverage. In agreeing with the Plaintiff, Judge Haight reasoned: 

The Court is persuaded by Judge Arterton’s careful analysis in United Technologies Corp. v. Amer. Home Assur. Co., concluding that the Connecticut Supreme Court would not limit the tort of bad faith in the insurance context to claims of unreasonable or wrongful denial of claims. The insurer duty of good faith is not triggered only when coverage is unquestioned. After all, the core of the duty of good faith and fair dealing is that the insurer act reasonably toward its insured. In other words, not only is an insured entitled to security from financial loss, it is additionally entitled to the security of knowing it will be dealt with in good faith. Claims of bad faith on the part of the insurer are thus not limited solely to substantive decisions to deny coverage.

Tucker v. Am. Int’l Group, Inc., 3:09-CV-1499 CSH, 2011 WL 6020851, at *6 (D. Conn. Dec. 2, 2011) (emphasis added; internal quotation marks and citations omitted).

Judge Haight applied this reasoning to the case at bar, stating that although the Plaintiff was not a named insured under the EPL Policy, she had statutory rights against Defendants due to the unpaid judgment in her favor, and also as assignee of JRE’s claims against the Defendants under the EPL Policy. In denying the Defendants’ motion to bifurcate, Judge Haight also noted that discovery regarding the coverage issue would likely overlap with the bad faith issue, saving time and expense on the part of both parties, and that the Defendants failed to establish that they would be unduly prejudiced if discovery were to proceed.