Opinion
No. CV 03 0519565
May 28, 2004
MEMORANDUM OF DECISION
This case arose on a complaint by the plaintiff, Acoustics, Inc. (Acoustics) against the defendant, the Travelers Insurance Company (the Travelers), a surety under a payment bond issued pursuant to General Statutes § 49-41. On January 13, 2004, the court rendered a decision on cross motions for summary judgment on the first two counts of the complaint [ 36 Conn. L. Rptr. 476]. On April 1 and 2, 2004, the court conducted a trial on the third count, alleging bad faith by the Travelers, and the fourth court, alleging the Travelers violated of the Connecticut Unfair Trade Practices Act (CUTPA).
After the trial, the court finds as follows. In 1998, Trataros Construction, Inc. (Trataros) entered into construction contracts with the city of Bristol (city) for "code" upgrades of the two Bristol high schools, Bristol Eastern and Bristol Central. The contracts authorized the city to issue progress payments to Trataros based on the value of the work performed and to hold back retainage in the amount of ten percent of the approved work. Trataros arranged for a payment bond to be issued in connection with the projects; the responsible surety is now the Travelers, as administrator of the failed Reliance Insurance Company.
On or about August 14, 1998, Trataros entered into a subcontract with Acoustics to perform work and finish materials for the acoustical ceilings at the two high schools. After beginning its work, Acoustics periodically submitted payment applications to Trataros, and Trataros submitted these and other subcontractor requisitions to the city. The city then transferred payment to Trataros, and Trataros would disburse an amount to Acoustics as well as to the other subcontractors. This procedure continued until Acoustics completed its work under the subcontract in March 2001 and submitted another payment application to Trataros.
In April 2001, Trataros submitted Acoustics' application to the city along with other subcontractor requisitions, and subsequently, on May 2, 2001, the city transferred an amount to Trataros. Acoustics submitted a "final" bill with adjustments to Trataros in September 2001 showing that an amount had not been paid by Trataros from the sums the city had paid to Trataros in May 2001, and there was still a retainage figure being held by the city under its contract with Trataros.
On February 19, 2002, Acoustics submitted a claim under the payment bond to the Travelers, stating that it had performed work for Trataros through January 2001. It indicated that while Trataros had been paid by the city for this work, including any retainage, Acoustics still had an unpaid balance with Trataros. It had been "unable to elicit a response from Trataros Construction, and we feel we have no other choice than to put in a claim against the above referenced bond."
On February 21, 2002, the Traveler's bond claim manager, John Scarpellino, acknowledged in writing receipt of Acoustics' claim letter and requested additional information from Acoustics, stating that it would also "correspond with Trataros Construction, Inc. to gain an understanding of their position." The materials requested from Acoustics included a copy of its contract with Trataros, invoices and signed delivery receipts, a statement of account, copies of all correspondence, copies of all notices given to any person or entity regarding its claim. Scarpellino also asked that Acoustics complete an "Affidavit of Claim" form. This letter concluded with a reservation of rights and defenses that Trataros or the Travelers might have against Acoustics, including "suit limitation provisions." A copy of this letter was sent to Trataros.
It is clear that the Travelers could not have made a payment on its bond without receiving this additional information.
Acoustics did not reply to Scarpellino's letter for the next ten months. In the meanwhile, on February 25, 2002, the architect for the Bristol projects contacted the subcontractors to find out what their balances were, and also informed the subcontractors that "Gus Trataros and John Scarpellino of the Travelers have both told me that Trataros has been making some payments." On April 25, 2002, the architect wrote to thank the subcontractors for their claim information and set forth the total amounts paid to Trataros and the total amount retained by the city. He reported that some the owner retainage would be recalculated and that "[t]he bonding company [the Travelers] has paid Kennedy Electric all that they were owed." With the submission of proper documentation, the Travelers also settled several other claims by subcontractors against Trataros, arising out of the Bristol schools project, including those filed by F. Martone, and R.C. Electric.
On December 13, 2002, after this lapse of several months, Acoustics wrote to the Travelers and again set forth its claim against Trataros. The CFO of Acoustics, Anthony Aufiero, attached the materials sought by the Travelers in the Scarpellino letter of February 21, 2000, including the affidavit of claim. On December 17, 2002, attorney Steven Kaplan wrote to Scarpellino on behalf of Acoustics. He pointed out that the Travelers had not made any payment on the claim, nor had there been a denial of the claim. Regarding the materials requested by Scarpellino in his February letter, Kaplan stated that "my client did submit additional documentation to you, of its own volition, just last week." According to Kaplan, § 49-42 required the Travelers pay or deny the claim within ninety days of its submission.
A co-worker with Scarpellino at the Travelers sent the Kaplan letter to Trataros on December 18, 2002, with a hand-written cover letter that read in part as follows: "You remember Steve [Kaplan]. He was the attorney that filed the nasty lawsuit on behalf of Kennedy Electric a while back. Anyway, please get back to John Scarpellino ASAP regarding Trataros's position on this claim. It looks like amount due is retainage."
Kaplan wrote again on January 6, 2003, asking the Travelers to give its position on the Acoustics' claim "so that I can determine whether it will be necessary to initiate litigation." On January 7, 2003, Trataros responded to the Travelers' inquiries for the first time by setting forth a "complete breakdown" of the account. Trataros stated that "[p]ayment can be made excluding the 2% Retainage. All work has been completed in 2001." An attachment gave the payment figure of $61,017.15. In response to an additional inquiry made by Scarpellino, Trataros wrote again on January 10, 2003, showing the date of each payment made by Trataros to Acoustics for each job.
On January 20, 2003, Scarpellino wrote to Kaplan denying the claim: "We reviewed the information provided by your client, along with the Affidavit of Claim and we must deny the claim at this time. Our decision is based upon the following: [Acoustics] last performed work on the project March 7, 2001. No suit may be commenced after the expiration of one year after the day on which the last of the labor was performed or material supplied by the claimant. The claim is therefore time barred by the statute." Acoustics thereupon commenced this action with a return date of February 18, 2003.
On January 13, 2004, the court issued a written memorandum on the cross-motions for summary judgment on the first two counts of Acoustics' complaint [ 36 Conn. L. Rptr. 476]. These counts sought recovery under the provisions of the payment bond statute § 49-42 itself. In the memorandum, to which reference may be made, the court ruled that the greater amount being sought by Acoustics was barred by the statute of limitations provisions of § 49-42(b), but that Acoustics was entitled to judgment as to the balance, not barred by the statute of limitations, upon which the Travelers had not made payment within ninety days of the submission of the claim. See § 49-42(a). At the subsequent hearing of April 1, 2004, the parties stipulated as to the exact amounts of Acoustics' claim as affected by the court's ruling — $61,964.33 was subject to the limitations bar while Acoustics was entitled to $11,700. Having rendered this decision, the court continued the matter and subsequently conducted a trial on the third (good/bad faith) and the fourth (CUTPA) counts.
As to the third count, involving the covenant of good faith and fair dealing, Acoustics bases its claim on the failure of the Travelers to deny or pay the claim within ninety days, and the Travelers' subsequent lack of investigation prior to the running of the statute of limitations. Furthermore, at trial Acoustics attempted to show that a prior action involving Acoustics' counsel and the Travelers ( Kennedy Electrical Contractors, Inc. v. Travelers Ins. Co.) illustrated the bad faith conduct on the part of the Travelers. Acoustics claims that the Travelers adopted an "ignorance is bliss" attitude for its own benefit, leading to much of the claim being barred by the statute of limitations. According to Acoustics, if it had just made a few additional inquiries, the Travelers would have had all the facts necessary to pay Acoustics' claim within ninety days of its filing.
Judicial district of New Britain, Docket No. CV02 05113019 S.
As to the issue of whether § 49-42 preempts the ability of Acoustics to bring a claim under the implied covenant of good faith and fair dealing, the Connecticut Supreme Court has held that it does not. In Buckman v. People Express, Inc., 205 Conn. 166 (1987), the Court held that there is "an independent cause of action in tort arising from an insurer's common law duty of good faith . . . [a]n implied covenant of good faith and fair dealing has been applied by this court in a variety of contractual relationships, including insurance contracts." Id. at 170. In Buckman the defendant had allegedly acted in bad faith with regard to the plaintiff's conversion forms for medical insurance upon the termination of his employment with the defendant. Id. at 167. The plaintiff's counts sounded in both common law and a statutory violation. Regarding the overlap of the claims the court stated: "The fact that § 38-262d provides a statutory remedy to the plaintiff does not eliminate the plaintiff's independent cause of action based on the defendant's breach of its common law duty of good faith." Id. at 172. Accordingly, under the Buckman language, it is clear that Acoustics is not precluded from bringing its third count.
The statute in question was G.S. § 38-262d (2004), entitled: "Conversion and extension rights on group coverage. Liability of group employers."
Only a few years after Buckman, the Connecticut Supreme Court in addressing a breach of contract case, wherein a home improvement contractor was unpaid by a homeowner who had allegedly acted in bad faith, held that "bad faith [is] the absence of good faith." Habetz v. Condon, 224 Conn. 231, 236-37, citing Buckman v. People Express. The Court further defined bad faith as follows: "Bad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive." Id. at 237. Most relevant to the facts in this case, the court wrote: "It is the burden of the party asserting the lack of good faith to establish its existence and whether that burden has been satisfied in a particular case is a question of fact." Id. at 237 n. 11.
Did Acoustics meet its burden at trial? Scarpellino of the Travelers admitted that through error, he had cited the wrong statute of limitations in denying the claim. However, the Traveler's expert witness, Robert Wheeler, testified that the actions taken by the Travelers were entirely within the industry standard as far as making a good faith effort regarding the claim. Wheeler noted that it was the subcontractor's responsibility, not the surety's responsibility to perfect the claim. Accordingly, while the Travelers was slow and not as responsive as perhaps a surety should be, its actions hardly appear to rise to the level of a "dishonest purpose" by a preponderance of the evidence.
Habetz v. Condon, 224 Conn. at 237. The Court wrote: "Bad faith means more than mere negligence; it involves a dishonest purpose." Id.
In a January 2004 Connecticut Supreme Court decision, the court heard an appeal concerning the rights of a surety, pursuant to an indemnity agreement, to indemnification for payments made in settling a claim against a surety bond. PSE Consulting, Inc. v. Mercede, 267 Conn. 279 (2004). The parties to the dispute were the general contractor and the surety. The general contractor (Mercede) on a cross complaint sought damages arising out of an alleged breach of the implied covenant of good faith and fair dealing. Id. at 282. Following a survey of the approaches of other jurisdictions regarding how the covenant applies specifically in the surety context, the court noted that although "the weight of authority seems to be on the side of recognizing a duty of good faith, there is no consensus about what that duty requires." Id. at 302.
The court determined that:
After full consideration of the issue before us, we join those jurisdictions that define bad faith as requiring an "improper motive" or "dishonest purpose" on the part of the surety. This standard is in substantial accord with our definition of bad faith in other contexts. See Buckman v. People Express, Inc., 205 Conn. 166, 171 (1987). Additionally, this standard preserves a proper balance between affording the surety the wide discretion to settle that it requires, while ensuring that the principal is protected against serious and willful transgression.
Id. at 305.
The court was careful to note that it will continue to hold sureties to a standard in which "[u]nreasonable conduct can be evidence of improper motive and is a proper consideration where parties are bound by a contract that gives unmitigated discretion to one party." Id. The court applied this standard to the facts in PSE. Under the contractual payment bond provisions (not § 49-42) the defendant was required to "conduct a sufficient investigation" into the claim by the plaintiff/contractor. The court held that the "surety is under an obligation to conduct a proper investigation." Id. at 308. Nevertheless, the Supreme Court after examining precedent from other jurisdictions and expert commentators in the field, held that a failure to investigate
standing alone and not accompanied by other evidence of an improper motive, is not enough to constitute bad faith, and because as we have previously stated, our standard of bad faith requires more than mere negligence or unreasonable conduct . . . the [failure] to investigate PSE's claim properly is not by itself, sufficient evidence of bad faith.
Id. at 309.
The Supreme Court left open the possibility that a surety's action could rise to the level of bad faith by noting that "if a party fails to make an inquiry for the purpose of remaining ignorant of facts which he believes or fears would disclose a defect in the transaction, he may be be found to have acted in bad faith." Id. at 309-10. Acoustics did not prove that the Travelers, with knowledge that the claim deserved to be paid, refused to investigate its validity.
While the Travelers did not take initiative in February 2002, it did respond to Acoustics two days after receiving its first full notification of the claim. Upon receiving the information requested in December it moved to a speedy resolution (37 days) of the claim. Acoustics would have the court believe that the Travelers intentionally waited to investigate until after the statute of limitations had run. This conclusion cannot be made, based on the evidence presented at trial as to the industry practice, and the lack of any evidence of pattern or plan to intentionally deprive Acoustics of $64,000.
Furthermore, if Travelers were so carefully watching the clock, it could have sent out a notice in May or June 2003, informing Acoustics that it was closing the file as the statute of limitations had now run.
Two Superior Court cases also shed light on the present case. In Wolverine Fire Protection Co. v. Tougher Industries, Superior Court, judicial district of Hartford, Docket No. CV01 0805554 S (June 19, 2001, Hale, J.T.R.) ( 29 Conn. L. Rptr. 731), a sub-subcontractor brought an action against both the Contractor and Surety for a breach of the covenant of good faith and fair dealing (amongst other claims) for nonpayment for services rendered. The defendants moved to strike because they claimed that the plaintiff did not allege the type of aggravating circumstances necessary to support a claim of breach of the covenant of good faith and fair dealing. The court concluded that "the plaintiff has merely concluded that the defendants acted in bad faith and has not alleged sufficient facts to support a claim of breach of the implied covenant of good faith and fair dealing." Id.
The plaintiff alleged that the defendants "wrongfully withheld monies from the plaintiff, and violated the little Miller Act; that [the defendant] compelled the plaintiff to initiate litigation; and that [the second defendant] failed to conduct a good faith investigation in connection with the plaintiff's claim under the bond, thereby causing the plaintiff to initiate litigation." Id. The court used the following standard to determine if the allegations rose to the level of a breach of the covenant: "a claim for breach of the implied covenant of good faith and fair dealing is not legally sufficient unless a dishonest purpose or sinister motive is alleged." Id.
While in the instant case Acoustics has alleged bad faith on the part of the Travelers, it has failed to show it. It has been stipulated by both sides that the Travelers failed to pay Acoustics. However, the motives that Acoustics has imputed to the Travelers were not demonstrated at trial. At best, it was convenient for the Travelers to not investigate Acoustics' claim more thoroughly, but lacking an expert witness or Connecticut case law that demonstrates that the Travelers had a duty to perfect Acoustics' claim, the Travelers' lack of cooperation does not rise to the level of bad faith.
"These acts and omissions by the surety were undertaken in bad faith for purposes of avoiding the surety's obligation under the bond. These breaches . . . were unreasonable, reckless, intentional and malicious, were conducted with a willful disregard for plaintiff's rights, and constitute a breach of defendant Surety's duties of good faith and fair dealing." Amended Complaint, Count Three, ¶ 20 (Apr. 23, 2003).
Finally, a recent Superior Court decision held for a subcontractor that brought a claim for unpaid retainage, a breach of contract, a violation of § 49-42, and a breach of the covenant of good faith and fair dealing. Berlin Steel Construction Co. v. Liberty Mutual Ins. Co., Superior Court, judicial district of Tolland, Docket No. CV02 0078038S (Feb. 10, 2004, Klaczak, J.). The court found that the plaintiff/subcontractor was owed the retainage, despite filing an erroneous claim amount and an erroneous release being signed by the assistant treasurer of the plaintiff company. Id. The court held that the contract had been breached and the surety was required to pay the retainage that was owed to the plaintiff. However, because of the mistakes by the plaintiff (the incorrect claim and the release), the court ruled that the defendant/surety had not violated § 49-42. On the third count the court held that although "it appears that both parties could have done a better job of getting to the heart of the problem and some carelessness by both contributed to the dispute, it does not rise to the level of bad faith and unfair dealing." Id.
Direct analogies can be drawn to the present facts. It is unlikely that the Travelers will make similar mistakes in the future when acting as a surety in terms of denying a claim too late, or for the wrong reasons. On the other hand, in what can only be described as a mistake by Acoustics, it failed to take advantage of its statutorily protected rights by waiting ten months to address a further inquiry to Trataros' surety or to submit the materials requested in the Travelers' letter of March 21st. For the above reasons, the court rules against Acoustics on count three.
Turning to count four, recovery is based upon §§ 42-110a et seq., commonly referred to as the Connecticut Unfair Trade Practices Act (CUTPA). Under § 42-110b(a) "No person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." G.S. § 42-110b(a) (2004). The Supreme Court of Connecticut uses the following test for determining if a practice is in violation of CUTPA:
This three-part test is patterned after the "criteria set out in the `cigarette rule' by the federal trade commission." Premier Roofing Co., Inc. v. Ins. Co. of North America, Superior Court, judicial district of Danbury, Docket No. 31 24 38 (March 3, 1995, Stodolink, J.) ( 13 Conn. L. Rptr. 544).
1. Whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise — whether in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; 2. whether it is immoral, unethical, oppressive, or unscrupulous; 3. whether it causes substantial injury to consumers, competitors or other businessmen . . . All three criteria do not need to be satisfied to support a finding of unfairness. A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three.
Fink v. Golenbock, 238 Conn. 183, 215 (1996).
A number of Connecticut Superior Courts have held that § 49-42 is not an exclusive remedy, including: Wolverine Fire Protection Co. v. Tougher Indus., Superior Court, judicial district of Hartford, Docket No. CV01 0805554S (June 19, 2001, Hale, J.T.R.) ( 29 Conn. L. Rptr. 731); Production Equip. Co. v. Blakeslee Arpaia Chapman, Inc., Superior Court, judicial district of New Haven, Docket No, CV94 0247485S (January 3, 1996, Silbert, J.) ( 15 Conn. L. Rptr. 558); Blakeslee Arpaia Chapman v. USFG, Superior Court, judicial district of New London, Docket No. 52 03 48 (March 4, 1994, Hurley, J.) ( 11 Conn. L. Rptr. 169). In fact, in Blakeslee v. USFG, where a subcontractor alleged a violation of § 49-42, CUTPA, CUIPA and a breach of the implied covenant of good faith and fair dealing, the court wrote "Section 49-42 does not contain an exclusivity provision, and no Connecticut cases were found that expressly addressed the issue of whether § 49-42 provides an exclusive remedy." In other words, there is nothing restricting a finding of a CUTPA violation, simply because a violation of § 49-42 has been alleged.
Section 38a-815 et seq., is the Connecticut unfair insurance practices act, and is often referred to as "CUIPA." Acoustics, in the Amended Complaint, Count Four, ¶ 23 (Apr. 23, 2003), alleged a violation of CUIPA. However, there is no mention of the CUIPA claim in the Plaintiff's Supplementary Memorandum Re Motion for Summary Judgment (Feb. 18, 2004) nor was it introduced or substantiated via testimony or introduced evidence at trial and therefore will not be addressed here. Premier Roofing, supra, indicates that the CUIPA charge is mere surplusage to the CUTPA claim.
Although a few Connecticut trial courts have reached the conclusion that a "surety's failure to respond to a claim within ninety days [in other words a violation of § 49-42] can be the basis for a claimant's cause of action for a violation of the CUTPA," few cases reach beyond the summary judgment or motion to strike stage. Wolverine Fire is an example of one such ruling at the introductory stage: A sub-subcontractor survived a motion to strike its CUTPA claim due to a violation of § 49-42, as the court held: "a violation of § 49-42 may give rise to a CUTPA claim." Wolverine Fire, supra.
See, e.g., Barreira Landscaping Masonry v. Frontier Ins. Co., 47 Conn. Sup. 99, 29 Conn. L. Rptr. 188 (2000).
The examination of each factor in the `cigarette rule' is therefore required of the court. Factor one is: "Whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise — whether in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness." Fink v. Golenbock, 238 Conn. 183, 215 (1996). Was the Travelers' failure to deny or pay the claim within ninety days an offense to public policy?
Acoustics contended at trial that the Travelers had violated CUTPA by not denying or paying the claim within ninety days as required by § 49-42. The Travelers contended that a violation of § 49-42 by itself does not rise to the level of a CUTPA violation, citing Jacobs v. Healey Ford-Subaru, 231 Conn. 707 (1995), for the proposition that "[w]hen the legislature has intended to make the violation of a consumer statute an automatic violation of CUTPA, it has done so expressly." Jacobs at 727.
The court's January 13, 2004 decision, in finding that the Travelers had violated its statutory notice provisions, did not review any actions of the Travelers' employees. Rather it held that the Travelers had committed a "technical or inadvertent violation" of § 49-42(a). See Jacobs v. Healey Ford-Subaru at 729, n. 23. While this technical breach is grounds for relief under the "little Miller Act," it is insufficient alone to find a violation of public policy under CUTPA.
Acoustics' CUTPA claim is also based on the premise that the Travelers failed to investigate the claim made by Acoustics in February 2002, and then delayed paying or denying the claim within the statutory period allowed for Acoustics to bring an action against the Travelers under § 49-42. In essence, the public policy that the Travelers is accused of violating is an intentional "stalling" on the payment or denial of Acoustics' proper claim, until the statute of limitations ran out, so that the Travelers would never have to pay the legitimate claim.
Acoustics attributed the motives for such actions to a variety of possibilities, including the involvement of Acoustics' counsel in a similar action against Travelers. No conclusive evidence was presented at trial to demonstrate such an overwhelming animus on the part of Travelers towards counsel for Acoustics to infer that Travelers intentionally let the statute run out because of the previous litigation.
Acoustics did not demonstrate such abuses by the Travelers. In fact, although a similar claim was made in the previous litigation by Acoustics' counsel (see Kennedy Electrical Contractors, Inc. v. Travelers Ins. Co., supra), because Kennedy Electrical withdrew its claim and settled the matter, no such allegation was ever proven. The only questioning of a witness regarding the Kennedy Electrical action was regarding Scarpellino's awareness of the action and a note that had been written by a colleague of his. No actual evidence was produced, nor witnesses questioned regarding the facts of the Kennedy Electrical matter, nor any other matter in which the Travelers was alleged to have carried out a similar policy of delaying claims past the date of the statute of limitations under § 49-42.
"On April 8, 2002, Kennedy Electrical provided a release and assignment of claims to Travelers, and withdrew the case, in exchange for payment from the surety . . ." Plaintiff's Supplementary Memorandum Re Motion for Summary Judgment (Feb. 18, 2004) at 4.
Acoustics' counsel did not "become involved in this matter for Acoustics until December 2002." ( Plaintiff's Supplementary Memorandum Re Motion for Summary Judgment (Feb. 18, 2004) at 6.) Any allegations that Travelers intentionally stalled or was violative of CUTPA or the covenant of good faith and fair dealing because of Attorney Kaplan's involvement fails to hold up based on the fact that Acoustics' claim had already exceeded the statute of limitations six months prior to his involvement.
Furthermore, Wheeler, the expert witness presented by the Travelers, testified that the industry practice is that it is left to the subcontractor to perfect the claim, not the surety. Wheeler characterized the Travelers' actions as meeting the industry standard regarding the handling of claims such as the one brought by Acoustics.
Acoustics, in addition, had an available statutory remedy and was not entirely dependent upon the surety. Under § 49-42(b), it had thirteen months from the end of the time of the last payment to Trataros to bring an action against the Travelers. In this case, the city had paid Trataros in May 2001, so that Acoustics had until June 2002 to bring suit. This failure to meet the statutory deadline for bringing suit militates against finding a CUTPA violation.
This entire situation thus evolved from a lack of attention to detail by both parties. The Travelers did not investigate more thoroughly upon the receipt of Acoustics' February 2002 letter by speaking with the architect or Trataros. It did not notify Acoustics of a denial upon receipt of the December 2002 letter of the running of the statute of limitations. However, at trial, Aufiero, on behalf of Acoustics, admitted that there was substantially no reason that he could not have immediately supplied the answers requested in the Travelers' February 21, 2002 letter. Had Acoustics so replied, according to Scarpellino, the Travelers would have likely paid the claim with the approval of Trataros. Instead, Aufiero and Acoustics did not respond until December 2002, at which point, regardless of the Travelers' actions, the statute of limitations had run. The Travelers thus did not violate any public policy, as proscribed by CUTPA.
The court has previously analyzed the Travelers' good/bad faith as alleged in the third count and will not repeat this identical analysis under CUTPA.
The second element of the cigarette rule is: "Whether [the conduct] is immoral, unethical, oppressive, or unscrupulous." Fink v. Golenbock, 238 Conn. 183, 215 (1996). As to this element there was little evidence introduced at trial that demonstrated that the Travelers actions were anything beyond "sloppy." Scarpellino admitted that he did not deny or pay the claim within ninety days of the receipt of the claim. Yet, there was no showing that such a lack of action was "immoral, unethical, oppressive, or unscrupulous," or outside the standard practice of the industry. While such a policy of requiring the subcontractor to `perfect' the claim may place a burden on the subcontractor, the statutory relief, (bringing action under § 49-42) is always available for a subcontractor in Acoustics' position.
The Barreira court did not hold that a violation of § 49-42 was a per se violation of CUTPA or that such a violation was by definition "immoral, unethical, oppressive, or unscrupulous." As Acoustics did not prove by a preponderance of the evidence that the Travelers had done anything more than follow a standard industry policy, and inadvertently supply the wrong reason initially for denial of an expired claim, the second element of CUTPA was not proven.
The third element is "whether it causes substantial injury to consumers, competitors or other businessmen." Fink v. Golenbock, 238 Conn. 183, 215 (1996). The underlying purpose of the statute is embodied in the language: "No person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." G.S. § 42-110b(a). There was no proof that the Travelers refused payment due to an "unfair method" or "act" or "practice" on its part. The surety, admittedly could have handled the claim differently in regards to the initial reason provided for its denial of the claim; however, such a mistake, intentional or not, does not rise to the level of an "unfair method, act or practice."
The Connecticut Supreme Court when analyzing claims under the third element of CUTPA has cited the Federal Trade Commission's language:
The independent nature of the consumer injury criterion does not mean that every consumer injury is legally unfair, however. To justify a finding of unfairness the injury must satisfy three tests. It must be substantial; it must not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and it must be an injury that consumers themselves could not reasonably have avoided.
Williams Ford, Inc. v. Hartford Courant Co., 232 Conn. 559, 592 (1995) (citations omitted).
The Court in Williams Ford also held: "This test is equally applicable when a business person or competitor claims substantial injury." Id. at 592. The Court's holding is that if the party in question (Acoustics) could have "reasonably avoided" the injury, the third element of CUTPA has not been reached. As Acoustics had a statutory remedy, as well as the opportunity to reply to the Travelers' February 21, 2002 letter, the court must conclude that Acoustics had an opportunity to avoid the injury it suffered. Therefore the court rules in favor of the Travelers on the fourth count of the complaint.
To conclude, judgment is entered on Acoustics' complaint in the amount of $11,700. Pursuant to § 37-3a, the court awards interest at ten percent for a two-year period in the amount of $2340. Pursuant to § 49-42, the court awards attorneys fees in the amount of $5000. The attorneys fees award takes into account the amount of damages sought and the amount recovered and that Acoustics has recovered on only one narrow point. See U.S. ex rel. Rent It Company, Inc. v. Aetna Casualty and Surety Co., 988 F.2d 88 (10th Cir. 1993). The total judgment is in the amount of $19,040. So ordered.
Henry S. Cohn, J.