Opinion
No. HHD CV 08-4041234-S
August 30, 2010
MEMORANDUM OF DECISION
MOTION TO STRIKE
This action commenced by the plaintiff, First American Title Insurance Company (First American), arises out of a dispute over the scope of coverage under a title insurance policy on property owned by the defendants, 273 Water Street, LLC and Fenwick Acquisition LLC (the Insureds). In the complaint, brought pursuant to Practice Book §§ 17-54, 17-55, 17-56 and General Statutes § 52-29, as a declaratory judgment action, First American seeks a declaration of rights and obligations with respect to the scope of insurance coverage pursuant to a contract of title insurance (the Policy) between First American and the Insureds. In response to the complaint, the defendants filed an answer and a counterclaim consisting of six counts alleging breach of fiduciary duty (count one), breach of contract (count two), breach of the implied covenant of good faith and fair dealing (count three), violation of General Statutes § 42-110a et seq., the Connecticut Unfair Trade Practices Act (CUTPA) (count four), negligence (count five), and their own request for declaratory judgment (count six). Pending before the court is the plaintiff's motion to strike all but count two (breach of contract), of the counterclaim.
The complaint for declaratory judgment, filed by the plaintiffs on November 26, 2008, set forth three requests in their prayer for relief including a declaration (1) that the insurance company properly determined the value of the defendants' incurred loss in accordance with the policy terms, (2) that all of the plaintiff's obligations under the policy would be satisfied by tendering a check to the defendants in the amount of $17,000 and (3) any other relief that the court deems appropriate.
As pertinent to the motion to strike, the parties allege the following facts in the complaint and the counterclaim. The Policy insured the Insureds "against, among other things, loss or damage sustained or incurred by reason of any defect in or lien or encumbrance on the title to the insured property, as these terms are used, defined, and/or construed in the Policy." Complaint ¶ 2. The Insureds purchased a parcel of land commonly known as 10 Mohegan Avenue, Old Saybrook, Connecticut (the Property), which was insured by the Policy. The legal description of the Property included a strip of land which was later alleged to be owned by the Borough of Fenwick. The Insureds notified First American of the allegations of ownership by the Borough of Fenwick and made a claim under the Policy.
First American responded to the claim and, determining that the disputed portion of the property fell within the coverage of the Policy, hired an appraiser to value the amount of loss sustained by the Insureds. Based on that appraisal, First American tendered a check to the Insureds in the amount of $17,000 on October 8, 2008. As stated in their answer to the complaint, the Insureds returned the check uncashed to First American because the check amount "neither compensated them for their loss nor met the requirements of compensation mandated under the title policy." Counterclaim, ¶ 9. The Insureds further claim that First American's offer of payment is not in compliance with the terms of the Policy and, therefore, that the declaratory judgment sought by First American should be denied.
"The purpose of a motion to strike is to contest . . . the legal sufficiency of the allegations of any complaint . . . to state a claim upon which relief can be granted." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003). "A motion to strike challenges the legal sufficiency of a pleading . . . and, consequently, requires no factual findings by the trial court." (Internal quotation marks omitted.) American Progressive Life Health Ins. Co. of New York v. Better Benefits, LLC, 292 Conn. 111, 120, 815 A.2d 1188 (2009). "[A] plaintiff can [move to strike] a . . . counterclaim." Nowak v. Nowak, 175 Conn. 112, 116, 394 A.2d 716 (1978). "[A] counterclaim is a cause of action existing in favor of the defendant against the plaintiff and on which the defendant might have secured affirmative relief had he sued the plaintiff in a separate action . . . A motion to strike tests the legal sufficiency of a cause of action and may properly be used to challenge the sufficiency of a counterclaim." (Internal quotation marks omitted.) JP Morgan Chase Bank, Trustee v. Rodrigues, 109 Conn.App. 125, 131, 952 A.2d 56 (2008).
"[F]or the purpose of a motion to strike, the moving party admits all facts well pleaded." RK Constructors, Inc. v. Fusco Corp., 231 Conn. 381, 383 n. 2, 650 A.2d 153 (1994); see also Ferryman v. Groton, 212 Conn. 138, 142, 561 A.2d 432 (1989). Accordingly, "[i]f facts provable in the complaint would support a cause of action, the motion to strike must be denied." (Internal quotation marks omitted.) American Progressive Life Health Ins. Co. of New York v. Better Benefits, LLC, 292 Conn. 111, 120, 971 A.2d 17 (2009). Moreover; . . . [w]hat is necessarily implied [in an allegation] need not be expressly alleged . . . It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted . . . Indeed, pleadings must be construed broadly and realistically, rather than narrowly and technically." (Internal quotation marks omitted.) Violano v. Fernandez, 280 Conn. 310, 318, 907 A.2d 1188 (2006).
Count One — Breach of Fiduciary Duty
In count one of their counterclaim, the Insureds allege a claim for breach of fiduciary duty against First American. Specifically, the Insureds contend that, considering the terms of the Policy, First American has a duty to adequately resolve any claims under the Policy in a timely manner. First American, conversely, contends that no such fiduciary duty exists.
"It is well settled that 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." (Internal quotation marks omitted.) Macomber v. Travelers Property Casualty Corp., 261 Conn. 620, 640, 804 A.2d 180 (2002). "Although [our Supreme Court] has refrained from defining a fiduciary relationship in precise detail and in such a manner as to exclude new situations, . . . [it] ha[s] recognized that not all business relationships implicate the duty of a fiduciary." Id. "The existence of a duty is a question of law and only if such duty is found to exist does the trier of fact then determine whether the defendant violated that duty in the particular situation at hand." (Citations omitted; internal quotation marks omitted.) Gould v. Mellick Sexton, 263 Conn. 140, 153, 819 A.2d 216 (2003).
In support of count one of their counterclaim, the Insureds cite Hutchinson v. Farm Family Casualty Ins. Co., 273 Conn. 33, 47-8, 867 A.2d 1 (2005), for the proposition that an insurer owes a fiduciary duty to an insured. In Hutchinson, however, the Court indicates that while a special relationship which may rise to a fiduciary duty between an insurer and an insured occurs when an insurer undertakes to defend a third-party claim against the insured, it does not occur when the relationship between insured and insurer becomes adversarial. Id. In the present case, the relationship between the insurer and the insured is unquestionably adversarial. The insured is disputing the settlement practices of the insurer and the insurer is not addressing a third-party claim. Therefore, the court finds that the relationship between the Insureds and First American is not fiduciary in nature. Accordingly, the Insureds have failed to state a valid claim of breach of a fiduciary duty against First American.
Count Three — Breach of the Implied Covenant of Good Faith and Fair Dealing
In count three of their counterclaim, the Insureds allege a claim of breach of the covenant of good faith and fair dealing as implied in their contract of insurance with First American. First American moves to strike this cause of action on the ground that the actions it undertook lacks the "sinister and interested purpose" necessary to sustain such a claim. In response, as alleged in their counterclaim, the Insureds contend that the length of time undertaken by First American to fulfill its obligations under the Policy, as well as its motivation in undertaking its chosen course of action, constitute sufficient "bad faith" to sustain a cause of action for breach of the covenant of good faith and fair dealing.The "duty of good faith and fair dealing is a covenant implied into a contract or contractual relationship." Renaissance Management Co. v. Connecticut Housing Finance Authority, 281 Conn. 227, 240, 915 A.2d 290 (2007). "In other words, every contract carries an implied duty requiring that neither party do anything that will injure the right of the other to receive benefits of the agreement." Id. To constitute a breach of the implied covenant of good faith and fair dealing, "the acts by which a defendant allegedly impedes the plaintiff's right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith." De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn. 424, 432-33, 849 A.2d 382 (2004).
"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." De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., supra, 269 Conn. 433. Bad faith "implies the conscious doing of wrong because of a dishonest purpose or moral obliquity . . . [I]t contemplates a state of mind affirmatively operating with furtive design or ill will." Hutchinson v. Farm Family Casualty Ins. Co., supra, 273 Conn. 50 n. 4.
In the present case, the Insureds have alleged that First American breached the covenant of good faith and fair dealing by failing to "take any steps whatsoever to relieve the Property of the defect, as required by the . . . Policy." Counterclaim, Count Three, ¶ 14. The motive alleged by the Insureds is that First American "took such actions in order to avoid its true financial and other obligations under the . . . Policy." Counterclaim, Count Three, ¶ 16. In support of their argument that their cause of action is sufficiently plead, the Insureds cite Antonacci v. Darwin Select Ins. Co., Superior Court, judicial district of New Britain, Docket No. CV 08 5009088 (April 28, 2009, Pittman, J.). In that case, a motion to strike a claim for violation of the covenant of good faith and fair dealing was denied by the court, holding that the statement "defendant has failed to act in good faith with regard to the interests of the plaintiff" is sufficiently specific to set forth the necessary claim. The Antonacci court correctly noted that the original pleadings in Buckman v. People Express, Inc., 205 Conn. 166, 530 A.2d 596 (1987), our Supreme Court's seminal first attempt at defining "bad faith" in the present context, contained only the allegation that "defendant has failed to act in good faith with regard to the interest of the plaintiff" in order to establish a valid claim for breach of the implied covenant of good faith and fair dealing. Id. As such, the Antonacci court was "not persuaded that a more specific or objective set of facts needs to be set forth in the complaint." Id. Instead noting that "[b]ad faith is usually proved circumstantially because it is usually, by definition, furtive." (Internal quotation marks omitted.) Id.
First American, however, comments that the party bringing the claim must allege a "dishonest purpose"; De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., supra, 269 Conn. 433; or a "state of mind affirmatively operating with furtive design or ill will"; Hutchinson v. Farm Family Casualty Ins. Co., supra, 273 Conn. 50, n. 4; in order to make a showing of bad faith necessary to sustain the claim. First American, moreover, contends that no such allegation of a "dishonest purpose" has been made by the Insureds in their counterclaim. Nonetheless, in their counterclaim, the Insureds have alleged that First American "took such actions in order to avoid its true financial and other obligations under the . . . Policy." Counterclaim, Count Three, ¶ 16. Such an allegation, if true, is unquestionably a "dishonest purpose" considered to be an example of "bad faith" by our Supreme Court in De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., supra, 269 Conn. 433. Because this court is obliged to "construe the complaint in the manner most favorable to sustaining its legal sufficiency;" American Progressive Life Health Ins. Co. of New York v. Better Benefits, LLC, supra, 292 Conn. 120; it finds that the Insureds have sufficiently plead a cause of action of breach of the covenant of good faith and fair dealing.
Count Four — CUTPA Violation
CUTPA provide that "no person shall engage in unfair methods of competition and unfair or deceptive acts or practice in the conduct of trade or commerce." General Statutes § 42-110b. The test used in determining whether a party's actions constitute an unfair or deceptive trade practice is the three-part criteria known as the "cigarette rule." McLaughlin Ford, Inc. v. Ford Motor Co., 192 Conn. 558, 567-68, CT Page 7573 473 A.2d 1185 (1984). The three criteria are: "(1) [W]hether 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)." (Internal quotation marks omitted.) Journal Publishing Co. v. Hartford Courant Co., 261 Conn. 673, 695, 804 A.2d 823 (2002). "[A] violation of CUTPA may be established by showing either an actual or deceptive practice . . . or a practice amounting to a violation of public policy . . ." (Citations omitted; internal quotation marks omitted.) Ancona v. Manafort Brothers, Inc., 56 Conn.App. 701, 714-15, 746 A.2d 184 (1998), cert. denied, 252 Conn. 953, 749 A.2d 1202 (2000). "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." (Citation omitted; internal quotation marks omitted.) Ramirez v. Health Net of the Northeast, Inc., 285 Conn. 1, 19, 938 A.2d 576 (2008). Nonetheless, "a CUTPA claim based on an alleged unfair claim settlement practice . . . required proof, as under CUIPA [the Connecticut Unfair Insurances Practice Act], that the unfair settlement practice had been committed or performed by the defendant with such frequency as to indicate a general business practice." (Internal quotation marks omitted.) Lees v. Middlesex Ins. Co., 229 Conn. 842, 850, 643 A.2d 1282 (1994). Moreover, "a CUTPA claim based on the public policy embodied in CUIPA must be consistent with the regulatory principles established therein, and that [t]he definition of unacceptable insurer conduct in [§ 38a-816(6)] reflects the legislative determination that isolated instances of unfair insurance settlement practices are not so violative of the public policy of this state as to warrant statutory intervention [under CUTPA]." (Internal quotation marks omitted.) Id.
In the present case, the Insureds have failed to allege any unfair or unscrupulous practices undertaken by First American beyond the isolated claim settlement issue currently at issue before the court. Instead, the Insureds rely on the argument that because First American "repeatedly" violated the terms of the Policy, that such conduct constitutes sufficient facts to establish a violation of CUTPA. Our Supreme Court in Lees, however, specifically rejected the notion that a solitary settlement practice issue, absent a showing of a general business practice by the insurer, is sufficient to sustain a claim for a violation of CUTPA. Lees v. Middlesex Ins. Co., supra, 229 Conn. 850. See also Hellberg v. Travelers Home Marine Ins. Co., Superior Court, judicial district of Hartford, Docket No. CV 09 5030438 (August 13, 2010, Peck, J.) ("factual allegations of a singular act of misconduct do not constitute a general business practice"). Because the Insureds have failed to allege any "general business practice" by the insurer, the court finds that the Insureds have failed to sufficiently state a claim for a violation of CUTPA against First American.
Count Five — Negligence
First American moves to strike the Insured's claim for negligence on the ground that the economic loss doctrine bars the Insured's claim on a theory of negligence seeking damages only for economic loss. The economic loss doctrine, a judicially created principle, prohibits recovery in tort where the relationship between the parties is contractual in nature and the only losses alleged are purely economic. See Smith Craft Real Estate Corp. v. Hamden of Connecticut, Inc., Superior Court, judicial district of Ansonia-Milford, Docket No. CV 03 0082188 (June 25, 2004, Ronan, J.T.R.) ( 37 Conn. L. Rptr. 272).
In Williams Ford, Inc. v. Hartford Courant, Co., 232 Conn. 559, 579, 657 A.2d 212 (1995), our Supreme Court expressly rejected adoption of the economic loss doctrine holding that "the [plaintiffs] were not barred from pursuing a negligence claim solely because they might also have a breach of contract claim." Subsequently however, the Court revisited this issue and adopted the economic loss doctrine in Flagg Energy Development Corp. v. General Motors Corp., 244 Conn. 126, 709 A.2d 1075 (1998). Although the court in Flagg applied the economic loss doctrine only to an action arising out of a defective product under the Uniform Commercial Code, there is considerable dispute at the trial level as to the extent that the Court's ruling in Flagg overrules its earlier ruling in Williams Ford.
A number of Superior Court cases have followed the lead of our Supreme Court in Flagg and extended the economic loss doctrine to bar all tort claims arising out of a breach of contract. See Greater New Haven Transit District v. Nafis Young Engineers, Inc., Superior Court, judicial district of New Haven, Docket No. CV 02 0469107 (July 1, 2003, Arnold, J.) ( 35 Conn. L. Rptr. 100) (holding that a plaintiff's negligence actions were barred by the economic loss doctrine where the parties' relationship was governed by a construction contract); Hartford Fire Ins. Co. v. Leninski, Superior Court, judicial district of New Haven, Docket No. CV 97 0396097 (October 29, 2002, Zoarski, J.T.R.) (defendant could not recover in tort as the right of recovery was defined by the terms of a lease); Dobco, Inc. v. Williams Development Co., Superior Court, judicial district of Tolland, Docket No. CV 99 0072152 (May 17, 2002, Bishop, J.) [ 32 Conn. L. Rptr. 214] ("The plaintiff's recovery, if any, is defined by the terms of the contract and contract law by virtue of the economic loss doctrine"); Amity Regional School District #5 v. Atlas Construction Co., Superior Court, judicial district of Waterbury, Docket No. CV 99 0153388 (July 26, 2000, McWeeny, J.) ( 27 Conn. L. Rptr. 605) (negligence and CUTPA claims barred where construction contract existed).
The most persuasive argument in support of extending the economic loss doctrine lies in the Superior Court cases analyzing torts arising out of insurance agreements and considering the public policy associated with such an extension. "Insurance companies . . . in order to be able to make a reasonable profit have to rationally allocate risks." Cooper v. RLI Ins. Co., Superior Court, judicial district of New Haven, Docket No. CV 94 0361702 (June 3, 1996, Corradino, J.). Without the ability to limit risk within liability policies, insurers could not operate, or premiums would be exorbitant. Id. The insurance industry depends on its right to allocate risk and limit potential liability by contract terms. See American Progressive Life and Health Ins. Co. v. Better Benefits, LLC, Superior Court, judicial district of Waterbury, Docket No. CV 02 401221 (January 4, 2007, Munro, J.) ( 42 Conn. L. Rptr. 618), rev'd on other grounds, 292 Conn. 111, 971 A.2d 17 (2009) (granting summary judgment in favor of the insurer because the economic loss doctrine precluded the defendant's counterclaims sounding in tort).
The court notes that the losses attributable to the Insureds are easily quantified economically and are specifically limited under the terms of the Policy. In addition, the court recognizes the valid public policy argument in favor of limiting purely economic claims arising solely out of disputed coverage under an insurance policy. Therefore, in accordance with Judge Munro's decision in American Progressive Life and Health Ins. Co. v. Better Benefits, LLC, the court finds that the economic loss doctrine bars a claim of negligence arising out of insurance coverage dispute. Therefore, the Insureds' purported negligence claim in pursuit of a purely economic loss must be stricken.
Count Six — Defendants' claim for Declaratory Judgment
First American next brings a motion to strike the Insureds' claim for a declaratory judgment on the ground that the proper certificate was not appended to the counterclaim, in accordance with Practice Book § 17-56(b). Practice Book § 17-56(b) provides, in relevant part, that "The party seeking the declaratory judgment shall append to its complaint or counterclaim a certificate stating that all such interested persons have been joined as parties to the action or have been given reasonable notice thereof. If notice was given, the certificate shall list the names, if known, of all such persons, the nature of their interest and the manner of notice."
First American properly states that a declaratory judgment complaint or counterclaim must be stricken when it fails to append the required certificate to the pleading. See HBE Corp. v. OneBeacon Ins. Co., Superior Court, judicial district of New London, Docket No. CV030564594 (September 2, 2003, Hurley, J.T.R.). However, and conversely, the Insureds also properly note that "[a] motion to strike on the ground of . . . noncompliance with [Practice Book] § 17-56(b) must give the name and residence of the missing party or interested person or such information as the moving party has as to the identity and residence of the missing party or interested person and must state the missing party's or interested person's interest in the cause of action." Practice Book § 10-39(b). Where, as here, an insurer's motion to strike fails to identify the names of any parties who may have an interest in the action or who should have receive notice of the action as required by Practice Book § 10-39(b), that party cannot prevail on a motion to strike. See Thurlow v. Ticor Title Ins. Co., Superior Court, judicial district of Windham, Docket No. CV 08 5002923 (July 7, 2009, Riley, J.). Because First American failed to comply with the applicable provisions of the Practice Book, in that it did not submit the name and residence of any missing interested party in its motion to strike, the court finds that the Insureds have sufficiently stated a claim for a declaratory judgment.
CONCLUSION
For all the foregoing reasons, the motion to strike counts one, four and five of the Insureds' counterclaim, is hereby granted. The motion to strike counts three and six of the Insureds' counterclaim is hereby denied.