Opinion
No. CV 01-0454482 S
February 25, 2004
MEMORANDUM OF DECISION ON DEFENDANT'S MOTION TO STRIKE NEGLIGENCE COUNT
This is a motion for summary judgment directed against the first count of the plaintiff's complaint which is based on a claim of common-law negligence and lies against the defendant Great American Insurance Company. A general overview of the basis of the negligence count can be ascertained in large part by paraphrasing the plaintiff's second amended complaint of July 25, 2003.
The defendant was licensed to transact inland marine, property and liability insurance in our state. The plaintiff used Ryan Associates as an agent to provide that policy and that agency dealt with a broker, Cowles and Cornell, which acts as a middleman submitting coverage requests to insurance companies like the defendant who then agree or do not agree to issue a policy. On September 28, 2000 the defendant issued a renewal policy to the plaintiff which the latter did not receive until October 5, 2000. The policy was retroactive to July 1, 2000, the actual renewal date when coverage was to commence on this yearly policy. Policies are generally issued close to the actual renewal date and the president of Cowles testified at a deposition that the delay in issuing the renewal in this case was longer than his usual experience with Great American and very late according to industry standards according to James Ryan of Ryan and Associates.
Upon examining the renewal policy Mr. Faracelli, the plaintiff's president and sole stockholder, noticed that it insured equipment that had been sold by his company. This resulted in an inflated premium, more than double the premium that would have been owed if only the equipment still actually owned by the plaintiff company were to be covered by the policy. After the October 5th receipt of the policy the plaintiff notified the defendant through Ryan Associates who then contacted Cowles and Cornell providing the actual list of equipment to be insured and requesting a return of premium. The plaintiff then alleges that despite the notification "the defendant neglected, refused, and/or delayed processing the return premium resulting in a higher premium than actually required" (par. 6). "Because of the inflated premium, the plaintiff was required to finance his premium payment through the Premium Financing Specialist, Inc., not a party to this Law suit" (par 7). "While the defendant was supposedly revising the list of equipment to be covered and adjusting the premium downward. Premium Financing Specialists, by virtue of the so-called power of attorney provision of the financing contract, cancelled the Great American Policy effective November 19, 2000" (par 8). The plaintiff does not appear to contest that Premium Financing had a power of attorney under the finance agreement which authorized it to cancel the policy upon nonpayment of the premium.
In any event on December 19, 2000 a piece of equipment owned by the plaintiff was damaged or destroyed by fire. The loss was over $80,000 and occurred according to the plaintiff "when the policy should have been in full force and effect" (par 9). The plaintiff goes on to allege that the defendant was notified of the loss pursuant to the policy but the defendant did not pay, asserting that the policy had been cancelled (par 11, 12). In January 2001, the defendant reinstated the policy in conjunction with granting the plaintiff a return premium credit of about $8000 but refused to cover the loss. These generally are the facts the plaintiff asserts in the first count. The count goes on to allege the plaintiff's financial loss was caused by the defendant's negligence.
a. In that, it delayed processing plaintiff's renewal policy, premium and reduced list of equipment to be covered by its policy, although it knew or should have known of plaintiff's request.
b. In that, it failed and neglected to notify plaintiff in a timely fashion of its intent to cancel plaintiff's insurance coverage.
The defendant's motion for summary judgment alleges that the negligence count should be dismissed because (1) for there to be negligence there must be a violation of a duty and no such duty can be found here because there is nothing in the policy or contractual relations between the parties "which mandates the insurer to automatically provide a plaintiff with a new or revised policy" (2) the insurer has no duty to notify the insured of the cancellation of the policy once the insured cancels the policy through the mechanism of a premium financing company to which it gave power of attorney and (3) in any event the policy was cancelled by the plaintiff's premium financing company before the date of the loss.
The standards to be applied in deciding a motion for summary judgment are well-known. If there is a genuine issue of material fact the court cannot grant the motion because parties have a constitutional right to a trial by jury. On the other hand if there is no such issue of fact but determination of the motion depends on a question of law the court should grant the motion in favor of the moving party since litigants should not have to bear the expense and inconvenience of trying a case or a particular count in a complaint if there is no legal merit to it.
The court will now examine the specifications of negligence made by the plaintiff and the defendant's attack on their viability.
(1)
As noted the first specification of negligence made by the defendant is the following:
Great American delayed processing the plaintiff's renewal policy premium, and reduced list of equipment to be covered by its policy, although it knew or should have known of the plaintiff's requests in this regard.
(a)
The court will first discuss two preliminary matters.
The defendant has made the general argument that negligence requires the breach of a duty and no breach can be found here because nothing in the policy or contractual relations between the parties required the defendant to issue a renewal policy. The case of Abington v. Mutual Fire Ins. Co. et al v. Somery Oil Co., 38 Conn. Sup. 625 (1983), is quoted from; there it says: "The duty to use care may arise from a contractual relationship between the parties . . . In such cases, however, the duty relates to the performance of the contract." Id. p. 628.
The plaintiff's claim, however, cannot be analyzed in such a constricted way. Of course it is true that as Abington says "Where there is no legal duty, there can be no actionable negligence." Id. But this negligence count is not based strictly on a claim of contractual violation. True the contractual relationship between the parties does have bearing on the ambit of the defendant's duty. The plaintiff as an insured, and the defendant as an insurer, had had a contractual relationship in the past and at the time of the critical events in this case they were in a relationship that necessarily grew out of past contractual dealings and the attempt by the plaintiff to continue the contractual relationship which prior to the policy cancellation the defendant company was also willing to continue — the parties simply had a dispute, disagreement, or unresolved issues about certain aspects of the agreement, i.e., the premium. But none of this means the plaintiff should be confined to basing its negligence claim solely on the written contracts of the parties. This is true because it has been held that: "A duty to use care may arise from a contract, from a statute, or from circumstances under which a reasonable person, knowing what he knew or should have known, would anticipate that harm of the general nature of that suffered was likely to result from (its) act or failure to act." Coburn v. Lenox Homes, Inc., 186 Conn. 370, 375 (1982) (emphasis added). Thus the plaintiff has a right to at least refer to the statutory scheme to help define any duties and obligations running between the parties; in fact both sides do here when it is to their advantage. In a highly regulated industry like the insurance industry contractual relations should have to be interpreted with reference to regulatory statutes. Along these lines Restatement (Second) Torts, § 285 in defining how the standard of care is determined reads in part that: "The standard of care of a reasonable (person or entity) may be . . . (b) adopted by the court from a legislative enactment . . . which does not so provide."
(b)
The court should also discuss the plaintiff's reference to Maffucci v. Royal Park Ltd., 42 Conn. App. 563 (1996). As noted the existence of a duty of care is an essential predicate requirement of any negligence claim. In that sense the plaintiff's reference to Maffucci's language and the way it seeks to rely on that language misses the point, at least in the court's opinion. In that case the court said . . . "summary judgment procedure is especially ill-adopted to negligence cases, where . . . the ultimate issue involves a mixed question of fact and law, and requires the trier of fact to determine whether the standard of care was met in a specific situation . . . A determination of negligence is necessarily one of fact." Even learning aside the question of whether the appellate courts have been consistent in recognizing the applicability of summary judgment procedure to negligence claims (See Horton and Know Commentary in Practice Book § 17-44. Vol. Conn. Practice Series p. 755-56, "Good Earth and Summary Judgment" 49 Conn. Bar J. 411 (9/75)), the point remains that unless a duty is found running from the defendant to the plaintiff in the first instance the observation of Maffucci is irrelevant. Or to put it in a less long winded fashion unless some duty imposes the requirement of living up to a certain standard of care, you obviously do not get to the problem of deciding whether certain facts allow one to conclude that the standard of care was met.
(c)
The court will now try to analyze the viability of the negligence claim based on the foregoing observations.
In fact a large part of the plaintiff's argument in opposing the motion for summary judgment is based on reference to the statute regulating insurance companies and renewal of policies, § 38a-123.
Thus, it is argued that the defendant:
. . . had a duty of care toward its insured arising from the statutes regulating its conduct. The evidence before the court on the pending motion creates an issue of fact (as to) whether Great American breached its statutory obligations to the plaintiff.
The plaintiff argues that the defendant violated its statutory duties by (1) failing to send the plaintiff the premium billing sixty days before the renewal date and (2) by failing to send the premium billing on or before the renewal date, see § 38a-123(b)(1), (c), (f). A causation argument is then made that:
But for Great American's inordinate delay in processing the plaintiff's renewal policy by five months, the policy would never have been cancelled the first time by the premium financing company. In fact, it is very likely that had the renewal policy been properly processed, without including the equipment that had been deleted from the previous year's policy, it would not have been necessary to secure financing in the first place.
It is true that the correct premium — correct because even the defendant acknowledged the amount after the loss — was less than the $5123 the plaintiff delivered to Ryan Associates toward the premium to the premium finance company and much less than the premium quoted in the renewal policy issued in September 2000.
Intertwined with this analysis which is based on a violation of duties suggested by regulatory statutes is an argument apparently based on common-law negligence tied to a "but for" causation approach. It is true, as the plaintiff asserts, that certain Great American employees acknowledged that the delay in processing the renewal caused the cancellation and denial of coverage — files had been transferred between offices, there was a backlog. Thus, it is argued the defendant's own admissions "create an issue of material fact concerning Great American's failure to use due care in timely processing the plaintiff's renewal policy." In other words, as the plaintiff argued earlier . . . "had the renewal been billed sixty days in advance or by the renewal date, the plaintiff would have been able to send the corrections to the covered equipment list much earlier in the renewal policy period thus avoiding the delay that led to the cancellation."
What the plaintiff argues here is that when a premium finance company cancels a policy for non-payment of premiums pursuant to a power of attorney given by the insured, the insured can still bring an action in negligence against the insurance company seeking coverage for a loss occurring after cancellation when the premium was inflated due to a delay in processing the renewal of the policy in violation of state statute and customary insurance practice. The theory being that the problem with the premium could have been worked out if the renewal were processed in accordance with the time frame set forth in § 38a-323 of the general statutes; in fact there would not have been a need to resort to premium financing if the statutory time limits had been obeyed. The court will now try to discuss the plaintiff's positions.
Existing or prior contractual relations between the parties cannot be the basis of finding a breach of duty by the company. Nothing in those relations could form the basis for the court to conclude that the insurer had some kind of an obligation to renew a policy let alone continue its viability in the face of a request for cancellation of the policy by a premium finance company for failure to pay the premium due that company.
The same problem exists if statutory authority is sought for the plaintiff's position. Subsection f read together with subsection c of § 38a-123 requires that "premium billing notices" shall be provided to an insured at least sixty days before a policy's renewal date. If there is a failure to give notice of renewal or premium billing regarding any proposed new policy the statute provides the policy shall be renewed "for a term of not less than one year." Clearly the defendant insurer failed to comply with the statutory requirements but nothing in the statute would require coverage of a loss under the circumstances envisaged in the statute, where after the statutory violation had occurred, an insured's premium finance company requested cancellation of the policy for failure to pay premiums, or for example the insured itself cancelled the policy because of a dispute over the premium. And it is not appropriate in highly regulated industries governed by statute for trial courts to busy themselves in creating ill-defined remedies not contemplated by and going beyond the specific remedies provided for in the statutory or regulatory scheme and perhaps increasing risks in an industry that depends for its viability on the rational calculation of risks. The plaintiff makes much of the fact that the yearly premium requested, more than $13,000, was over twice what was appropriate. In fact, the plaintiff was quite correct about this as the company acknowledged after the cancellation. If the insurer had complied with § 38a-123, it is quite possible the premium could have been adjusted so as not to have led to the cancellation. But the point is that Mr. Faracelli knew that Ryan had to arrange for premium financing due to the dispute over the premium.
At his deposition Mr. Faracelli conceded that once a premium finance company is involved it had to be paid and he indicated that he realized if the premium was not paid the company would cancel the policy. At one point in the deposition he speculated that, while efforts were being made to straighten out the problem with the endorsements and appropriate premium, Ryan paid the premium from the funds Faracelli gave Ryan for the purpose of "keeping the policy alive" — that is the point, he was aware of the common sense proposition that to keep the policy "alive" and thereby guarantee coverage for any insured loss, the premium had to be paid. Faracelli could not even say whether to his knowledge that the finance company knew of his dispute over the premium with the insurer.
Also there is no claim that the premium finance company did not actually have a power of attorney from the plaintiff to cancel the policy and no dispute that in fact the premium was not paid to that company. Under § 38a-170(a) the premium finance company had the power to cancel the policy upon a default on the insured's party; failure to pay the premium is one such default. It is basic insurance law that "where the premium finance company is named as attorney in fact for the insured, a cancellation by the finance company is equivalent to a cancellation by the insured (itself), at least from the insurer's perspective." Tate v. Hamilton Ins. Co., 466 So.2d 1205, 1206 (Fla.Dis.Ct.App., 1986); Western States Land v. Lexington Ins., 459 N.W.2d 429, 433 (S.D. 1990); cf. Freeman v. Reliance Ins. Co., 315 S.E.2d 798 (N.C., 1984), 43 Am.Jur.2d "Insurance," § 441, page 489.
In Seattle Pump v. Trader and General Ins. Co., 93 Wash.App. 743, 748, 970 P.2d 361 (1999), the court said: "In essence Seattle Pump (the insured) cancelled its own policy. Seattle Pump thus had no grounds upon which to challenge the cancellation. As leading insurance commentators have observed 'where an insured executes a promissory note to a finance company for insurance premiums which authorizes the company to cancel the insurance . . . upon default of payment the insured is in no position to complain when the finance company cancels the policy in accordance with the agreement.'"
Although Faracelli denies receiving an actual notice of cancellation of the policy from the premium finance company he did receive a notice of intent to cancel. It is dated October 25, 2000 and informed the plaintiff that if payment of the premium was not received before November 4, 2000 the policy would be cancelled. It informed the plaintiff that this is the only notice it would receive "before cancellation is made." This gave the plaintiff ten days in which to tender payment pending resolution of any dispute over the premium or readjustment of the premium or time to seek new insurance; that is the very purpose of such notices. Grubbs v. Credit Gen. Ins. Co., 939 S.W.2d 290, 327 Ark. 479, 482 (Ark, 1997); Black v. Globe Amer. Cas. Co., 482 N.E.2d 1278, 19 Oh.App. 58, 61 (1984). It would be inherently unfair under all these circumstances to impose liability on the insurer for the loss which occurred here after a cancellation requested by the premium finance company when Faracelli knew cancellation was an imminent possibility, cf Black v. Globe Am. Gas Co., supra (not exactly on point, since in Black insured knew policy cancelled, but query how different as far as the equities are concerned where Faracelli received notice of intent to cancel for nonpayment of premium from entity he knew had the power to cancel and would cancel if the premium was not paid and did noting to prevent cancellation or secure alternative insurance).
Also it should be noted that although the failure to comply with the statutory time requirements of § 38a-123 may have resulted in the fact that the inflated premium could not be readjusted in time to avoid the circumstance which led to cancellation, the full $13,000 plus yearly premium was not being demanded by the premium finance company as a condition of not pursuing cancellation but merely a monthly payment of around $1300. There is nothing to indicate this would have placed an intolerable tender burden on the plaintiff to keep the policy "alive," or that the insurer knew or would have reason to know this was the case.
The court could find no cases exactly on point but general law in this area provides some guidance in discussing the situation presented where the insurer is alleged to have wrongfully cancelled a policy. In 43 Am.Jur.2d "Insurance" at § 464, pages 512-13 it says among other things:
"Where an insurer wrongfully cancels, repudiates, or terminates the contract of insurance, the insured may at once pursue one of three courses (1) (it) may elect to consider the policy at an end and recover just value of the policy or such measure of damages as a court in a particular jurisdiction approves (2) (it) may institute proceedings to have the policy adjudged to be enforce, or (3) (it) may tender the premiums, and if acceptance is refused, wait until the policy by its terms becomes payable and test the forfeiture in a proper action on the policy." (Emphasis added.)
"An insured who has abandoned (its) policy and discontinued the payment of premiums cannot subsequently be heard to complain of the alleged wrongful cancellation of the policy by the insurer, regardless of the insured's motives in abandoning the policy." (Emphasis added.)
In other words even in the case of wrongful cancellation by the insurer there must be a tender of premium to preserve any claim resulting from a loss. Why not in the situation now before the court?
Also, the problem now before the court can be examined from another perspective. In an appropriate case the doctrine of equitable estoppel can apply to actions against insurance companies who refuse to cover a loss. Cf. Brown v. Progressive Gulf Ins. Co., 761 So.2d 1134, 136 (Miss. 2000); Seattle Pump v. Traders and Gen. Ins. Co., 93 Wash.App. 743, 748, 749, 970 P.2d 301 (Wash. 1999). Connecticut, of course, recognizes the doctrine of equitable estoppel. Build Industries, Inc. v. Greater New York Mutual Ins. Co., 259 Conn. 527, 547-48 (2002), requires proof of two elements under the doctrine (1) "the party against whom the estoppel is claimed must do or say something calculated or intended to induce another party to believe that certain facts exist and to act on that belief and (2) the other party must change its position in reliance on those facts, thereby incurring some injury." Certainly there is no evidence here that the defendant lead the insured to believe, prior to cancellation, that if the insured's position on the actual premium owed were found to be correct it would waive any cancellation request by the premium finance company and cover post-cancellation losses, there is no evidence the insurer did anything to lead the plaintiff or its agent to believe that it would not require payment of its premium pending resolution of the dispute or that the plaintiff relied on any such representation actual or implied.
Nor is there even any indication that the insurer, prior to actual cancellation realized its premium was inflated. In fact, the company appeared to be trying to investigate why the insured claimed the equipment sought to be removed from coverage was not subject to the policy. Inquiry was made as to whether it was sold or leased and Ryan responded to these inquiries. Neither the company or any agent of the company gave any indication to Ryan or the insured prior to the cancellation date that it recognized the correctness of the insured's position. Cf. Wallen v. Simpson, 518 So.2d 1144, 1146, 1147 (La.App. 1987). Thus the doctrine of equitable estoppel cannot be applied here to avoid the effect of the cancellation. That being the case why should the court conclude that by placing a negligence label on the same set of facts some duty can be imposed on the defendant company for failure to cover a post-cancellation loss.
In the last analysis the plaintiff is trying to rely on a "but for" causation analysis to support what has to be a necessary predicate to such an exercise — a duty has been violated. The plaintiff is saying, but for "the company's failure to comply with § 38a-123 time requirements" as to the insurance of the renewal policy and premium billing there may have not been enough time to work out the correct premium. But that is a very different question from the issue of whether, given that circumstance, post-cancellation coverage of a loss is required where, in effect, the insured cancelled the policy and did not tender premiums despite notice of intent to cancel given by its own premium finance company.
In any event for the foregoing reasons the court grants the defendant's motion for summary judgment as to the negligence count.
Mr. Faracelli testified that he did not receive actual notice of cancellation of the policy mailed to him by the premium finance company. It was sent as of November 16 and indicated the date of cancellation would be November 19, 2000. If he did receive it that would have given him almost four weeks from the date of notice of intention to cancel sent by the finance company to raise tender of premium or seek alternate insurance. But assuming he did not receive actual notice of the cancellation that still would not necessarily mean the policy is not cancelled for the insurer's purposes, see § 38a-170 and discussion in Colagiovanni v. Premium Finance Specialists, 1996 Ct. Sup. 5149A; Ill Ins. Guarn Fund v. Evanston Paper, 272 Ill. App. 405, 408 (1995); Universal Fire and Casualty Ins. Co. v. Jabin, 16 F.3d 1465, 1469 (CA 7, 1994). The policy here only provided that the insurer must give notice of cancellation where it initiated the cancellation, also see § 38a-124 to the same effect.
Corradino, J.