Opinion
No. CV 02-0817023
March 18, 2005
MEMORANDUM OF DECISION
The operative complaint, dated May 22, 2002, alleges the following facts. The defendant, Worcester Insurance Company, issued an automobile liability policy to Joaquim and Emilia Oliveira that was in effect on February 16, 1997. On that date, the son of Joaquim and Emilia Oliveira, Mario Oliveira ("the insured"), was operating the insured automobile with permission. He lost control of the automobile and struck a tree, killing the passenger, Thierry Goncalves. Goncalves' estate sued Mario and Joaquim Oliveira for damages. The defendant hired the same defense counsel to represent both individuals. A settlement agreement was reached with Joaquim Oliveira for the policy limits of $300,000. The agreement also released from liability Emilia Oliveira and the defendant, neither of whom was named as a defendant in the estate's suit for damages. The agreement did not release the insured from liability.
The defendant controlled the defense of the suit against the insured after the settlement and up to April 27, 2000, when the Goncalves estate obtained a judgment of $987,817.28 against the insured. The plaintiff, Infinity Insurance Company, is the assignee of all rights of the Goncalves estate in the judgment against the insured. The plaintiff is also the assignee of the insured's claims against the defendant. The plaintiff brings the action in its capacity as assignee of these claims.
The complaint alleges three counts. The first count sounds in breach of contract and alleges that the defendant improperly failed to defend the insured by failing to list him in the settlement agreement, failing to settle the estate's claim against him and failing to seek judgment in his favor pursuant to the Supreme Court's decision in Alvarez v. New Haven Register, Inc., 249 Conn. 709, 735 A.2d 306 (1999), in which the court held that, where vicarious liability exists pursuant to the doctrine of respondeat superior, the release of the employee also releases the employer from liability.
The second count sounds in negligence and repeats the first count's three allegations of failure to defend. The second count adds the factual claims that the defendant knew or should have known about the Alvarez decision and nevertheless failed to assert the ruling as a defense. The second count also claims that the defendant had the opportunity to settle the claim against the insured for $20,000 and was "cognizant of the likelihood that through either special arbitration or intercompany arbitration it could seek reimbursement of this payment from the plaintiff," and nevertheless chose not to settle, thereby "consciously" exposing him to liability for the judgment.
The third count alleges bad faith and repeats the allegations of the first two counts: The count claims that the defendant breached its duty of good faith and fair dealing, thereby subjecting the insured to the judgment. Finally, the complaint lacks a prayer for relief but the "Statement of Amount in Demand" indicates that the plaintiff seeks money damages exceeding $15,000.
The defendant filed an answer dated November 27, 2002 and amended special defenses dated December 12, 2003. The amended special defenses make the following factual assertions. The plaintiff issued to the insured an automobile liability policy with a limit of $20,000 which was in effect at the time of the accident. The policy covered use of a car not owned by the insured only if the non-owned car was used with permission and not available for the insured's regular use. When the Goncalves estate brought its claim against the insured, the plaintiff denied coverage claiming that the insured regularly used his parents' car. The defendant alleges that the plaintiff conducted no investigation whatsoever prior to making this assertion. The plaintiff continued to deny coverage from October 1997 until September 1998, despite the unrefuted testimony of Joaquim and Emilia Oliveira that at the time of the accident Mario had permission to use the car for only one week while the Oliveiras were on vacation and that the car was not used by Mario on a regular basis. In September 1998, the plaintiff tendered the policy limit of $20,000 to the Goncalves estate with the condition that the estate release all claims against the plaintiff, including bad faith claims for its prior refusals to pay the policy limit. The estate refused the offer and obtained judgment against the insured on April 28, 2000. The estate then commenced suit against the plaintiff as statutory subrogee to the insured, alleging in part that the plaintiff breached its contractual duties to the insured in bad faith and that the plaintiff engaged in unfair claims settlement practices and unfair trade practices in violation of CUTPA and CUIPA. The plaintiff settled the estate's claim and obtained a general release and assignment from the estate and an assignment from the insured.
The amended special defenses will be described more fully as necessary in the ruling on each. Briefly, they allege as follows. The first special defense alleges that the plaintiff's assignee, the insured, consented to the settlement of the estate's claims against Joaquim and Emilia Oliveira. The second special defense claims that the plaintiff breached its contractual duties to investigate and settle claims in a timely manner and to defend its insured. The third special defense alleges that the plaintiff exercised bad faith in its handling of the claim. The fourth special defense alleges that the plaintiff negligently failed to investigate, settle and defend its insured. The fifth special defense claims res judicata. The sixth special defense claims that the doctrine of maintenance and champerty prohibits assignment of such causes of action, because (1) the claim is analogous to a legal malpractice claim, which cannot be assigned; (2) the assignment is contrary to public policy because of the plaintiff's alleged violations of Connecticut law governing payment of claims; (3) the duties owed to the insured were personal and non-assignable; (4) the judgment was caused by the plaintiff's misconduct and the assignment was obtained by payment of the judgment. The seventh special defense claims that to the extent that the plaintiff's claim is based upon an assignment by the Goncalves estate, the estate previously released the defendant from liability. The eighth special defense claims that the defendant's policy prohibits the assignment of rights and duties due under the policy. The ninth special defense raises the doctrine of unclean hands. The tenth special defense asserts that the insured's attorney was an independent contractor for whose actions the defendant is not vicariously liable. Finally, the eleventh special defense invokes the statute of limitations found at General Statutes § 52-577.
The plaintiff moved to strike all but the first and eleventh amended special defenses by motion dated December 23, 2003. The defendant filed a memorandum dated January 21, 2004 in opposition to a prior motion to strike dated November 21, 2003. By memorandum dated July 26, 2004, the plaintiff replied to the defendant's memorandum in opposition dated January 21, 2004. The defendant then filed a sur-reply dated October 15, 2004, which responded to the motion to strike dated December 23, 2003 and to the plaintiff's reply dated July 26, 2004. The court heard argument from both parties on December 16, 2004. Lastly, the defendant filed a supplemental memorandum of law dated January 3, 2005.
"A party wanting to contest the legal sufficiency of a special defense may do so by filing a motion to strike. The purpose of a special defense is to plead facts that are consistent with the allegations of the complaint but demonstrate, nonetheless, that the plaintiff has no cause of action . . . In ruling on a motion to strike, the court must accept as true the facts alleged in the special defenses and construe them in the manner most favorable to sustaining their legal sufficiency." (Citations omitted; internal quotation marks omitted.) Barasso v. Rear Still Hill Road, L.L.C., 64 Conn.App. 9, 13, 779 A.2d 198 (2001).
Second and Third Special Defenses — Breach of Contract and Bad Faith
The second special defense claims that the plaintiff breached its contractual duties to investigate properly the claims against the insured, to settle reasonably those claims and to defend him against the claims. The third special defense further claims that the plaintiff's actions in the handling of the claim against the insured constituted bad faith.
The plaintiff moves to strike these two defenses on the grounds that the conduct of the assignee generally may not be used as a defense, with a narrow exception. The exception applies, the plaintiff argues, when the assignee seeks to use the assignment to pursue a claim that it otherwise would be prevented from pursuing because of its own conduct. Otherwise, the assignee steps fully into the shoes of the assignor, the plaintiff argues, and thus its actions as the insured's insurer are irrelevant to the adjudication of its claims.
The defendant responds that the plaintiff's misconduct toward its assignor is relevant because the plaintiff seeks an equitable remedy by way of the assignments and therefore is subject to a full determination of the equities of the claim. Specifically, the defendant argues that the assignee is subject to any defense arising from the assignee's conduct. The defendant contends that the plaintiff could have asserted a claim against the defendant pursuant to the doctrine of equitable subrogation without an assignment from the insured but declined to do so because such a cause of action would subject the plaintiff to a full determination of the equities. The assignments from the insured and the Goncalves estate were obtained merely to cloak the plaintiff's misconduct and to create a legal argument that its claim against the defendant is not subject to the court's equitable discretion, the defendant argues.
Before addressing the parties' arguments about assignment, the court must first determine the legal nature of the plaintiff's claims. A review of subrogation law makes clear that, despite the plaintiff's characterization of its claims as based in assignment, the plaintiff's cause of action actually arises from its right of equitable subrogation. "The law has recognized two types of subrogation: conventional; and legal or equitable . . . Conventional subrogation can take effect only by agreement and has been said to be synonymous with assignment. It occurs where one having no interest or any relation to the matter pays the debt of another, and by agreement is entitled to the rights and securities of the creditor so paid . . . By contrast, [t]he right of [legal or equitable] subrogation is not a matter of contract; it does not arise from any contractual relationship between the parties, but takes place as a matter of equity, with or without an agreement to that effect . . . The object of [legal or equitable] subrogation is the prevention of injustice. It is designed to promote and to accomplish justice, and is the mode which equity adopts to compel the ultimate payment of a debt by one who, injustice, equity, and good conscience, should pay it . . . As now applied, the doctrine of [legal or] equitable subrogation is broad enough to include every instance in which one person, not acting as a mere volunteer or intruder, pays a debt for which another is primarily liable, and which in equity and good conscience should have been discharged by the latter." (Citation omitted; internal quotation marks omitted.) Wasko v. Manella, 269 Conn. 527, 532-33, 849 A.2d 777 (2004).
The Supreme Court has twice recently considered the legal nature of insurers' attempts to recover from a tortfeasor. In Westchester Fire Ins. Co. v. Allstate Ins. Co., 236 Conn. 362, 672 A.2d 939 (1996), the court overruled its decision in Berlinski v. Ovellette, 164 Conn. 482, 325 A.2d 239 (1973), in which the court held that an uninsured motorist carrier may not be subrogated to its insured's claim against a tortfeasor. The Berlinski court viewed such subrogation, pursuant to the insurance contract, as conventional subrogation, or assignment. Because the law traditionally held that a personal injury action was not assignable, the court concluded that the insurer could not recover from the tortfeasor. Westchester Fire Ins. Co. v. Allstate Ins. Co., supra, 236 Conn. 367-68. In Westchester Fire Ins. Co. v. Allstate Ins. Co., supra, 236 Conn. 370, the court revisited its earlier determination that the insurer's claim in Berlinski was based on assignment. The court noted that the insurer in Berlinski was not a volunteer without an interest in the matter, but rather was contractually obligated to pay benefits to its insured. Id., 372. The court concluded that, " Berlinski, therefore, did not involve conventional subrogation." Id. "Instead, Berlinski involved equitable subrogation. The insurer was not acting as a mere volunteer; rather, it was obligated by a preexisting contract of insurance to pay the losses of its insured. Upon such payment, the insurer became subrogated to any rights that its insured might have had against the party who has caused the loss." Id. Having thus determined that the insurer's right arose from equitable subrogation, not assignment, the court in Westchester Fire Ins. Co. overruled Berlinsky and permitted the plaintiff insurer to proceed with its action against the defendant insurer for improperly denying coverage to the plaintiff's insured.
The court again considered the legal nature of the insurer's cause of action against a tortfeasor in Wasko v. Manella, supra, 269 Conn. 527. The court first affirmed its holding in Westchester Fire Ins. Co. that "insurers that are obligated by a preexisting contract to pay the losses of an insured proceed in a subsequent action against the responsible party under the theory of equitable subrogation, and not conventional subrogation." (Emphasis in original.) Id., 533. The insurer argued that a statute granted it an absolute right to subrogation that was not susceptible to the court's determination of equity. The court disagreed, concluding that the statute granted the insurer the right to include subrogation language in the contract, "which, once incorporated into an insurance policy, are contractual terms that may be `trumped' by principles of equity." Id., 539. The court held that, despite the fact that a statute prescribed contractual terms concerning subrogation, the insurer's right to subrogation was not statutory but rather equitable in nature. Id., 542.
Thus, the insurer possesses a well-established right to seek recovery from a tortfeasor based on equitable subrogation. Moreover, the Supreme Court has dismissed arguments that the insurer's right to recovery is based on assignment or statute. In so doing, the court recognized that "[s]ubrogation is a highly favored doctrine . . . which courts should be inclined to extend rather than restrict." (Citations omitted.) Westchester Fire Ins. Co. v. Allstate Ins. Co., supra, 236 Conn. 372.
Here, the plaintiff insurer seeks recovery from the defendant of the judgment against its insured, which allegedly resulted from the defendant's tortious conduct. The law set forth in Wasko and Westchester Fire indicates that the plaintiff's action is based upon equitable subrogation. The plaintiff claims, however, that this action is based strictly upon assignment, not because it is brought pursuant to a clause in the insurance contract, but because the plaintiff obtained assignments from the insured and the insured's statutory subrogee after the insured's loss, which were, according to the defendant, in exchange for its payment of the insured's loss to the insured's statutory subrogee. This court must determine, therefore, whether the fact that the plaintiff obtained the assignments after the loss and allegedly in exchange for its payment of the loss distinguishes this case sufficiently to render inapplicable the rule articulated in Wasko and Westchester Fire.
The plaintiff has not alleged that it paid the judgment against the insured. The plaintiff states only that the insured incurred the loss and that the plaintiff is the assignee of the claims of the estate and the insured. In a prior related case, the court, Berger, J., ruled that the plaintiff had not pleaded an equitable subrogation claim because it failed to allege that it satisfied the judgment against its insured. In this second suit, the plaintiff has again failed to allege that it satisfied its insured's debt thus appearing to be consciously avoiding an equitable subrogation claim against the defendant.
The defendant, however, has alleged in its amended special defenses that the plaintiff paid the insured's loss. "The purpose of a special defense is to plead facts that are consistent with the allegations of the complaint but demonstrate, nonetheless, that the plaintiff has no cause of action . . . In ruling on a motion to strike, the court must accept as true the facts alleged in the special defenses and construe them in the manner most favorable to sustaining their legal sufficiency." (Citations omitted; internal quotation marks omitted.) Barasso v. Rear Still Hill Road, L.L.C., supra, 64 Conn.App. 13. The defendant's factual allegation that the plaintiff paid the insured's loss is consistent with the complaint and thus, must be accepted as true for the purpose of deciding the plaintiff's motion to strike the special defenses.
When the plaintiff obtained the assignments, it already possessed the right in equitable subrogation to sue the defendant for the alleged misconduct that allegedly caused the insured's loss. In choosing to plead its case in assignment, rather than equitable subrogation, and arguing that actions in assignment are not subject to equitable considerations, the plaintiff seeks to avoid an examination of its own conduct such as would likely be undertaken by a court considering an equitable cause of action. In Wasko, the plaintiff also sought to avoid the court's exercise of discretion in equity by arguing that it possessed an absolute right to subrogation pursuant to statute. The court rejected the notion that the statute changed the equitable nature of the subrogation right. Although the insurance contract provided for the assignment, the court held in both Waskco and Westchester Fire, the nature of the insurer's right to subrogation remained firmly grounded in equity.
"[O]nce any equitable claim has been raised, the court retains its equitable jurisdiction to consider all of the equities before it in order to render complete justice." (Internal quotation marks omitted.) Morgera v. Chiappardi, 74 Conn.App. 442, 459, 813 A.2d 89 (2003).
Although the plaintiff here seeks to avoid a full determination of the equities by casting this suit as an assignment action, the plaintiff does not satisfy the legal requirements for such an action. Conventional subrogation, or assignment, requires that the assignee be a volunteer who undertakes to pay a debt to which the assignee is otherwise a stranger. Wasko v. Manella, supra, 269 Conn. 532. The assignments do not alter the fact that the plaintiff did not pay the loss as a volunteer. The plaintiff insurer held an obligation to the insured which subjected it to suit by the estate and which resulted in its payment of the estate's judgment against the insured. Thus, the plaintiff's right of subrogation is not the right of conventional subrogation, held by the volunteer assignee, but rather the right of equitable subrogation that arises "not [as] a matter of contract . . . but . . . as a matter of equity, with or without an agreement to that effect." (Internal quotation marks omitted.) Wasko v. Manella, supra, 269 Conn. 532. Because the plaintiff's relationship to the insured is integral to its involvement in this action, it fails to satisfy the legal requirements to exercise the right to conventional subrogation. Thus, the plaintiff cannot avoid the court's determination of equity by casting its claim in assignment.
Neither party has argued, nor could they credibly argue, that the plaintiff settled the estate's claims against it strictly in exchange for the assignments, without regard to its status as the insured's insurer.
Even if the plaintiff's claims were properly based in assignment, consideration of the plaintiff's actions would nevertheless be proper. The Restatement (Second) of Contracts provides that "[a]n assignee's right against the obligor is subject to any defense or claim arising from his conduct." 3 Restatement (Second), Contracts § 336(4), p. 67 (1981). Comment h of Section 336 of the Restatement further provides that "[t]he conduct of the assignee or his agents may, like that of any obligee, give rise to defenses and claims which may be asserted against him by the obligor." Id., p. 72. The illustration following the comment applies the rule to misconduct by the assignee occurring prior to the assignment. Thus, the law appears to allow the court to consider the plaintiff's alleged misconduct here.
Moreover, while the plaintiff argues that the traditional rules of assignment bar the court from considering an assignee's misconduct, the plaintiff acknowledges that such misconduct is relevant if the assignee is attempting to use the assignment to pursue a claim otherwise barred by its own conduct. In this case, the plaintiff relies upon the fact that its claims are brought pursuant to the assignments, rather than its right of equitable subrogation, to avoid special defenses asserting that the plaintiff's own actions bar its claim. Thus, by the plaintiff's own argument, its conduct may be considered by the court even if the action may legally sound in assignment. Accordingly, the motion to strike the second and third special defenses is denied.
For the proposition that the court may not consider the assignee's conduct, the plaintiff relies primarily upon an unreported Massachusetts superior court case, Palmi v. Metropolitan Property Casualty Ins. Co., Massachusetts superior court, Docket No. 975617 (February 25, 1999, McHugh, J.) (9 Mass. L. Rptr. 614).
Fourth Special Defense — Negligence
The fourth special defense alleges that the plaintiff's claims were caused, in whole or in part, by the plaintiff's negligent actions and reiterates the factual allegations of the second and third special defenses concerning the plaintiff's failure to investigate and settle the claim and to defend its insured. The defendant argues that the plaintiff's negligent acts are relevant to a determination of the defendant's liability for its alleged breach of duty involving the same set of circumstances because, pursuant to General Statutes § 52-572h the negligence of any party is relevant in a negligence action. Finally, the defendant again argues that the assignee's misconduct may be raised as a defense in equity.
The plaintiff counters that it does not stand in the case in its own capacity, but rather as the assignee of its insured and of the Goncalves estate and, thus, the comparative negligence rule of § 52-572h does not encompass the plaintiff as a separate entity. Moreover, the plaintiff once again argues, the contract law allowing an assignee's misconduct to be considered is a narrow exception to the general rule and does not apply in this situation.
Whether the plaintiff's claim is properly based on the assignments or in equitable subrogation, the plaintiff's alleged negligence is relevant to the court's determination of equity for the reasons discussed in the court's analysis if the second and third special defenses. The comparative negligence statute, General Statutes § 52-572h, further makes the plaintiff's alleged negligence relevant. The statute allows the fact finder to apportion damages amongst all the responsible parties, including the plaintiff. General Statutes § 52-572h(b) and (c). A defendant may make a joint tortfeasor a party by filing an apportionment complaint "upon a person not a party." General Statutes § 52-102b. Here, if the action had been brought against the defendant by the insured or the estate as his subrogee, the defendant could have filed an apportionment complaint upon the plaintiff in its capacity as insurer. In this situation, where the alleged joint tortfeasor is already a party to the action, neither the terms of the statute, judicial efficiency or logic require or even permit the defendant to file an apportionment complaint against the plaintiff.
Furthermore, no law supports the plaintiff's apparent argument that the fact it brings the action as subrogee or assignee exempts it in its independent capacity from the operation of the comparative negligence statute altogether. Such an interpretation is contrary to the intent of the statute to ensure "that a defendant would be liable only for that portion of the damages for which he was responsible." Collins v. Colonial Penn Ins. Co., 257 Conn. 718, 737-38, 778 A.2d 899 (2001). The subrogatory nature of the action does not prevent the plaintiff from being considered a party in its own capacity for the purposes of the comparative negligence statute. Thus, the plaintiff's alleged negligence is properly subject to scrutiny both pursuant to the statute and for the purposes of the court's determination of equity.
Accordingly, the motion to strike the fourth special defense is denied.
Fifth Special Defense — Res Judicata
The fifth special defense alleges that the plaintiff's claim are barred by res judicata. Specifically, the defendant argues that the plaintiff filed a prior suit arising out of the same set of facts and involving the same parties. The defendant claims that the plaintiff had a full opportunity to litigate its claims in that action which ended with a final judgment on the merits in the defendant's favor. The plaintiff responds that the prior action was dismissed on jurisdictional grounds, and was not adjudicated on the merits. The court determined pursuant to a motion to dismiss whether the plaintiff had standing to bring that action. Thus, the plaintiff argues, res judicata is not applicable.
Although the fifth special defense alleges only that res judicata bars the plaintiff's claims, the defendant argues in its briefs that collateral estoppel, or issue preclusion, also bars the suit. The defendant's collateral estoppel claims, if properly before the court, fail for the reasons described in the court's analysis of the res judicata claims.
"The doctrine of res judicata holds that an existing final judgment rendered upon the merits without fraud or collusion, by a court of competent jurisdiction, is conclusive of causes of action and of facts or issues thereby litigated as to the parties and their privies in all other actions in the same or any other judicial tribunal of concurrent jurisdiction . . . If the same cause of action is again sued on, the judgment is a bar with respect to any claims relating to the cause of action which were actually made or which might have been made . . . Res judicata, as a judicial doctrine should be applied as necessary to promote its underlying purposes. These purposes are generally identified as being (1) to promote judicial economy by minimizing repetitive litigation; (2) to prevent inconsistent judgments which undermine the integrity of the judicial system; and (3) to provide repose." (Citation omitted; emphasis in original; internal quotation marks omitted.) Efthimiou v. Smith, 268 Conn. 499, 506, 846 A.2d 222 (2004).
The prior court, Bergen J., ruled that the plaintiff lacked standing to bring a direct action against the defendant because Connecticut law does not acknowledge a duty between a primary and excess insurer and the defendant therefore did not owe a duty to the plaintiff. The court also determined that the plaintiff lacked standing because it was not a party to or a third-party beneficiary of the policy between the defendant and the insured. Further, the court determined that the plaintiff had not pleaded the elements of an equitable subrogation cause of action. Thus, the court granted the motion to dismiss.
A review of the prior decision reveals significant differences between that case and the present one. At the time of the court's ruling, the plaintiff had not yet settled the estate's claims against it and satisfied the estate's judgment against the insured. The plaintiff's failure to allege that it had satisfied the judgment led the court to hold that it could not proceed in equitable subrogation. Furthermore, the plaintiff did not yet possess the assignments from the estate and the insured and thus could not have brought an action based in assignment. It is a basic principle of the law of res judicata that a judgment will bar "any claims relating to the cause of action which were actually made or which might have been made." (Internal quotation marks omitted.) Efthimiou v. Smith, supra, 268 Conn. 506. Res judicata will not bar claims, however, that were not and could not have been made in the prior action. The plaintiff could not assert either a claim in equitable subrogation or assignment at the time of the prior action. The plaintiff does not attempt to relitigate here its prior claims that a direct duty runs from the defendant to itself or that it is a third-party beneficiary of the insurance policy. The plaintiff's present action, although it seeks recovery from the same defendant arising from the same set events, is not duplicative of the dismissed action because it rests upon facts and legal premises that were not available to the plaintiff at the time of the prior action. Res judicata does not apply in such circumstances.
Accordingly, the motion to strike the fifth special defense is granted.
Sixth Special Defense — Doctrine of Maintenance and Champerty
The sixth special defense alleges that the plaintiff's claims are barred by the doctrine of maintenance and champerty. The defendant argues that Connecticut common law prohibits the assignment of certain causes of action and to allow the plaintiff to proceed with these claims, based on assignment, would violate public policy in various ways. Specifically, the defendant argues that (1) the plaintiff's claims are analogous to legal malpractice claims, which may not be assigned; (2) the assignment violates public policy because the plaintiff violated state law concerning settlement of claims, § 38a-816(6)(b), (d) and (f); (3) duties owed by the defendant to the insured were personal and non-assignable; (4) the assignment violates public policy because the judgment against the insured was caused by the misconduct of the plaintiff and the assignment was obtained in consideration for payment of that judgment.
The plaintiff responds that the doctrines of maintenance and champerty have not been adopted in Connecticut and that judgments are assignable under Connecticut law. Because the plaintiff's claims are based upon the assignment of the estate's judgment against the insured, the plaintiff argues, its claims are not barred.
If this present action is legally based in equitable subrogation, despite the plaintiff's characterization of it as an action in assignment, then champerty is not a valid defense. See Westchester Fire Ins. Co. v. Allstate Ins. Co., supra, 236 Conn. 373 (public policy reasons behind champerty do not apply in context of equitable subrogation). If on the other hand, the plaintiff's claims do properly sound in assignment, then champerty may constitute a valid defense to the action. Although the Appellate Court has stated that Connecticut has not adopted the doctrines of champerty and maintenance, the public policy reasons for those doctrines nevertheless govern the court's consideration of the validity of an assignment. See Mall v. LaBow, 33 Conn.App. 359, 363, 635 A.2d 871 (1993), cert. denied, 229 Conn. 912, 642 A.2d 1208 (1994) ("[T]he common-law doctrines of champerty and maintenance as applied to civil actions have never been adopted in this state, and the only test is whether a particular transaction is against public policy." (Internal quotation marks omitted.)).
Traditionally, claims arising out of a tort were not assignable. 6 Am.Jur.2d, Assignments § 60 (1999). Current law continues to make personal torts unassignable, unlike property or contract claims, which may be freely assigned. Id., §§ 53, 58. Specifically, claims for malpractice or breach of fiduciary duty are not assignable. Id., § 65; annot., 40 A.L.R.4th 684 (1985); see Gurski v. Rosenblum, 48 Conn.Sup. 226, 243, 838 A.2d 1090 (2003) (after analysis of foreign cases, court concluded that legal malpractice constitutes a claim for personal injury that may not be assigned under state's public policy). The plaintiff here claims that the insured suffered injury from the defendant's negligence and bad faith in failing adequately to defend him against the claims of the estate. These tort claims are personal in nature, akin to a malpractice claim, and are subject to the public policy rule that personal torts are unassignable.
The plaintiff argues, however, that it was assigned the estate's judgment against the insured and that judgments are assignable. See Mall v. LaBow, supra, 33 Conn.App. 362. If, however, the judgment against the insured were the full extent of the rights transferred, the plaintiff's remedy would be limited to an action against the insured to recover the judgment. The plaintiff's assignments must necessarily encompass the rights of the insured and the estate, as his statutory subrogee, to pursue recovery against the defendant for its alleged torts if they are to serve as a legitimate basis for this action. Thus, the plaintiff's argument that the assignments are valid because judgments are assignable ignores the other rights ostensibly transferred by the assignments, which are subject to public policy limits on assignability.
The court assumes, for the purpose of construing the special defense in the light most favorable to sustaining it, that the plaintiff may legally proceed in assignment and, in that case, the defendant's special defense of champerty and maintenance is validly raised. Accordingly, the motion to strike the sixth special defense is denied.
Seventh Special Defense — Release by Goncalves Estate CT Page 5031
The defendant's seventh special defense alleges that the plaintiff's claims, to the extent that they are based upon an assignment by the Goncalves estate, are barred because the estate previously discharged the defendant from all claims by written release. The plaintiff argues that the defense should be stricken because it does not allege that the release precluded the estate from assigning future judgments, as opposed to claims. Moreover, the plaintiff argues, it is standing in the insured's shoes in this suit, and not suing on the estate's behalf Thus, the plaintiff concludes, the release "is wholly unrelated to the issues involved in this matter."
As discussed above, the plaintiff's argument that it possesses merely an assignment of the estate's judgment against the insured is not persuasive. To the extent that the assignment justifies the plaintiff's action, it necessarily includes the estate's rights as statutory subrogee of the insured. The special defense alleges that the estate released the defendant from "any and all potential or existing claims of any nature whatsoever." Although further inquiry may determine that the release applies only to claims possessed by the estate in its own capacity, and not those claims accruing to it as statutory subrogee, the allegations of the special defense do not permit the court to make that determination. If the defendant can demonstrate that the release was intended to block any future claims by the estate, even in its capacity as subrogee, then its assignment of such claims to the plaintiff would be subject to the terms of that release. See 3 Restatement (Second), Contracts § 336, p. 67 (1981) (assignee takes assignment subject to any defense or claim of the obligor).
Thus, assuming that the plaintiff may legally pursue this action in assignment, the defendant validly asserts the special defense that the estate's claims are barred by a general release. Accordingly, the motion to strike the seventh special defense is denied.
Eighth Special Defense — Anti-assignment Clause
The defendant claims in its eighth special defense that the terms of its policy with the Oliveiras prohibits the assignment of any rights under the policy without the insurer's consent, and the defendant did not consent to the assignment by the insured of his rights under the policy. Citing other jurisdictions, the plaintiff argues that most courts limit policy terms prohibiting assignment to assignment before loss, not after loss. In other words, the plaintiff argues that the policy cannot be assigned to someone else prior to a claim, but after a claim arises the assignment constitutes merely the transfer of money rights and is therefore permissible. The plaintiff acknowledges that Connecticut has not ruled on this issue but notes that the supreme court has distinguished between policy terms that limit the right to assign as opposed to the power to assign. The plaintiff further argues that the special defense fails to allege that the policy language affects the insured's ability to assign after the loss has occurred or that such an assignment renders the policy void.
The defendant cites Lewin Sons, Inc. v. Herman, 143 Conn. 146, 120 A.2d 423 (1956), for the proposition that a contractual provision limiting assignment of money due under the contract is a valid limitation. The defendant also cites American Jurisprudence 2d for the rule that contract terms limiting assignment of the contract are valid and prevent the assignee's suit to enforce the contract. The plaintiff counters that the supreme court abandoned the Lewin case in Rumbin v. Utica Mutual Insurance Co., 254 Conn. 259, 757 A.2d 526 (2000) and adopted the rule that an anti-assignment provision, to be effective, must limit both the insured's right to assign and the power to assign, or contain a provision voiding the assignment itself. Without expressly saying so, the plaintiff appears to be arguing that this present contract only purports to limit the right of assignment and does not effectively limit the insured's power to do so with express language voiding the assignment or the contract.
In Rumbin v. Utica Mutual Insurance Co., supra, 254 Conn. 267, the court adopted the modern approach to anti-assignment clauses, holding that such a clause will not invalidate an assignment unless the clause contains specific language indicating that result. Where an anti-assignment clause does not limit the insured's power to assign by specifically voiding the assignment or the contract, an assignment will stand, although the assignor may be liable for damages caused by the assignment. In this case the defendant does not allege that the anti-assignment clause contains language limiting the insured's power, as opposed to his right, to assign rights under the contract. Thus, the anti-assignment clause is not legally sufficient to invalidate the assignment and does not constitute a valid special defense to the plaintiff's claims. Accordingly, the motion to strike the eighth special defense is granted.
Ninth Special Defense — Unclean Hands
The ninth special defense alleges that the plaintiff's recovery is barred by the doctrine of unclean hands, also known as the clean hands doctrine. Specifically, the defendant claims that the plaintiff's bad faith and violations of public policy precludes its recovery because its claim grows out of its own wrongful conduct. The plaintiff counters that the clean hands doctrine is limited to the matter and event in litigation. The plaintiff's claims do not require reference to the alleged misconduct and therefore are not a bar to recovery. The plaintiff further claims that the defense fails to allege facts to support the claim that the plaintiff's claims grow out of its own misconduct and fails adequately to allege that the alleged misconduct is directly relevant to the matter in litigation.
The clean hands defense is an equitable doctrine used to achieve justice. "The party seeking to invoke the clean hands doctrine to bar equitable relief must show that his opponent engaged in willful misconduct with regard to the matter in litigation . . . The trial court enjoys broad discretion in determining whether the promotion of public policy and the preservation of the courts' integrity dictate that the clean hands doctrine be invoked." (Internal quotation marks omitted.) Monetary Funding Group, Inc. v. Pluchino, 87 Conn.App. 401, 407, ___ A.2d ___ (2005).
The facts alleged in the complaint and the special defenses demonstrate that the alleged misconduct of the defendant involves the same set of events as the plaintiff's alleged misconduct, namely, the failure to settle the claim against the insured and the failure to defend him adequately. The plaintiff's alleged misconduct in refusing to settle the claim is factually intertwined with the defendant's actions in defending the insured upon which the complaint is based, thus satisfying the prerequisites for application of the clean hands doctrine. Moreover, the plaintiff's actions may properly be considered by the court pursuant to its equitable discretion for the reasons described in the court's analysis of the second and third special defenses.
Accordingly, the motion to strike the ninth special defense is denied.
Tenth Special Defense — Independent Contractor Doctrine
The tenth special defense posits that the independent contractor doctrine excuses the defendant from liability. The defendant claims that it hired independent counsel to represent the insured and therefore it may not be held vicariously liable for the alleged negligence of the attorney under the independent contractor doctrine. The motion to strike the defense rests solely upon the defendant's failure to allege sufficient facts to indicate that the attorney was an independent contractor. At oral argument, however, the plaintiff conceded that the special defense is properly drafted. The plaintiff argued that the defense is invalid because the complaint does not allege legal malpractice and makes no claim against the insured's legal counsel. The defendant urges the court not to consider arguments raised for the first time at oral argument. In a brief filed after oral argument, the defendant further argues that the independent contractor defense is a valid defense in the context of defense counsel hired by the insurer to represent the insured.
The court agrees that the independent contractor defense, if proved by the defendant, could excuse the defendant from liability for those aspects of the complaint that allege failure to present an adequate legal defense. As a general rule, "an employer is not liable for the negligence of its independent contractors . . . The explanation for [this rule] most commonly given is that, since the employer has no power of control over the manner in which the work is to be done by the contractor, it is to be regarded as the contractor's own enterprise, and [the contractor], rather than the employer, is the proper party to be charged with the responsibility of preventing the risk, and bearing and distributing it." (Citations omitted; internal quotation marks omitted.) Pelletier v. Sordoni/Skanska Construction Co., 264 Conn. 509, 517-18, 825 A.2d 72 (2003). The plaintiff claims that certain decisions made in the defense of the insured resulted in tortious injury to the insured. If the defendant is able to prove that the counsel hired to represent the insured satisfies the independent contractor criteria and was responsible for the allegedly tortious acts, then defendant may properly be excused from liability for those acts. Because the independent contractor defense may constitute a legally sufficient defense in this action, the motion to strike the tenth defense is therefore denied.
ORDER CT Page 5035
For the foregoing reasons, the plaintiff's motion to strike the second, third, fourth, sixth, seventh, ninth and tenth special defenses is denied. The motion to strike the fifth and eighth special defenses is granted.
John J. Langenbach Superior Court Judge
* Editor's Note: An earlier reported opinion in a separate but closely related action describes the plaintiff, Infinity Insurance Co., as the insurer under a policy covering a vehicle owned by the operator, Mario, which provided excess coverage when the insured was operating a non-owned vehicle, provided the vehicle was being used with permission and was not available for the insured's regular use. Infinity Insurance Co. v. Worcester Insurance Co., 28 Conn. L. Rptr. 478.