Opinion
No. CV 07 4008234
September 10, 2008
MEMORANDUM OF DECISION
I BACKGROUND AND FACTS
This declaratory judgment action arises from a separate pending civil action, DiMatteo v. Selby, Superior Court, judicial district of New Haven at Meriden, Docket No. NNI CV 06 5001143. The plaintiff in the underlying civil action, Evgenia DiMatteo, alleges that she was a prospective house buyer when she slipped and fell on a loose carpet in the stairwell of the defendant Maureen Selby's house on August 15, 2005. At the time of the alleged slip and fall, Selby was the named insured of a homeowner's policy issued by the plaintiff in the present declaratory action, Merrimack Mutual Fire Insurance Company (Merrimack). On September 5, 2006, DiMatteo filed a one-count complaint against Selby alleging that Selby negligently maintained the stairwell in her house, and that DiMatteo incurred her injury as a result of Selby's negligence. In the present suit, Merrimack alleges that it was not informed of DiMatteo's injury and subsequent suit until February 2007, that the delay in notification violated a condition of the homeowner's policy, and that therefore Merrimack has no obligation to defend or indemnify Selby in the underlying civil action.
On August 7, 2007, Merrimack served Selby and DiMatteo with a writ, summons and complaint, seeking a declaration that it has no obligation to defend or indemnify Selby for claims arising from the action initiated by DiMatteo. On August 27, 2007, the court granted a motion to default defendant Selby for failure to appear. On September 27, 2007, DiMatteo filed an answer and special defenses. On December 6, 2007, in response to a motion by Merrimack, DiMatteo filed an answer and three revised special defenses alleging estoppel, unclean hands and waiver. On January 22, 2008, Merrimack filed a motion to strike the revised special defenses and an accompanying memorandum of law. On February 14, 2008, DiMatteo filed an objection to the motion to strike, and Merrimack filed a reply to DiMatteo's objection on June 20, 2008. The court heard oral arguments on the motion on July 1, 2008.
II DISCUSSION
"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.) Bernhard-Thomas Building Systems, LLC v. Dunican, 286 Conn. 548, 552, 944 A.2d 329 (2008). In ruling on a motion to strike special defenses, the court must "take the facts to be those alleged in the special defenses and to construe the defenses in the manner most favorable to sustaining their legal sufficiency." Connecticut National Bank v. Douglas, 221 Conn. 530, 536, 606 A.2d 684 (1992). "The allegations of the pleading involved are entitled to the same favorable construction a trier would be required to give in admitting evidence under them and if the facts provable under its allegations would support a defense or a cause of action, the motion to strike must fail." Mingachos v. CBS, Inc., 196 Conn. 91, 108-09, 491 A.2d 368 (1985). The court therefore looks to facts alleged in the complaint and the defendant's special defenses in considering the legal sufficiency of the special defenses. The court will address each of the special defenses separately.
A Estoppel
The defendant's first special defense is that the plaintiff's claim for declaratory judgment is barred by the doctrine of estoppel. Specifically, the defendant argues that estoppel applies because: (1) the plaintiff failed to promptly provide written notice to disclaim coverage prior to commencing the present suit, thus violating General Statutes § 38a-985; (2) the plaintiff failed to promptly inform the defendants why it was disclaiming coverage, thus violating § 38a-985; (3) the plaintiff failed to provide the defendants with a summary of rights as required by §§ 38a-983, 38a-984, and 38a-985(b); and (4) by failing to notify the defendants, the plaintiff forced DiMatteo to change her position for the worse in her underlying claim and suit against Selby, in that DiMatteo has been delayed in recovering for her injuries and has been forced to incur additional legal fees to defend the present action. (Defendant's Answer and Revised Special Defenses, pp. 2-3.)
Subsequent references to "the defendant" refer to the defendant DiMatteo, because the defendant Selby defaulted and thus has made no claims or arguments regarding the special defenses at issue in this motion.
The plaintiff argues that the special defense of estoppel "should be stricken because Evgenia DiMatteo failed to allege what she did to change her position or cause injury to herself, which she otherwise would have done based upon misleading conduct," and "failed to allege how she was prejudiced." (Plaintiff's Motion to Strike.) DiMatteo responds that Merrimack's omissions induced her to pursue litigation against Selby in the underlying action, as well as defend the present action, under the belief that Merrimack would be defending Selby and providing coverage under her homeowner's insurance policy. (Defendant's Objection, pp. 3-4.)
"The doctrine of equitable estoppel is well established. `[W]here one, by his words or actions, intentionally causes another to believe in the existence of a certain state of things, and thereby induces him to act on that belief, so as injuriously to affect his previous position, he is concluded from averring a different state of things as existing at the time.' Cowles v. Bacon, 21 Conn. 451, 467 (1852). Our Supreme Court . . . stated, in the context of an equitable estoppel claim, that [t]here are two essential elements to an estoppel: the party must do or say something which is intended or calculated to induce another to believe in the existence of certain facts and to act upon that belief; and the other party, influenced thereby, must actually change his position or do something to his injury which he otherwise would not have done. Estoppel rests on the misleading conduct of one party to the prejudice of the other . . . Broadly speaking, the essential elements of an equitable estoppel . . . as related to the party to be estopped, are: (1) conduct which amounts to a false representation or concealment of material facts, or, at least, which is calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) the intention, or at least the expectation, that such conduct shall be acted upon by, or influence, the other party or other persons; and (3) knowledge, actual or constructive, of the real facts." (Citations omitted; internal quotation marks omitted.) Johnnycake Mountain Associates v. Ochs, 104 Conn.App. 194, 208-09, 932 A.2d 472 (2007).
The question for the court is whether the defendant, if all the facts in the pleadings are construed in her favor, has alleged conduct legally sufficient to support a defense of estoppel. The court holds that she has not. The defendant has failed to allege facts that demonstrate that Merrimack intentionally misled her, whether by act or omission, and that she actually changed her position or was injured as a result.
First, DiMatteo claims that Merrimack should be estopped from seeking declaratory judgment regarding the scope of its duty to defend pursuant to an insurance policy it issued to Selby, because Merrimack failed to provide notice to Selby of its decision to disclaim coverage as required by General Statutes § 38a-985. The court questions the general applicability of § 38a-985 to this situation, as the statute appears to govern denials of requested insurance coverage in contrast to denials of claims under existing coverage. The court need not reach that issue, however, because DiMatteo clearly is not one of the parties whom the statute is designed to protect. DiMatteo does not allege that she was a party to the insurance policy between Merrimack and Selby, nor does she allege that she was an "applicant, policyholder or individual proposed for coverage" who received an "adverse underwriting decision." By its plain terms, § 38a-985 only applies to these individuals; nowhere in the statute is it suggested that an insurer owes a duty to provide a reason for an "adverse underwriting decision" to any third party. Even if § 38a-985 theoretically creates a duty for Merrimack to notify Selby under the facts of this case, it does not create any duty to notify DiMatteo. As a result, DiMatteo cannot pursue a special defense of estoppel derived from this statute.
General Statutes §§ 38a-975 et seq. are part of Chapter 705, the Connecticut Insurance Information and Privacy Protection Act, and primarily concern the protection of individual consumer information collected by insurance institutions and agents. The specific statutes that the defendant references appear to pertain to underwriting decisions, not claims decisions. For instance, § 38a-985(a)(1) requires an insurer to "provide the applicant, policyholder or individual proposed for coverage with the specific reason for the adverse underwriting decision in writing . . ." (Emphasis added.) Section 38a-976(a) defines "adverse underwriting decision," in relevant part, as: "(1) Any of the following actions with respect to insurance transactions involving insurance coverage which is individually underwritten: (A) A declination or termination of insurance coverage . . ." The only phrase which is potentially ambiguous or applicable to this action is "declination . . . of insurance coverage." However, § 38a-976(i) defines "declination of insurance coverage" as "a denial, in whole or in part, by an insurance institution or agent, of requested insurance coverage." (Emphasis added.) The plaintiff seeks declaratory judgment on the basis of its interpretation of a policy that was in effect at the time of the alleged injury; no party alleges that Selby was denied a policy that she requested, and therefore the cited statutes are most likely inapplicable. See General Statutes § 38a-323b, discussed infra.
Second, General Statutes § 38a-323b appears to specifically address the notice requirements for the denial of an insurance claim under an existing policy. Like § 38a-985, DiMatteo cannot claim a special defense on the basis of a failure to comply with the statute. Although Selby as the insured might be able to make such an argument, DiMatteo lacks privity with the insurance company, and the clear meaning of these statutes is to give the insured party notice that their insurance might not protect them in any given instance.
General Statute § 38a-323b provides: "Each insurer, or designee of an insurer, that denies a claim under a personal risk insurance policy issued in this state shall provide the insured with written notice of the denial. The written notice shall include the following statement, which shall appear in the final paragraph of the notice in not less than twelve point type: "If you do not agree with this decision, you may contact the Division of Consumer Affairs within the Insurance Department." The notice shall include the address and toll-free telephone number for the division and the Insurance Department's Internet address. As used in this section, "personal risk insurance" means personal risk insurance, as defined in section 38a-663. General Statutes § 38a-663(i) provides: "`Personal risk insurance' means homeowners, tenants, private passenger nonfleet automobile, mobile manufactured home and other property and casualty insurance for personal, family or household needs except workers' compensation insurance."
The defendant also suggests that she would not have pursued her personal injury claims if Selby was not going to be defended or indemnified by the plaintiff. This suggestion, while perhaps understandable from a recovery standpoint in the event that Selby is unable to provide remuneration, is an insufficient legal basis to estop Merrimack from seeking to have a court declare its obligations under its policy with Selby. The defendant voluntarily brought her underlying suit against Selby, not Merrimack, and cannot now claim that the plaintiff must be estopped from seeking to determine its obligations under an insurance policy between Selby and Merrimack on this basis. Merrimack's decision to seek declaratory judgment does not rise to the type of intentional misleading conduct, nor has it induced the type of injury to the defendant, that is necessary to support a special defense of estoppel. The court therefore grants the plaintiff's motion to strike the first special defense of estoppel.
B Unclean Hands
The defendant's second special defense is that the plaintiff's claims are barred by the doctrine of unclean hands because the plaintiff acted unfairly or inequitably by commencing this declaratory action: (1) knowing that success would deprive DiMatteo of compensation for her injuries; (2) knowing and/or expecting that Selby would not defend the action and thereby avoid a resolution on the merits; or (3) knowing and/or expecting that DiMatteo would have to bear the costs of defending the action. (Defendant's Answer and Revised Special Defenses, pp. 3-4.)The plaintiff argues that the special defense of unclean hands should be stricken because "DiMatteo fails to allege facts to substantiate willful misconduct by Merrimack." (Plaintiff's Motion to Strike.) The plaintiff further argues that commencement of a declaratory judgment action with an expectation of success is not the type of misconduct required to prove "unclean hands," and that in fact it would be improper to commence an action without an expectation of success as it could raise an issue of good faith pleading. In response, DiMatteo argues that the plaintiff was plainly notified of the claims within a reasonable time and therefore there is no basis for its claim in the present action. The defendant also argues that Merrimack could "reasonably anticipate that the insured would not appear in the current action," and that the plaintiff's purpose in including DiMatteo in the suit was to force her to bear the costs of defending the action. (Defendant's Brief, pp. 6-7.) The plaintiff counters that, in order for its action to be enforceable in the event of success on the merits, it had to join DiMatteo pursuant to Practice Book § 17-56. (Plaintiff's Reply Brief.)
"[A]pplication of the doctrine of unclean hands rests within the sound discretion of the trial court." (Internal quotation marks omitted.) Thompson v. Orcutt, 257 Conn. 301, 308, 777 A.2d 670 (2001). "It is a fundamental principle of equity jurisprudence that for a complainant to show that he is entitled to the benefit of equity he must establish that he comes into court with clean hands . . . The doctrine of unclean hands expresses the principle that where a plaintiff seeks equitable relief, he must show that his conduct has been fair, equitable and honest as to the particular controversy in issue . . . Unless the plaintiff's conduct is of such a character as to be condemned and pronounced wrongful by honest and fair-minded people, the doctrine of unclean hands does not apply." (Citations omitted; internal quotation marks omitted.) Id., 310.
"Because the doctrine of unclean hands exists to safeguard the integrity of the court . . . [w]here a plaintiff's claim grows out of or depends upon or is inseparably connected with his own prior fraud, a court of equity will, in general, deny him any relief, and will leave him to whatever remedies and defenses at law he may have . . . The doctrine generally applies [only] to the particular transaction under consideration, for the court will not go outside the case for the purpose of examining the conduct of the complainant in other matters or questioning his general character for fair dealing. The wrong must . . . be in regard to the matter in litigation . . . Though an obligation be indirectly connected with an illegal transaction, it will not thereby be barred from enforcement, if the plaintiff does not require the aid of the illegal transaction to make out his case . . . In addition, the conduct alleged to be unclean must have been done directly against the interests of the party seeking to invoke the doctrine, rather than the interests of a third party." (Citations omitted; internal quotation marks omitted.) Id., 310-11.
The question for the court is whether the defendant has alleged facts to support a defense of unclean hands. The court holds that she has not. The defendant's argument that the plaintiff was plainly notified of the claim within a reasonable time and decided to bring this action anyways is not the type of misconduct that would support a defense of unclean hands. While the plaintiff's decision to seek declaratory judgment may be frustrating to the defendant, it is not improper as there appears to be "an actual bona fide and substantial question or issue in dispute or substantial uncertainty of legal relations which requires settlement between the parties" based on the policy language cited by the plaintiff in its complaint. Practice Book § 17-55(2). The plaintiff is within its right to argue for its interpretation and understanding of the homeowner's policy, even if the defendant disagrees with its perspective.
Furthermore, the plaintiff correctly argues that it had to join DiMatteo in this action in order to bind her to the court's judgment in the event of a successful outcome. Practice Book § 17-56(d). DiMatteo may feel compelled to defend the action in order to ensure that the plaintiff is a party to the underlying action, but she is not required to do so, and regardless of who bears the cost, the plaintiff is within its right to have its argument heard by the court. The defendant has failed to allege conduct by the plaintiff that would support a defense of unclean hands and therefore the court grants the plaintiff's motion to strike the defendant's second special defense.
C Waiver CT Page 14692
The defendant's third special defense is that the plaintiff's claims are barred by the doctrine of waiver because the plaintiff intentionally chose not to disclaim coverage prior to commencing Selby's defense, and, in so doing, relinquished its right to disclaim coverage on the basis of an alleged violation of the homeowner's policy. (Defendant's Answer and Revised Special Defenses, pp. 4-5.)The plaintiff argues that the special defense of waiver should be stricken because its "decision to provide a defense while seeking a declaration of coverage does not constitute a waiver of its coverage rights." (Plaintiff's Motion to Strike.) The plaintiff also argues that its defense of Selby was based upon a reservation of its right to seek declaratory judgment, that the defendant is not in a position to know whether or what communications have been made between the plaintiff and Selby, and that its decision to pursue declaratory judgment was the proper course of action in light of the Connecticut Supreme Court's decision in Missionaries of Co. of Mary, Inc. v. Aetna Casualty Surety Co., 155 Conn. 104, 230 A.2d 21 (1967). (Plaintiff's Reply Brief.)
"Waiver is the intentional relinquishment or abandonment of a known right or privilege . . . [V]arious statutory and contract rights may be waived . . . Waiver is based upon a species of the principle of estoppel and where applicable it will be enforced as the estoppel would be enforced . . . Estoppel has its roots in equity and stems from the voluntary conduct of a party whereby he is absolutely precluded, both at law and in equity, from asserting rights which might perhaps have otherwise existed . . . Waiver does not have to be express, but may consist of acts or conduct from which waiver may be implied . . . In other words, waiver may be inferred from the circumstances if it is reasonable to do so." (Citations omitted; internal quotation marks omitted.) AFSCME, Council 4, Local 704 v. Dept. of Public Health, 272 Conn. 617, 623, 866 A.2d 582 (2005).
"There cannot be a finding of waiver unless the party has both knowledge of the existence of the right and intention to relinquish it. Breen v. Aetna Casualty Surety Co., 153 Conn. 633, 645, 220 A.2d 254 (1966) . . . An insurer waives its right to disclaim based upon a breach of a policy condition if it has knowledge of the facts giving rise to the disclaimer, but elects to continue its defense. National Union Fire Ins. Co. v. Mastroni, 754 F.Sup. 269, 272 (D.Conn. 1990), citing Arton v. Liberty Mutual Ins. Co., 163 Conn. 127, 302 A.2d 284 (1972). Whether the plaintiff's conduct constitute[s] a waiver [is] a question of fact." (Citations omitted; internal quotation marks omitted.) National Casualty Ins. Co. v. Stella, 26 Conn.App. 462, 464, CT Page 14693 601 A.2d 557 (1992). An insurance company that contends that a claim is not covered by its policy can "either refuse to defend or it could defend under a reservation of its right to contest coverage under the various avenues which would subsequently be open to it for that purpose." Missionaries of Co. of Mary, Inc. v. Aetna Casualty Surety Co., supra, 155 Conn. 113.
The court holds that the defendant has alleged facts sufficient to support a special defense of waiver. The defendant alleges (1) that the plaintiff failed to provide notice that it could disclaim coverage in the underlying action prior to commencing Selby's defense, and (2) that the plaintiff knew of its right to disclaim before commencing Selby's defense. Inherent within this allegation is that the plaintiff failed to reserve its right to disclaim coverage, and there are no facts in the pleadings that support the plaintiff's reply brief argument that this action was brought pursuant to a reservation of rights. The defendant therefore alleges the key ingredients of a waiver defense: knowledge of the right to disclaim and the facts giving rise to such a defense, and the intent to relinquish it.
The court notes, however, that the plaintiff's arguments are not incorrect, they are just insufficient at this point in the proceedings. If the plaintiff is ultimately able to show that it in fact reserved its right to disclaim coverage, as it argues in its reply brief, or demonstrates that it brought the present action within a reasonable period of time after discovery of facts that might give rise to a defense of noncoverage, or that it did not intend to waive its right to disclaim coverage, it will likely succeed in defeating the defendant's waiver defense. See, e.g., DaCruz v. State Farm Fire Casualty Co., 268 Conn. 675, 680, 846 A.2d 849 (2004); Jenkins v. Indemnity Ins. Co., 153 Conn. 249, 257-59, 205 A.2d 780 (1964); 46 C.J.S. 75, Insurance § 1195 (2007). At this juncture, however, the court only looks to the legal sufficiency of the defendant's pleading of the waiver defense, and, based on the facts alleged, the defendant has met this minimal requirement. The plaintiff's motion to strike the defendant's third special defense of waiver is therefore denied.
IV CONCLUSION
For the forgoing reasons, the court grants the plaintiff's motion to strike the defendant's first and second revised special defenses of estoppel and unclean hands, and denies the motion to strike the defendant's third revised special defense of waiver.