The Hanover Insurance Group, Inc. v. Transportation General, Inc. d/b/a Metro Taxi et al. (2012)

CORRECTED MEMORANDUM OF DECISION RE MOTION TO DISMISS (# 102)

FACTS

On March 18, 2011 the plaintiff, Hanover Insurance Group, Inc., filed a six-count complaint against the defendants, Transportation General, Inc., d/b/a Metro Taxi and Metropolitan Livery, Inc., d/b/a Metro Taxi.¹ In its complaint, the plaintiff alleges the following claims:  (1) contractual indemnification as to the defendant TGI;  (2) common-law indemnification as to the defendant TGI;  (3) subrogation as to the defendant TGI;  (4) contractual indemnification as to the defendant MLI;  (5) common-law indemnification as to the defendant MLI;  and (6) subrogation as to the defendant MLI. The plaintiff brings its action against the defendants as subrogee of LogistiCare, LLC ² and alleges the following relevant facts.   The plaintiff is a property and casualty insurance company that has an office in Glastonbury, Connecticut;  the defendants are transportation providers located in West Haven, Connecticut;  and LogistiCare is a transportation broker with offices in Connecticut that partners with government agencies and local transportation providers to ensure that eligible persons have access to transportation services.   Furthermore, at all relevant times, the plaintiff provided insurance coverage to LogistiCare pursuant to a general liability insurance policy.

On or about May 2006, LogistiCare entered into a transportation agreement with the defendant TGI. On or about August 27, 2007, LogistiCare entered into an identical transportation agreement with the defendant MLI. Pursuant to the transportation agreements, the defendants agreed to indemnify, protect and hold LogistiCare harmless from all claims and/or liabilities arising from actions connected with services provided by the defendants to include the cost of reasonable attorney fees and other expenses incurred by or assessed against LogistiCare.   The defendants further agreed to obtain comprehensive general liability insurance in the minimum amount of $1.5 million, name LogistiCare as an additional insured on the policy, and provide LogistiCare with a certificate of insurance listing it as a certificate holder.³

On October 19, 2007, Jane Doe, the plaintiff in the underlying action, was a high school student who attended an after school program for special needs students at Behavioral Management in North Haven, Connecticut.   Pursuant to LogistiCare's transportation agreements with the defendants, it arranged for them to transport Jane Doe from Behavioral Management to her home.   While Jane Doe was a passenger in the defendants' taxi cab, she was physically and sexually assaulted by the taxi cab driver.

On April 28, 2008, Jane Doe commenced a lawsuit against LogistiCare and the defendant MLI that was amended to include the defendant TGI. Jane Doe's complaint alleged inter alia that LogistiCare was negligent because it failed to supervise the defendants.   LogistiCare requested that the plaintiff defend and indemnify it in connection with Jane Doe's lawsuit and tender the cost to the defendants.   On April 29, 2008, the plaintiff wrote to the defendants and demanded they defend and indemnify LogistiCare in accordance with the terms of the transportation agreements but the defendants refused.   Pursuant to its insurance policy with LogistiCare, the plaintiff incurred and paid legal fees to defend LogistiCare against Jane Doe's lawsuit.   On September 25, 2008, LogistiCare filed a cross claim against the defendant MLI for contractual and common-law indemnification.   On November 14, 2008, LogistiCare filed a third-party complaint against the defendant TGI for contractual and common-law indemnification.

On July 22, 2009, Jane Doe and LogistiCare agreed to a $300,000 settlement.   On July 28, 2009, the defendants advised LogistiCare that they would not agree to pay or reimburse LogistiCare for the settlement it reached with Jane Doe. Pursuant to its insurance policy with LogistiCare, the plaintiff indemnified LogistiCare by paying $300,000 to settle Jane Doe's law suit.   Following LogistiCare's settlement, Jane Doe's lawsuit against the defendants proceeded to a jury trial.   On February 17, 2010, a Waterbury Superior Court jury found against the defendants, awarded Jane Doe $1,027,256.12 in damages, and determined that punitive damages should be awarded.

On August 31, 2010, and September 1, 2010, LogistiCare proceeded to trial on its cross claim and third-party complaint for common-law and contractual indemnification against the defendants.   On January 10, 2011, the Superior Court, Shaban, J., ruled that the defendants had a contractual and common-law duty to defend and indemnify LogistiCare regarding Jane Doe's law suit.⁴  Although the court declined to award damages to LogistiCare because the plaintiff paid its defense and indemnification costs, it concluded that the plaintiff “may have the ability or right to seek the recovery of these funds from TGI or MLI through subrogation or some other vehicle ․”

On June 14, 2011, the defendants filed a motion to dismiss the plaintiff's complaint on the ground that the plaintiff lacks standing and therefore the court lacks subject matter jurisdiction.   The motion was accompanied by a memorandum of law.   On July 14, 2011, the plaintiff filed a memorandum of law in opposition to the defendants' motion.   The defendants' reply was filed on August 24, 2011.   The plaintiff filed its surreply on September 22, 2011.   Subsequently, this matter was heard at short calendar on November 7, 2011.

DISCUSSION

“A motion to dismiss ․ properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court.”  (Internal quotation marks omitted.)  Bacon Construction Co. v. Dept. of Public Works, 294 Conn. 695, 706, 987 A.2d 348 (2010).  “The grounds which may be asserted in [a motion to dismiss include] lack of jurisdiction over the subject matter ․” Zizka v. Water Pollution Control Authority, 195 Conn. 682, 687, 490 A.2d 509 (1985), citing Practice Book § 143, which is now § 10–31.  “The proper procedural vehicle for disputing a party's standing is a motion to dismiss.”  (Internal quotation marks omitted.)  D'Eramo v. Smith, 273 Conn. 610, 615 n.6, 872 A.2d 408 (2005).  “In ruling [on] whether a complaint survives a motion to dismiss, a court must take the facts to be those alleged in the complaint, including those facts necessarily implied from the allegations, construing them in a manner most favorable to the pleader.”   Burton v. Dominion Nuclear Connecticut, Inc., 300 Conn. 542, 550, 23 A.3d 1176 (2011).

The defendants argue that the plaintiff lacks standing to bring suit based on a direct contractual indemnity claim because there is no privity between the parties.   Specifically, the defendants argue that because the plaintiff is LogistiCare's insurer pursuant to a contract that is independent of their transportation agreements with LogistiCare, the plaintiff has no contractual connection to the transportation agreements and has no rights or obligations under the transportation agreements.   The defendants further argue that because the plaintiff's insured, LogistiCare, was found in a prior proceeding to have incurred no damages, the plaintiff has no recourse under the doctrine of equitable subrogation because a subrogated insurer stands in the shoes of its insured and has no greater rights than its insured.

In response, the plaintiff argues that it has standing to bring suit because pursuant to the principles of subrogation, an insurer may bring any claims that its insured could have pursued against the defendants and therefore the court has jurisdiction to hear the subject claims.   Accordingly, the plaintiff argues it is stepping into the shoes of its insured LogistiCare because it honored its contractual obligation to defend and indemnify LogistiCare while the defendants refused to honor their contractual obligations to defend and indemnify LogistiCare.   The plaintiff further contends that its subrogation claim is not illusory because subrogation allows an insurer that has paid sums to an insured and/or a third party to pursue the actual wrongdoer to recover the sums that the insurer has expended.   Lastly, the plaintiff asserts that to the extent the defendants argue that its allegations are not legally sufficient, that is not an argument that may be raised on a motion to dismiss.

The defendants argue in reply that its claims regarding the plaintiff's lack of standing to bring a claim for indemnification are appropriately considered on a motion to dismiss.   The defendants next argue that the plaintiff's subrogation claim must fail.   The defendants reiterate that because LogistiCare was found in a prior proceeding to have no claim for indemnification as to the defendants, the plaintiff likewise has no right to indemnification from the defendants.   The defendants conclude by arguing that the plaintiff's right to pursue an indemnification claim is barred by res judicata while collateral estoppel bars it from making an equitable subrogation claim.

In its surreply, the plaintiff asserts that the defendants' argument, that it lacks a subrogation claim because its insured LogistiCare has not sustained damages, is contradicted by Supreme Court case law.   Accordingly, the plaintiff argues that it is entitled to recover payments that it made to a third party pursuant to the doctrine of equitable subrogation.   The plaintiff further argues that the court's conclusion in the underlying case that LogistiCare did not suffer damages does not bar the pending subrogation action.   Lastly, the plaintiff argues that the defendants are improperly attempting to raise the issues of res judicata and collateral estoppel in a motion to dismiss despite the fact that neither doctrine implicates the court's jurisdiction and must generally be raised as affirmative defenses.

“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.)  Wasko v. Manella, 269 Conn. 527, 532–33, 849 A.2d 777 (2004).   Additionally, “[b]ecause equitable subrogation is, as the name implies, a cause of action sounding in equity, it must be pleaded in accordance with Practice Book § 10–27.” ⁵  Warning Lights & Scaffold Service, Inc. v. O & G Industries, Inc., 102 Conn.App. 267, 273, 925 A.2d 359 (2007).   Furthermore, “purely equitable claims, even those involving factual disputes, are matters to be resolved by the court rather than a jury.”  Ackerman v. Sobol Family Partnership, LLP, 298 Conn. 495, 534, 4 A.3d 288 (2010).

It is well established that “[s]ubrogation is an equitable doctrine that permits an [i]nsurance company to assert the rights and remedies of an insured against a third party tortfeasor ․ In seeking to impose ultimate responsibility for a wrong or loss on the party who, in equity, ought to bear it, the insurer ․ steps into the shoes of the party who suffered the loss ․ for purposes of enforcing the latter's rights.”  (Citations omitted;  internal quotation marks omitted.)  Allstate Ins. Co. v. Palumbo, 296 Conn. 253, 281–82, 994 A.2d 174 (2010).   There is “no logical reason to permit a tortfeasor to be unjustly enriched by virtue of having its debt paid by the insurance company of a party who had the foresight to obtain insurance coverage, and thus to escape all liability for its wrongdoing ․” (Internal quotation marks omitted.)  Wasko v. Manella, supra, 269 Conn. 548.   Although “[s]ubrogation is a highly favored doctrine ․ which courts should be inclined to extend rather than restrict ․ [t]here is no general rule to determine whether a right of subrogation exists.   Thus, ordering subrogation depends on the equities and attending facts and circumstances of each case ․ The determination of what equity requires in a particular case, the balancing of the equities, is a matter for the discretion of the trial court.”  (Citations omitted;  internal quotation marks omitted.)  Allstate Ins. Co. v. Palumbo, supra, 296 Conn. 260.

In the present case, the defendants' argument, that the plaintiff has no recourse to equitable subrogation because its insured LogistiCare was found in a prior proceeding not to have incurred damages, disregards that the principal object of equitable subrogation is the prevention of injustice.   As the plaintiff specifically pleaded equitable subrogation in accordance with Practice Book § 10–27, the court will balance the equities to determine whether equitable subrogation exists.

In the transportation agreements between the plaintiff's insured and the defendants, the defendants agreed to indemnify, protect and hold LogistiCare harmless from all claims and liabilities arising from actions connected with services provided by the defendants.   Accordingly, the Superior Court, Shaban, J., found in a prior proceeding that there existed a contractual duty on the part of both defendants to defend and indemnify LogistiCare because Jane Doe's transportation on the night of the incident, and ultimately her injuries, arose from actions connected with the transportation agreements between LogistiCare and the defendants as well as the actions of the taxi cab driver who was an agent of the defendant TGI. The Superior Court made a further finding that LogistiCare also established its common-law claim for indemnification against the defendants because it was shown that (1) the defendant TGI, and the defendant MLI as an alter ego of the defendant TGI, were negligent;  (2) the defendants' negligence, rather than any negligence of LogistiCare, was the cause of Jane Doe's injuries;  (3) the defendant TGI, and the defendant MLI, as an alter ego of the defendant TGI, were in control of the situation to the exclusion of LogistiCare;  and (4) LogistiCare did not know of the defendants' negligence, had no reason to anticipate it, and could reasonably rely on the defendants not to be negligent.   As the defendants refused to indemnify LogistiCare in contravention of the transportation agreements, the plaintiff, pursuant to a prior general liability insurance policy with LogistiCare, paid LogistiCare's expenses.   Consequently, when the plaintiff indemnified LogistiCare, it was not acting as mere volunteer or intruder but instead as an insurer paying the debts of its insured.   Furthermore, the debt paid by the plaintiff was debt for which the defendants, as tortfeasors, in equity and good conscience should have paid.   As our Supreme Court has explained, there is no logical reason to permit a tortfeasor to be unjustly enriched because its debt is paid by the insurance company of a party who had the foresight to obtain insurance coverage and thereby evade all liability for its wrongdoing.   Moreover, because subrogation is a highly favored doctrine which courts should be inclined to extend, the court concludes that a balancing of the equities in the present case entitles the plaintiff to the doctrine of equitable subrogation.   Consequently, the plaintiff has standing to bring its subrogation claims against the defendants.

The defendants' argument that the plaintiff has no standing to bring suit based on a direct indemnity claim due to lack of privity between the parties ignores that the right of equitable subrogation is not a matter of contract.   In the present case, the issue of whether privity exists between the plaintiff and the defendants is irrelevant because equitable subrogation does not arise from any contractual relationship between the parties but takes place as a matter of equity even without an agreement to that effect.   Furthermore, as our Supreme Court has concluded, under the doctrine of equitable subrogation, “[a] subrogee has no rights against a third person beyond what the subrogor had.”   Allstate Ins. Co. v. Palumbo, supra, 296 Conn. 260.   Accordingly, because the plaintiff is LogistiCare's subrogee, it is stepping into the shoes of LogistiCare and therefore can enforce LogistiCare's rights against the defendants.   As the defendants were found in a prior proceeding to have both a contractual and common-law duty to indemnify LogistiCare, the plaintiff, as LogistiCare's subrogee, likewise has standing to bring contractual and common-law indemnification claims against the defendants.   Consequently, because the plaintiff has standing to bring all its claims against the defendants, the court rules that it has subject matter jurisdiction over the case.⁶

CONCLUSION

For the foregoing reasons, the court denies the defendants' motion to dismiss.

Woods, J.

FOOTNOTES

FN1. The defendant Transportation General, Inc., d/b/a Metro Taxi shall be referred to as “TGI” and the defendant Metropolitan Livery, Inc., d/b/a Metro Taxi shall be referred to as “MLI.” The defendant MLI is the alter ego of the defendant.   TGI and MLI shall also be referred to as “the defendants.”.  FN1. The defendant Transportation General, Inc., d/b/a Metro Taxi shall be referred to as “TGI” and the defendant Metropolitan Livery, Inc., d/b/a Metro Taxi shall be referred to as “MLI.” The defendant MLI is the alter ego of the defendant.   TGI and MLI shall also be referred to as “the defendants.”

FN2. LogistiCare Solutions, LLC shall be referred to as “LogistiCare.”.  FN2. LogistiCare Solutions, LLC shall be referred to as “LogistiCare.”

FN3. The defendant MLI obtained $1.5 million in insurance coverage with Lincoln General Insurance Company and named LogistiCare as an additional insured on the policy.   However, the policy was not comprehensive and the taxi cab in the underlying action was not covered.   Thereafter, Lincoln General Insurance Company brought a declaratory judgment action against LogistiCare and argued it was not required to defend LogistiCare or the defendants in connection with the underlying lawsuit.   Pursuant to its insurance policy with LogistiCare, the plaintiff incurred and paid legal fees to defend LogistiCare in connection with the declaratory judgment suit..  FN3. The defendant MLI obtained $1.5 million in insurance coverage with Lincoln General Insurance Company and named LogistiCare as an additional insured on the policy.   However, the policy was not comprehensive and the taxi cab in the underlying action was not covered.   Thereafter, Lincoln General Insurance Company brought a declaratory judgment action against LogistiCare and argued it was not required to defend LogistiCare or the defendants in connection with the underlying lawsuit.   Pursuant to its insurance policy with LogistiCare, the plaintiff incurred and paid legal fees to defend LogistiCare in connection with the declaratory judgment suit.

FN4. Doe v. Terry, Superior Court, judicial district of Waterbury, Docket No. 085008897 (January 10, 2011, Shaban, J.)..  FN4. Doe v. Terry, Superior Court, judicial district of Waterbury, Docket No. 085008897 (January 10, 2011, Shaban, J.).

FN5. Practice Book § 10–27 provides:  “A party seeking equitable relief shall specifically demand it as such, unless the nature of the demand itself indicates that the relief sought is equitable relief.”.  FN5. Practice Book § 10–27 provides:  “A party seeking equitable relief shall specifically demand it as such, unless the nature of the demand itself indicates that the relief sought is equitable relief.”

FN6. Because the court has jurisdiction over the case, the court need not address the defendants' arguments that the plaintiff's right to pursue an indemnification claim is barred by res judicata while collateral estoppel bars it from making an equitable subrogation claim..  FN6. Because the court has jurisdiction over the case, the court need not address the defendants' arguments that the plaintiff's right to pursue an indemnification claim is barred by res judicata while collateral estoppel bars it from making an equitable subrogation claim.

Woods, Glenn A., J.