Artie's Auto Body, Inc. et al. v. The Hartford Fire Insurance Company (2013)

Memorandum of Decision on Defendant's Motion for Reconsideration and for Sanctions (No. 534)

Procedural and Factual Background

This is a class action brought by the named plaintiffs on behalf of a class of more than 1,000 Connecticut auto body shops against The Hartford Fire Insurance Company (“The Hartford”).   The approved designated plaintiff class is all “Connecticut Licensed Auto Body Repair Shops, or licensed individuals, that have performed physical auto body repairs paid for directly or indirectly, partially or in full, by [The] Hartford as the result of automobile insurance policies issued by [The] Hartford.”  Artie's Auto Body, Inc., et al. v. The Hartford Fire Insurance Company [this case], 287 Conn. 208, 212 (2008).   Plaintiffs, seeking money damages, injunctive relief, and other relief, allege in their complaint that The Hartford engaged in a pattern of unfair and deceptive acts and practices in violation of the Connecticut Unfair Trade Practices Act, Conn. Gen.Stat. § 42–110a et seq.  (“CUTPA”).  In summary, the plaintiffs claimed that The Hartford has wrongfully steered its insureds and other insurance claimants to auto body repair shops favored by The Hartford (Direct Repair Providers or “DRPs”) and part of The Hartford's Customer Repair Service Program (CRSP).  It was also alleged that The Hartford through the use of positive and negative employee incentives has prevailed upon its own independent appraisers to establish an artificially low standard of hourly labor rates for auto body repair work in Connecticut to the damage and detriment of the plaintiffs.   The first claim has been referred by the parties as the “steering claim” or the “shop selection claim”;  the second as the “labor rate claim.”

Class action status was granted by this court and affirmed on appeal.   Artie's supra.   The class representatives are the four named plaintiffs Artie's Auto Body, Inc. A & R Body Specialty, Skrip's Auto Body, T & J Auto Body, and The Auto Body Association of Connecticut (“ABAC”).

Following seventeen days of trial and jury deliberations over all or part of six days, the jury rendered its verdict of November 17, 2009, finding that the plaintiffs had proven by a preponderance of the evidence that defendant's conduct or practices regarding hourly labor rates to be paid to the plaintiffs for auto body repair services was an unfair trade practice in violation of the Connecticut Unfair Trade Practice Act (“CUTPA”), Conn. Gen.Stat. § 42–110b, by offending the public policy of Connecticut Department of Insurance Regulation § 38a–790–8 (the “Code of Ethics”) (Jury Interrogatories, Court Ex. 10.   Interrrogatory 1).   The jury found that the foregoing unfair trade practice caused the plaintiffs to sustain an ascertainable loss of money or property, (Interrogatory 3), and money damages (Interrogatory 4) which they awarded in the amount of $14,765,556.27, none of which were found to have been wrongfully withheld by the defendant (Interrogatory 5).   The jury found that the labor rate practices were not unfair trade practices under the second prong (immoral, unethical, unscrupulous or oppressive conduct) or the third prong (substantial injury to plaintiffs not outweighed by countervailing benefits) of the cigarette rule; ¹  and that defendant's conduct or practices or communications regarding utilization of its direct repair shops or its CRSP program were not an unfair trade practice under CUTPA, as alleged by plaintiffs in their steering claim.

On December 17, 2009 defendant filed a Motion Pursuant to Practice Book Sections 16–35 and 16–37 (No. 444) (the “JNOV Motion”) asking that the verdict for the plaintiffs be set aside or that the court enter judgment in its favor notwithstanding the verdict, for the reasons, inter-alia, that the plaintiffs did not meet their burden of proving a CUTPA violation with respect to labor rates, and that the plaintiffs did not prove that the Appraiser's Code of Ethics caused an ascertainable loss to the class.   Following extensive briefing and oral argument the court denied that motion by Memorandum of Decision on October 14, 2010.  [50 Conn. L. Rptr. 790] (No. 519.)

The Motion now before the court is Defendant's Motion for Reconsideration and for Sanctions dated June 10, 2011 (No. 534) by which The Hartford asks the court to reconsider its denial of its JNOV Motion “based upon recently discovered interpretations by the Connecticut Department of Insurance concerning Insurance Regulation § 38a–790–8 (the “Code of Ethics”).”

The background is that when an automobile owner insured by the Hartford, or the owner of an automobile involved in a collision with a Hartford insured, sustains collision damage covered by the Hartford, an automobile damage appraiser licensed by the State of Connecticut Department of Insurance inspects the damaged vehicle and prepares a written appraisal report itemizing the damage and estimating the cost of repair which is then used to negotiate the completion of repairs by an auto body shop licensed by the State of Connecticut Motor Vehicle Department.   Some of the appraisers are outside independent appraisers, but, most often, they are employees of the Hartford.   The appraisal methodology consists of listing all the damages sustained by the automobile, listing any parts that require replacement and their cost, estimating the number of labor hours to complete all necessary repairs and painting and applying the prevailing hourly labor rate.   The total of the costs of parts and labor is the appraiser's estimate of damage which the appraiser then presents to an auto body repair shop, either an independent shop such as the members of the plaintiff class, or, with the claimant-owner's consent, one of the Hartford's “direct repair shops” which are under contract to The Hartford to complete repairs at a certain hourly rate.   The appraiser then attempts to negotiate for completion of the repairs at the appraisal amount.   If not successful in one shop, the appraiser may negotiate with one or more other shops.

The licensed appraisers are governed by the Code Of Ethics of the Department of Insurance Regulations, § 38a–790–8, which provides:

Every appraiser shall:  (1) conduct himself in such as manner as to inspire public confidence by fair and honorable dealings;  (2) approach the appraisal of damaged property without prejudice against, or favoritism toward, any party involved in order to make fair and impartial appraisals;  (3) disregard any efforts on the part of others to influence his judgment in the interest of the parties involved;  (4) prepare an independent appraisal of damages.   No appraiser shall:  (A) receive directly or indirectly any gratuity or other consideration in connection with his appraisal services from any person except his employer, or, if self-employed, his customer;  (B) traffic in automobile salvage if such salvage is obtained in any way as a result of appraisal services rendered by him.

The plaintiffs presented evidence at trial—contested by The Hartford—that The Hartford had been interfering with the independence and impartiality of its employee-appraisers by putting direct or indirect influence or employment pressure on them to incorporate into their appraisals an artificially low labor rate which was less than what the plaintiffs believed to be the “prevailing rate.”   There was extensive testimony, including testimony by an appraiser formerly employed by the Hartford, and by expert witnesses.   The unfair trade practice found by the jury was that the plaintiff had “proved by a preponderance of the evidence that the defendant's conduct or practices regarding hourly rates to be paid to the plaintiffs for auto body repair services was an unfair trade practice [a]s offending ² public policy.”   (Jury Interrogatories, Court Ex. 10, Interrogatory 1.) The jury further identified the public policy found to have been offended as “Sec 38a–790–8 of the Conduct of Motor Physical Damage Appraisers.”  (The “Code of Ethics.”)

The legal issue as to which the defendant now seeks reconsideration has consistently been raised by The Hartford throughout the lengthy history of this litigation.   In its simplest terms, the argument is that the Code of Ethics does not govern the conduct of appraisers with respect to their determination of the labor rate to be applied to the estimated number of work hours to reach their final appraisal dollar amount.   The argument was articulated by The Hartford in its December 30, 2008 Defendant's Reply Memorandum of Law in Further Support of its Motion for Summary Judgment.  (No. 311) at pages 14–15 where, in discussing the Code of Ethics, it said:

Moreover, any requirement by the Department of Insurance (“DOI”) to be fair and impartial is a requirement governing the relationship between the insurer and its insured—that relationship is the subject of DOI oversight.   It is not, however, within the purview of DOI to regulate the commercial relationship between an insurance company, as a buyer of services, and a body shop as a seller.   As the DOI has stated, and as the Plaintiffs have quoted, ‘To be clear, the department has no statutory or regulatory authority to regulate Labor Rates.’   DOI Guidelines issued January 29, 2007 3 ․ The DOI regulation for the appraiser to be fair and impartial is directed at the fairness of an estimate as between the insurer and the insured;  the DOI is not regulating the relationship between the body shop and its customers.  (Emphasis in original.)

The plaintiff's position on the issue was stated succinctly at trial in 2009:

The fact that the DOI doesn't or cannot regulate rates doesn't mean by the same token that they're not in a position to say how the appraisers should conduct themselves which is to do fair and independent and unbiased appraisals.   Transcript Excerpt, 11/16/09, Attached as Exhibit E to Affidavit of Thomas G. Rohback Esq. In Support of Defendant's Motion for Reconsideration and for Sanctions, p. 4.

The basis of the present Motion for Reconsideration and for Sanctions is stated in the motion itself (No. 534) at page 2:

During the pendency of this case, and without knowledge of The Hartford or the Court, Department of Insurance Commissioner Sullivan sent letters to Attorney General Blumenthal in 2007 and 2008 explaining the meaning of the Department of Insurance's Regulation 38a–790–8.   Plaintiffs were aware of this correspondence.   Yet, plaintiffs improperly and deliberately failed to disclose their knowledge of this correspondence or to produce any documents concerning this exchange.   Accordingly, The Hartford asks the Court to sanction the plaintiffs for abuse of discovery.

Findings of Fact

The court makes the following findings of fact based on the undisputed record in this case and the multiple affidavits and attachments thereto filed by the parties in support of and opposition to this motion: ⁴

1. This action was commenced with a return date of August 5, 2003.

2. On June 30, 2004 The Hartford served on the plaintiff ABAC its First Set of Interrogatories and Requests for Production, which included the following:

Interrogatory No. 7:  “Identify all communications between or among you and Government entities concerning ․ (g) the Appraiser's Code of Ethics, which is cited at Paragraph 24 of the Complaint ․”

Interrogatory No. 8 asked for all documents “concerning the same communications referred to in Interrogatory No. 7.”

Interrogatory No. 71 asked ABAC to identify and produce “all analyses, reports, studies, surveys, memoranda and the like concerning ‘labor and other rates' as referenced in Paragraph 22 of the Complaint.”

Interrogatory No. 96 asked ABAC to identify any unfair practices which have damaged class members and were not otherwise identified in your responses to this discovery.

Interrogatory No. 97 asked ABAC to produce all documents concerning the allegedly unfair practices identified in Interrogatory No. 96.

Interrogatory No. 100 asked ABAC to identify and produce “all analyses, reports, memoranda, surveys, summaries, and the like that concern income lost by Class Members as a result of the wrongdoing alleged in the Complaint.”

3. On November 1, 2004 ABAC served “The Auto Body Association of Connecticut's Objections to Defendant's First Interrogatories and Requests for Production, verified under oath by ABAC's then president Thomas Bivona.   ABAC entered nine “General Objections” and specific objections to Interrogatories and Requests for Production Nos. 13, 14, 15, 16, 17, 18, 20, 29, 30, 31, 32, 33, 34, 39, 40 through 66, 69, 70, 72, 77, 78, 79, 82, 84, 84 through 89, 92, 93, 94, 95, 113, 115, and 118.   Plaintiff did not specifically object to Interrogatories/Requests for Production Nos. 7, 8, 71, 96, 97, or 100.

4. On November 8, 2004 ABAC served The Auto Body of Connecticut's Responses to Defendant's First Interrogatories and Requests for Production, signed under oath by ABAC's then president Thomas Bivona.   The Response to Interrogatories No. 7 and No. 8 incorporates the response to Interrogatory No. 1, which reads “Additional communications for the ABAC are not centrally located.   They are to be found in the offices of the current President and several former Presidents.   The ABAC will make these documents available for inspection and copying at a time and place to be agreed upon by the parties.”   The response to Interrogatory 71 was “Undeterminable at this time.”   The response to Interrogatory 96 was “Plaintiff respectfully refers the defendant to the unfair and deceptive practices identified in the complaint.”   The response to Interrogatory 97 was “None presently available pending further discovery.”   The response to Interrogatory No. 100 was “To be provided at a later date.”

5. As part of its initial and/or supplemental compliance ABAC did produce copies of its ABAC Newsletters from 2002 through 2008 which contained, inter alia, references to Atty. General Blumenthal's address at the June 2007 annual meeting of ABAC, a reference to a “long and productive meeting between ABAC and the “New Insurance Commissioner” in 2007, a reference to a letter dated May 25, 2007 from Commissioner Sullivan to Mr. Tom Bivona as president of ABAC which makes reference to the Code of Ethics, reference to a request by ABAC's lobbyist that Commissioner Sullivan revisit and review ABAC's previously submitted response with concerns about the Insurance Department's “Best Practices” guidelines determining labor rates, references in October 2007 to “updates on a meeting with the CT Insurance Commissioner and the relationship of the ABAC with Attorney Richard Blumenthal,” a reference in December 2007 to “a communication that Rich Blumenthal has had recently with State of CT Insurance Commissioner Thomas Sullivan.,” and a reference in January/February 2008 regarding “efforts by the Attorney General on behalf of the ABAC.”

6. On September 27, 2007 Commissioner of Insurance Thomas R. Sullivan wrote to Atty. General Richard Blumenthal the first of the two letters here at issue.   That letter contained, inter alia, the Commissioner's interpretation of Conn. Agencies Regulations § 38a–790–8, the “Code of Ethics” for motor vehicle physical damage appraisers.   A copy of the September 27, 2007 letter is attached hereto as Exhibit “A.”

7. On November 14, 2007 ABAC President Thomas Bivona co-authored with ABAC counsel John Parese a Memorandum addressed to Richard Blumenthal entitled “ABAC Labor Rate Study—Comments on DOI's Letter 9/27/07” which analyzed and disagreed with the contents of Commissioner Sullivan's letter dated September 27, 2007.   No copy of that Memorandum has at any time been produced to The Hartford by ABAC or any of the other plaintiffs.

8. On February 25, 2008 Commissioner Sullivan wrote to Atty. General Blumenthal the second of the two letters here at issue.   That letter also contained, inter alia, the Commissioner's interpretation of Conn. Agencies Regulations § 38a–790–8, the “Code of Ethics” for motor vehicle physical damage appraisers.   A Copy of the February 25, 2008 letter is attached hereto as Exhibit “B.”

9. Thomas Bivona's term as president of ABAC ended in June 2008, but he has remained as a director of ABAC at all relevant times.

10. ABAC thereafter supplemented its Responses to defendant's said Interrogatories and Production Requests by letters from Atty. David Slossberg dated November 14, 2008 and November 24, 2008.   Neither letter made any reference to either of the two letters from Commissioner Sullivan to Atty. General Blumenthal.

11. This case was tried, after jury selection, from October 9, 2009 through November 17, 2009 when the jury returned its verdict for the plaintiff.

12. On October 14, 2010 the Court denied Defendant's Motions Pursuant to Practice Book Sections 16–35 and 16–37, seeking to set aside the verdict and for judgment notwithstanding the verdict.

13. The Hartford first became aware of the two letters from Commissioner Sullivan to Atty. General Blumenthal in April and May 2011 when copies were sent to Brien Horan, Esq., vice president and director of the Corporate and Property/Casualty Litigation Unit in the Law Department of The Hartford by an attorney with the firm of Wiggin and Dana which does legal work for The Hartford and also represents Progressive Insurance Company in a class action entitled A & R Body Specialty, Skrip's Auto Body, Family Garage, and The Auto Body Association of Connecticut v. Progressive Casualty Insurance Company, a case making claims similar to those made in this case, now pending in the United States District Court for the District of Connecticut.

14. At that same time Wiggin and Dana provided copies of the two Commissioner Sullivan letters to the Hartford, it also provided a copy of the foregoing November 14, 2007 Memorandum from Thomas Bivona and Atty. John Parese to Atty. General Blumenthal.

15. Based on affidavits submitted at the court's request, the court finds that no one at The Hartford had copies of, or was aware of, the two Commissioner Sullivan letters prior to their being provided by the firm of Wiggin & Dana in April/May of 2011.   The court also finds that no one at the firm of Robinson & Cole which formerly represented The Hartford in this litigation had copies of or was aware of those two letters prior to May/June of 2011 when Wiggin & Dana made them available.

16. Wiggin & Dana received copies of the two letters from Commissioner Sullivan as the result of a Freedom of Information document request sent to the Office of the Attorney General.

17. The instant Motion for Reconsideration and for Sanctions was filed on June 10, 2011.

18. Plaintiff's Objection to Motion to Reconsider Denial of Motion to Set Aside the Verdict and for Sanctions and in Support of Plaintiff's Motion for Sanctions was filed on August 16, 2011.   In that objection, counsel stated, at page 9:

From approximately May 2004 through May 2008 Thomas Bivona served as President of the ABAC. From May 2008 through the present, Robert Skrip has been the ABAC's president.   Plaintiff's supplemental production occurred in November 2008, when Mr. Skrip was the ABAC's President.   At no time did Mr. Skrip see either the 2007 or 2008 Letters, or otherwise have copies of said letters in his files, and the letters were not provided to him by his predecessor, Thomas Bivona.   Thomas Bivona does not recall seeing Commissioner Sullivan's September 27, 2007 letter, but even if he did see it, he did not retain a copy in his files.   Mr. Bivona never saw the February 25, 2008 letter, nor did he have a copy in his files.   The subject letters by Commissioner Sullivan were not produced to Plaintiffs' trial counsel at any time prior to the trial of this action.

19. On September 8, 2011 plaintiffs filed a Notice of Additional Facts and Clarification (No. 550) in which Atty. Slossberg states:  “On August 24, 2011, after filing of plaintiff's opposition brief on this motion, the undersigned received documents from former ABAC President, Thomas Bivona, in connection with discovery being conducted in another case.   Among those documents was the September 27, 2007 letter ․ Plaintiffs want this court to be aware that the September 27, 2007 letter is among documents recently provided to counsel by Mr. Bivona.”

20. After receiving the forgoing unsworn representations of counsel, and hearing oral argument, the court on October 16, 2012 entered an order (No. 534.87) requesting additional affidavits from both parties, including “․ an affidavit of Thomas Bivona setting forth the facts and circumstances of (1) his co-authorship of the letter of 11/14/07 to Commissioner Sullivan (Rhoback Affidavit Ex. M) ⁵ ․;  (2) his possession of a copy of Commissioner Sullivan's letter of 9/27/07 ․ including the circumstances of his first having seen or been aware of and/or possessed a copy of that letter, its location on or about November 7, 2008 when plaintiffs made their supplemental disclosure to defendant, and the facts and circumstances of a copy of that letter being turned over to defendant by counsel for the plaintiffs on or about September 8, 2011.”

21. Thomas Bivona's affidavit was filed on November 20, 2012.  (No. 556.)   In it, he states:  that he did not remember ever receiving, reading, or seeing a copy of the November 14, 2007 memo [from himself and Atty. John Parese to Richard Blumenthal and Richard Kehoe], or any draft thereof prior to the filing of this motion for reconsideration, but, having now seen a copy of that memo, he recalls generally discussing some of the issues raised therein over the telephone with Attorney John Parese (¶¶ 13, 14);  that the November 14, 2007 memo was drafted by Atty. Parese and that he was not provided with a copy for approval or review prior to its transmission to Atty. General Blumenthal, and he has never been in possession of a copy of that memo prior to the filing of this motion (¶¶ 16, 17);  that does not recall when he first saw or came into possession of a copy of Commissioner Sullivan's September 27, 2007 letter, but he became aware of the existence of the letter through Attorney Parese in or about late October 2007 (¶¶ 18, 19);  that on or about August 24, 2011, he turned documents over to counsel for their review for production in the Progressive Insurance case, and he was not aware at that time that a copy of the September 27, 2007 letter was among the documents in his files, but he was later informed by counsel that a copy of the September 27, 2007 letter was found among the documents in his files (¶¶ 20–22);  that he does not know when the letter came to be part of the documents in his files and he did not intentionally or knowingly withhold that letter from counsel or the Court (¶¶ 23, 24);  and that neither he, nor to the best of his knowledge, any agents or representatives of the ABAC, ever received a copy of the February 25, 2008 letter from Commissioner Sullivan to Attorney General Blumenthal, nor were they aware of the existence of that letter prior to the filing of Defendant's Motion for Reconsideration.

22. The court finds that Thomas Bivona, acting in his capacity as president of ABAC, was aware of the existence of the September 27, 2007 letter from Commissioner Sullivan as of late October 2007, that he knowingly participated with Atty. Parese, ABAC's counsel, in the preparation of the November 14, 2007 Memo to Atty. General Blumenthal and Richard Kehoe commenting on Commissioner Sullivan's September 27, 2007 letter, and that there was a copy of Commissioner Sullivan's September 27, 2007 letter in the files he maintained as ABAC's president from sometime in the fall of 2007 until it was discovered in his files on or about August 24, 2011.

23. The court finds that the Hartford, as moving party, has failed to prove that the plaintiffs had any knowledge of Commissioner Sullivan's February 25, 2008 letter prior to the filing of this motion for reconsideration.

Additional findings of fact will be made in the following discussions of the legal issues.

Standard of Decision and Discussion

This is a motion for reconsideration based on a claim of discovery violation, seeking the remedy of reversal of the court's ruling denying defendant's motion pursuant to Practice Book § 16–37 for judgment notwithstanding the verdict, and the entry of judgment for the defendant notwithstanding the verdict, based on newly discovered interpretations by the Connecticut Department of Insurance concerning Insurance Regulation § 38a–790–8 (the Code of Ethics).⁶  This is a combination of legal remedies:  reconsideration, discovery violation and sanction, newly discovered evidence, and judgment notwithstanding the verdict, all of which have their own separate elements which the court will state separately and then attempt to weave them together to reach a decision on this motion.

A. Motion for Reargument/Reconsideration

Practice Book § 11–12 ⁷ although captioned “Motion to Reargue” also governs motions for reconsideration.   The rule provides, in part:

(a) A party who wishes to reargue a decision or order rendered by the court shall, within twenty days from the issuance of notice of the rendition of the decision or order, file a motion to reargue, setting forth the decision or order which is the subject of the motion, the name of the judge who rendered it, and the specific grounds for reargument on which the party relies.

(b) The judge who rendered the decision or order may, upon motion of a party and a showing of good cause, extend the time for a filing of a motion to reargue.   Such motion for extension must be filed before the expiration of the twenty day time period in subsection (a).

(c) The motion to reargue shall be considered by the judge who entered the decision or order.   Such judge shall decide, without a hearing, whether the motion to reargue should be granted.   If the judge grants the motion, the judge shall schedule the matter for a hearing on the relief requested.

“The purpose of a reargument ․ is to demonstrate to the court that there is some decision or some principle of law which could have a controlling effect, and which has been overlooked, or that there has been a misapprehension of facts.”  Jaser v. Jaser, 37 Conn.App. 194, 202 (1995).  “A motion to reargue is not a device to obtain a second bite at the apple or to present additional cases or briefs which could have been presented at the time of the original argument.”  C.R. Klewin Northeast LLC v. Bridgeport, 282 Conn. 54, 101, n.39 (2007).  “As a general matter, in the absence of the discovery of some new facts or new legal authorities that could not have been presented earlier, the denial of a motion for reargument is not an abuse of discretion of the trial court.”  Weinstein v. Weinstein, 275 Conn. 671, 705 (2005).

The threshold issue is timeliness.   This motion was not filed within twenty days of the court's October 24, 2010 denial of the JNOV Motion.   It was filed on June 10, 2011, more than seven months after that ruling.   And no motion for extension of time was filed before the running of the twenty-day deadline, or at any time.   There is authority for a strict application of the twenty-day deadline.  Weinstein v. Weinstein, 275 Conn. 671, 699–700 n.21 (”A party only has twenty days from the date of judgment in which to file a motion for reconsideration ․ After the twenty days have passed, no such motions can be filed and the judgment becomes final).   But that rigidity is firmly rooted in the concept of finality of judgments.  (“If, however, a motion for reconsideration on which the ruling could alter the judgment is filed within the twenty-day period, it is only logical that the finality of judgment be suspended until the court has ruled on that motion.”  Id.) In this case the twenty day limit of § 11–12 had expired, but the twenty-day appeal period of Practice Book § 63–1(a) had not even started to run, since, as previously noted at footnote 8, a final judgment has not yet entered in this case.   The strict analysis therefore is inapplicable.   The filing of this motion is governed by the court's inherent power to govern the proceedings before the court.   It has long been recognized to be within the inherent power of the trial court to determine whether a motion to reargue should be considered.   K.A. Thompson Electric Co. v. Wesco, Inc., 24 Conn.App. 758, 759 (1991).   Practice Book § 1–8 recognizes this fundamental principle:  “The design of these rules being to facilitate business and advance justice, they will be interpreted liberally in any case where it shall be manifest that a strict adherence to them will work surprise or injustice.”   The injustice in disallowing the motion for reconsideration in this case on the ground of untimeliness would be that the ground of the requested reconsideration—the discovery of the two letters interpreting the Insurance Department Regulation upon which the verdict stands—did not occur until shortly before the Motion for Reconsideration was filed in June of 2011.   See Annan, Admr. v. Bridgeport Hospital, Superior Court, Judicial District of Fairfield, Docket No. CV04–0409311S (August 18, 2009, Bellis, J.) [48 Conn. L. Rptr. 240] 2009 Conn.Super. LEXIS 2334 (Citing P.B. § 1–8, motion for reconsideration filed outside the twenty-day period of § 11–12 allowed to be heard on equitable grounds).   See also Rose v. Tomaso, Superior Court, Judicial District of New Haven, Docket No. CV97–0404577S (May 2, 2000, Devlin, J.) [27 Conn. L. Rptr. 265] 2000 Conn.Super. LEXIS 1658 (Same.) In this case, the Hartford's Motion for Reconsideration will be considered on its merits although filed about seven months outside the twenty-day time period of Practice Book § 11–12.

Before considering the other criteria or standards applicable to a motion for reconsideration, because the defendant has constructed his claim for reconsideration around a claim of discovery violation, it is necessary to detour to the area of a party's failure to comply with discovery and the consequences thereof.

B. Discovery Violations

Practice Book § 13–2 (Scope of Discovery) provides, in part:

In any civil action ․ a party may obtain in accordance with the provisions of this chapter discovery of information or disclosure, production and inspection of papers books, documents, and electronically stored information material to the subject matter involved in the pending action, which are not privileged, whether the discovery or disclosure relates to the claim or defense of any other party, and which are within the knowledge, possession, or power of the party or person to whom the discovery is addressed.   Discovery shall be permitted if the disclosure sought would be of assistance in the prosecution or defense of the action, and if it can be provided by the disclosing party or person with substantially greater facility than it could otherwise be obtained by the party seeking disclosure.   It shall not be ground for objection that the information sought will be inadmissible at trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.

Practice Book § 13–7(a) requires the party to whom interrogatories are directed to answer such interrogatories under oath within thirty days, subject to extension by stipulation or court order.  Practice Book § 13–10(a) requires the party to whom a request for production of documents is directed to serve a written response within thirty days, subject to extension by stipulation or court order.

Practice Book § 13–15 (Continuing Duty to Disclose) imposes on a disclosing party who discovers additional or new material or information previously requested, or discovers that prior compliance was totally or partially incorrect, a duty “promptly notify the other party, or the other party's attorney, and file and serve ․ a supplemental or corrected compliance.”   Practice Book § 13–14 (Order for Compliance;  Failure to Answer or Comply with Order) provides, in part:

(a) If any party has failed to answer interrogatories, or to answer them fairly, or has intentionally answered them falsely or in a manner calculated to mislead, or has failed to respond to requests for production ․ or has failed to comply with the provisions of section 13–15 ․ or has failed otherwise substantially to comply with any other discovery order made pursuant to Sections 13–6 through 13–11, the judicial authority may, on motion, make such order as the ends of justice require.

Section 13–14(b) sets forth a non-exclusive list of five discretionary sanctions for noncompliance, two of which would not apply to a case such as this where the case has already been tried.   The other three possible sanctions listed are the entry of a nonsuit or default, the award to the discovering party of the costs of the motion, including a reasonable attorneys fee;  or, if the party failing to comply is the plaintiff, the entry of a judgment of dismissal.   The Hartford, by asking for the entry of judgment n.o.v. is, in effect, asking for the equivalent of a dismissal.

The discovery compliance issue presented here is whether or not the plaintiff ABAC improperly failed to answer or comply with its continuing duty to disclose under Practice Book § 13–15 when it failed to file a supplemental disclosure at any time after September 27, 2007, disclosing a copy of Commissioner Sullivan's letter of that date.   The February 25, 2008 letter is not at issue.   The court has found that there is no evidence that ABAC had any knowledge of that 2008 letter at any relevant time.   But the court has also found that ABAC in the person of its president Thomas Bivona was aware of the existence of the September 27, 2007 letter as of late October 2007 (by his own admission in his affidavit of November 20, 2012) and that ABAC had a copy of that letter in its files as of the fall of 2007.   No supplemental compliance disclosing the existence of that letter or producing a copy of it was thereafter filed until after the filing of this post-trial motion for reconsideration and sanctions.

In Millbrook Owners, Assn. v. Hamilton Standard, 257 Conn. 1, 17–18 (2001) the Supreme Court articulated a three-part test to be used for a trial court's order of sanctions to withstand scrutiny:  “First, the order to be complied with must be reasonably clear ․ Second, the record must establish that the order was in fact violated ․ Third, the sanction imposed must be proportional to the violation ․” The Millbrook court also addressed the extraordinary nature of the sanction of dismissal:  “The sanction of dismissal should be imposed only as a last resort, and where it would be the only reasonable remedy available to vindicate the legitimate interests of the other party and the court.”  (Internal quotation marks and citation omitted.)  Id., 17.

In this case the order was more than reasonably clear.  Practice Book Sections 13–7, 13–10, and 13–15 obligated ABAC to answer the interrogatories and requests for production directed to it.   Defendant's Interrogatory No. 71 obligated ABAC to identify and produce all analyses, reports, studies, surveys, memoranda and the like concerning “labor and other rates.”   The September 27, 2007 letter fell into that category.   Plaintiffs filed no specific objection to Interrogatory No. 71, and no motion for extension of time to comply.   The nine “general objections” filed as to all interrogatories and requests for production were never claimed for the short calendar, and plaintiffs waived those objections when they responded to Interrogatory 71 “Undeterminable at this time.”

The second Millbrook criterion was also satisfied.   The record is clear that ABAC in fact violated the discovery rules.   Plaintiff's argument that it limited its responses to “materials found in the offices of the current President and several former Presidents” is irrelevant, as the court has found that a copy of the September 27, 2007 letter was in the files of then-president Thomas Bivona.   Plaintiff's excuse that it sufficiently complied with disclosure because it produced certain ABAC newsletters that gave “hints” of the existence of the September 27 letter is frivolous.   The Practice Book doesn't permit compliance by “hints” when the actual document to be produced is sitting in your files.   And plaintiff's suggestion that the Interrogatory 71 is not proper discovery under Practice Book § 13–2 because the letter was equally available to the defendant (by a freedom of information request) was waived when no such objection was filed.   In any event the § 13–2 rule was satisfied.   Pulling the letter out of a file and producing it can obviously be accomplished “with substantially greater facility” than drafting and submitting freedom of information requests to multiple government agencies.

There has been sanctionable discovery misconduct by ABAC. But since this issue comes before the court post-trial on a motion for reconsideration, the determination of a sanction must pass muster under the rules permitting reconsideration, particularly the requirement that the basis for reargument or reconsideration must not give the moving party “a second bite at the apple,” that is, must be something that could not have been presented originally.   That requires an analysis under the rules of newly discovered evidence.

C. Newly Discovered Evidence

In determining whether a party that has had a full opportunity to present evidence and to be heard (as in the seventeen-day trial of this case) should be afforded relief on a motion for reconsideration, the standards applicable to a petition for new trial on the ground of newly discovered evidence are appropriately applied.   A. Secondino & Son, Inc. v. American Arbitration Association, Superior Court, Judicial District of New Haven Docket No. CV97–0401937S (September 25, 1997, Hodgson, J.) 1997 WL 625454.   The standards for petitioning for a new trial under Conn. Gen.Stat. § 52–270 are well established.   As to such petitions the Supreme Court has held that (1) the proffered evidence is newly discovered, such that it could not have been discovered earlier by the exercise of due diligence;  (2) that it would be material;  (3) that it is not cumulative;  and (4) that it is likely to produce a different result.  Asherman v. State, 202 Conn. 429, 434 1987);  Kubeck v. Foremost Foods Co., 190 Conn. 667, 670 (1983).   It is also now established, contrary to earlier authority, that a party seeking a new trial (or dismissal) because of knowing discovery misconduct bears the burden of showing a reasonable probability that the result of a new trial would be different.   The burden of showing the “result altering” requirement falls on the moving party, the victim of the discovery misconduct, as the party in the best position to know how the nonmoving party's nondisclosure impaired its case, how the information might have altered its trial strategy, and what avenues might have been pursued.  Duart v. Department of Correction, 303 Conn. 479 (2012).

The proffered evidence here is Commissioner Sullivan's September 27, 2007 letter to Attorney General Blumenthal.   It would have been material to the issues at trial, and to the court's ruling denying the JNOV motion.⁸  But the court concludes that the Hartford has not satisfied the requirement of showing that the September 27, 2007 letter could not have been discovered earlier by the exercise of due diligence.   Nor has The Hartford shown reasonable probability that the September 27, 2007 letter would have altered the result of the court's ruling on the Motion for Judgment Notwithstanding the Verdict.

Due diligence, in the court's view, would have included:( 1) not accepting plaintiff's unresponsive “Undeterminable at this Time” response to Interrogatory 71 and not accepting Atty. Slossberg's “supplemental compliance” letters of November 14 and November 24, 2008 (Rhoback Affidavit Ex. L and M) which failed to mention or update the “Undeterminable at this Time” response to Interrogatory 71.   If follow up inquiry to plaintiffs' counsel did not produce satisfactory explanation, a motion for order of compliance under Practice Book § 13–14 was called for, which might very well have prompted a more detailed search of Mr. Bivona's files and produced the two letters in question well before trial;  and/or (2) the submission of a Freedom of Information Request to the Department of Insurance and/or the Office of the Attorney General for any and all memoranda, studies, rulings, correspondence or other documents relating in any way to the public policy of the Code of Ethics, Insurance Department Regulation § 38a–790–8, which is the way that the two letters from Commissioner Sullivan eventually came to light when the firm of Wiggin & Dana representing the defendant in the similar case against Progressive Insurance Company did file a FOI request and shared the results with the law department of the Hartford in 2011.   The Hartford is in the insurance business in Connecticut.   It has within its law department a Corporate and Property/Casualty Litigation Unit headed by a vice president of the Hartford.  (Affidavit of Brien Horan, Esq., June 9, 2011.)   It also has a Government Affairs Group headed by a Senior Vice President and Associate General Counsel.  (Affidavit of Joel Freedman, Esq., October 31, 2012.)   This case was pending for six years before it went to trial.   The Hartford was continuously represented during that period by one of two large Connecticut litigation law firms.  Regulation § 38a–790–8 is specifically alleged and quoted in paragraph 24 of plaintiff's complaint as the only allegation of public policy related to plaintiff's labor rate claim.   With all those resources available for six years, Freedom of Information requests could have and should in the exercise of due diligence have been submitted for minimal expense under Conn. Gen Stat. § 1–210 which would have resulted in obtaining copies of the two letters in question.   See Giguere d/b/a v. Drubner, Superior Court, Judicial District of Waterbury, Docket No. 0122521 (January 18, 1995, Vertefuille, J.), 1995 WL 27208.  (Records which plaintiff would seek to use at a new trial could have been discovered by the exercise of due diligence and presented at the original trial.   Therefore, those records do not constitute grounds for a new trial.)

To understand the “result altering” requirement in the context of this case, it is necessary to review a question submitted to the court by the jury after four days of deliberation, and just two court day before returning their verdict, and the court's answer to that question.   The question, submitted at 4:09 pm on Friday November 13, 2009 had three parts:

1.  Would it break the “Code of Ethics” if The Hartford influenced the labor rate the ASR's wrote? 9

2. Under the “Code of Ethics” sec. 38a–790–8 it reads in Section 2 approach the appraisal of damaged property without prejudice ․ etc․  Our question is this to suggest the “Code of Ethics” has to do solely with damaged property and not the labor rate at which is paid.

3. In Section 3 of Sec. 38a–790–8 it mentions “parties involved” does parties include insured, and/or insurers, and/or auto body shops, and/or appraisers.

(Court Ex. 11.)

The answer was delivered orally, after consultation with counsel, when court resumed on Monday, November 16, 2009 and then put in the form of a transcript which was delivered to the jury deliberation room.   A copy of that transcript (Court Ex. 14) is attached to this memorandum of decision as Exhibit “C.”

Although there was argument as to the admissibility of the two letters, the defendant has presented its argument exclusively as an issue of law, namely that the court misinterpreted the Code of Ethics in answering the jury question as I did, and, had I seen the two letters from Commissioner Sullivan, or even just the September 27, 2007 letter with a different interpretation, I would have answered differently and would not have submitted that issue to the jury or I would have granted the Motion for judgment notwithstanding the verdict for the plaintiffs.   The court rejects those arguments because the Letter of September 27, 2007 (the only letter non-production of which has been determined to be a disclosure violation) would not be entitled to public agency deference in interpreting the regulation, and, in any event the letter would not lead to different answers to the jury's questions, or a different ruling on the JNOV motion.

It is true that courts sometimes rely on an agency's interpretation of a statute which the agency administers or enforces, but only when the agency's interpretation has been formally articulated and applied for an extended period of time, and that interpretation is reasonable.  Connecticut Association of Not-for Profit Providers for the Aging v. Department of Social Services, 244 Conn. 378, 390, n.18 (1998) (finding no deference warranted to agency interpretation when agency had failed to make public declaration of interpretation and had applied interpretation for only four years).   Moreover, “[w]hen an agency's determination of a question of law has not previously been subject to judicial scrutiny ․ the agency is not entitled to special deference ․ [I]t is for the courts, and not administrative agencies, to expound and apply governing principles of law ․ These principles apply equally to regulations as well as statutes.”  (Internal quotation marks and citations omitted.)  Wood v. Zoning Board of Appea ls, 258 Conn. 691, 698 (2001).   The September 27, 2007 letter had been in existence for about two years when the court instructed the jury in this case.   The letter bears no indication of being an official Department of Insurance interpretation of the Code of Ethics regulation.   It was not enacted and promulgated in accordance with State of Connecticut Uniform Administrative Procedure Act, Conn. Gen.Stat. § 4–166 et seq.   The parties are in agreement that it was not posted at any time on the Department of Insurance website or otherwise noticed to the public.   It has never been judicially reviewed.   See Connecticut Assn. Of Not–for–Profit Providers for the Aging, supra.  (“Four years hardly constitutes a ‘time tested’ agency interpretation.”)   The Supreme Court has ruled on the lack of deference to be given to a statement of policy made by the Chairman of the Workers' Compensation Commission under circumstances similar to these in Hasselt v. Lufthansa German Airlines, 262 Conn. 416, 432 (2003):

We previously have not determined whether a commissioner's policy directive, which contains an interpretation not adopted pursuant to formal rule-making or adjudicatory procedures, is entitled to deference.   Cf. Christiansen v. Harris County, 529 U.S. 576, 586, 120 S.Ct. 1665, 146 L.Ed.2d 621 (2000) (Federal Department of Labor's interpretation contained in opinion letter rejected because it is “not one arrived at after, for example, a formal adjudication or notice-and-comment rulemaking.   Interpretations such as those in opinion letters—like interpretations contained in policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law—do not warrant deference.”   Nonetheless, in light of our failure to accord such deference to an agency's interpretation of a statute that has been neither time-tested nor subject to judicial review ․ we cannot conceive of a rationale for according substantial deference to the [Chairman] Frankl memorandum under these circumstances.  (Citations omitted.)  Id.

The court therefore would have given no deference to Commissioner Sullivan's interpretation of the Code of Ethics as expressed in his September 27, 2007 letter if it had been disclosed and available at the time of trial or the time of ruling on the JNOV motion.

Furthermore the September 27, 2007 letter, in any event, would not have led to a different result.   Defendant's argument to the contrary is that “Commissioner of the Department of Insurance in his September 27, 2007 letter explained the scope and limits of an appraiser's responsibility under the Code of Ethics.   In that letter the Commissioner clarified that the licensed appraiser employed by an insurer has the task (and the training) to determine the auto body parts needed to make a repair;  but that an appraiser's role with respect to labor rate determination is outside the scope of the appraiser's license, and outside the scope of the Code of Ethics.”  (Supporting Memorandum, No. 535, June 10, 2011, p. 5.) The language from the letter defendant most relies on is:

The appraiser does not have any authority, pursuant to his license, to establish a labor rate for auto body repair work.   Appraisers do not have particular experience in the economics and development of labor rates and those matters are not part of their licensing qualifications.   Their expertise is limited to an assessment of the auto parts in need of repair and the number of hours to do the auto body repair job.   The rate at which a body shop is to be paid is handled by negotiation between the insurer and the body shop.   The Code of Ethics as described above must be analyzed with the work the motor vehicle damage appraiser is licensed to perform and consistent with its enabling legislation that specifically contemplates an appraiser operating on behalf of an insurance company.

From this, The Hartford challenges the answers given by the court to the jury's three-part question.   Part two asked:  “Is this to suggest the Code of ethics has to do solely with damaged property and not the labor rate which is paid?”   The court answered:

My answer is an appraiser's responsibility to appraise is not limited solely to damaged property.   He or she must assess the extent of physical damage and also—he or she must assess the extent of physical damage and also appraise the cost of repairing that damage which necessarily involves estimating the cost of replacement of parts, the number of hours needed to complete the repairs, and an hourly rate which the appraisal [appraiser] fairly and honestly determines in his or her independent judgment to reflect the cost of the labor component of the repairs.

The third question asked:  “In Section 3 of Sec. 38a–790–8 it mentions “parties involved” does parties include insured, and/or insurers, and/or auto body shops, and/or appraisers?”   The court answered:

The regulatory scheme of Section 38a–790, not just Subsection 8 which is exhibit 3A, but the whole regulatory scheme is broad.   It implicates the appraisers' dealing with insureds, with other drivers or claimants involved in accidents with the insureds, insurance companies and repair shops.   All of the foregoing would be involved within the ambit of the term parties involved.

There is nothing in the September 27, 2007 letter which would cause the court to change the answers given to the jury or to take the case away from the jury or to grant the motion for judgment n.o.v. The jury was well aware that the Department of Insurance has no statutory or regulatory authority to regulate hourly labor rates at body shops.   It is stated expressly in the jury charge.   (Court Exhibit 8, p. 26.)   It is stated in Plaintiffs' Ex 5A “Insurance Department Guidelines Concerning Labor Rates” (January 29, 2007).   It was repeated in the court's preamble to answering the jury questions.  (Transcript Excerpt II, November 16, 2009—Ex.   C, attached hereto, p. 4.) To the extent that the September 27, 2007 letter emphasized that point, it is merely cumulative.

It must be pointed out that this is not a regulatory proceeding where someone is accused of violating the regulation.   If that were the case, The Hartford could not be the respondent.   The regulation does not directly control the conduct of an insurance company.   It regulates the conduct of licensed appraisers “Every appraiser shall ․” “Every appraiser shall disregard ․” This case is a claim of an unfair trade practice by an insurance company which is the employer of licensed appraisers.   By established caselaw—the “cigarette rule”—an unfair trade practice can be found when conduct of the defendant “offends”—not necessarily violates—the public policy expressed by a statute or regulation or other established concept of unfairness.   An offense merely to the “penumbra” of that public policy can be sufficient.   The public policy or the penumbra of the public policy of the Code of Ethics regulation is deeply rooted in the appraiser's independence from outside influence—even from the company that employs the appraiser.   He or she must “approach the appraisal of damaged property without ․ favoritism toward any party involved ․” and “disregard any efforts on the part of others to influence his [or her] judgment in the interest of the parties involved.”   In this larger sense of offense to the public policy or its penumbra, any party who interferes with the appraiser's independence could be committing an unfair trade practice in violation of CUTPA.   In that sense, labor rates are involved, and body shops with whom appraisers negotiate labor rates, are interested parties.   Despite what Commissioner Sullivan says in his letter, appraisers have to “determine” labor rates.   There is no other way the appraiser could get to the bottom line dollar amount of the appraisal.   If the letter means to say that appraisers have nothing at all to do with labor rates, the court would have disregarded the letter on that point.   The Hartford's own Auto Service Representative Best Practices (Plaintiffs' Ex 308) states “Unless the shop's labor rates have already been agreed to between The Hartford and the shop, the ASR [appraiser] has authority to negotiate labor rates [with body shops] in accordance with local markets.”   Commissioner Sullivan's other letter dated February 25, 2008 (which is not directly involved with the claim of discovery violation) states at page 2:  “The rate an auto body shop is paid by an insurer can be determined in two ways:  (1) through negotiation between the appraiser ․ and the body shop.”   And “When appraisers are determining the labor rate they will offer to the body shop during the negotiation, it is my understanding that they consider the labor rate in the marketplace.”   The Hartford's counsel agreed on the record that an appraiser is obliged to use his knowledge and experience to determine which labor rate to use from within the range of rates known by him to be used in the marketplace.  (Trial Transcript, November 16, 2009, p. 22–23.)

So, even though the Department of Insurance cannot regulate labor rates in the sense that it cannot take action against an appraiser based on the amount of the labor rate he has determined to use, it is undisputed that the appraiser must make that determination of a labor rate which reflects the cost of repairing the car and, in making that determination.   The Code of Ethics requires him to do so fairly and honestly without outside influence from anyone.   That policy is offended by anyone who interferes or attempts to interfere with that independence.   The court therefore feels that there was no error in the answers given to the jury questions and would stay with those answers in any future proceeding, and would not change its ruling in the JNOV motion.

The defendant The Hartford has therefore not shown to a reasonable probability that the September 27, 2007 letter would produce a different result, and the requested sanction of reversal of the denial of the motion for judgment notwithstanding the verdict as a discovery violation sanction cannot be granted.

D. Order re Sanctions

The court, by hearing oral argument and permitting extensive briefing and affidavits, has already “reconsidered” the ruling denying the JNOV motion.   The specific relief requested by the defendant has not been granted, but the court has found a discovery violation which must, under the rule of Millbrook, supra, be proportionately sanctioned.   The court notes that Mr. Bivona, through counsel, in objecting to this motion in August of 2011 denied any recollection of ever having seen the September 27, 2007 letter and said he did not have a copy of it in his files.   But, when the court asked for a sworn statement in November 2012, he admitted that he had been aware of the letter since late October of 2007 and had found a copy of it in his files.   There is insufficient evidence to find that the failure to produce the September 27 letter was deliberate, but the court finds that the nondisclosure was the result of at least culpable negligence on the part of Mr. Bivona acting as the representative of' ABAC. For the reasons that have been stated herein, his misconduct does not support the extreme remedy of dismissal, but it must otherwise be sanctioned.   The time and effort and expense and utilization of judicial resources that have gone into this motion and the documenting and decision of it speak to the gravity of the misconduct.   When The Hartford was found guilty of disclosure misconduct in 2009, it was sanctioned severely.

After consideration of all the circumstances, the court enters the following sanctions:  (1) the plaintiff Auto Body Association of Connecticut is forfeited of any right or claim to receive or participate in any incentive award which may be granted to the plaintiff class representatives for their services in this case, and (2) the plaintiff Auto Body Association of Connecticut is ordered to reimburse the defendant The Hartford for one-half of its reasonable attorneys fees and costs incurred in connection with the filing and presentation of this motion.   The Hartford shall present an affidavit of attorneys fees and costs consistent with the rule of Smith v. Snyder, 267 Conn. 456, 471–80 (2004).

So Ordered,

Alfred J. Jennings, Jr.

Judge Trial Referee

FOOTNOTES

FN1. The “cigarette rule” is the well settled three-pronged test established by the Connecticut Supreme Court for determining if an “unfair trade practice” has been committed in violation of CUTPA.   A plaintiff must establish that one or more of the defendant's alleged practices meet at least one of the three following criteria:  1) it offends public policy as it has been established by statutes, the common law or other established concept of unfairness;  or 2) it is immoral unethical, oppressive, or unscrupulous;  or 3) it causes substantial injury to consumers, competitors, or other business persons.   All three criteria do not need to be satisfied to support a finding of unfairness.   A practice may be unfair because of the degree to which it meets one of the criteria or to a lesser extent it meets all three.   See Harris v. Memorial Hospital and Health Center, 296 Conn. 315, 350 (2010)..  FN1. The “cigarette rule” is the well settled three-pronged test established by the Connecticut Supreme Court for determining if an “unfair trade practice” has been committed in violation of CUTPA.   A plaintiff must establish that one or more of the defendant's alleged practices meet at least one of the three following criteria:  1) it offends public policy as it has been established by statutes, the common law or other established concept of unfairness;  or 2) it is immoral unethical, oppressive, or unscrupulous;  or 3) it causes substantial injury to consumers, competitors, or other business persons.   All three criteria do not need to be satisfied to support a finding of unfairness.   A practice may be unfair because of the degree to which it meets one of the criteria or to a lesser extent it meets all three.   See Harris v. Memorial Hospital and Health Center, 296 Conn. 315, 350 (2010).

FN2. Consistent with the cigarette rule the jury was charged that “The law permits you to find a violation of CUTPA by violation of public policy if you determine that the defendant's acts or conduct is at least within the “penumbra” of some common law, regulatory, or statutory or other established concept of unfairness.  “Penumbra” in this context is defined as “a vague, indefinite, or borderline area.”   Therefore “a plaintiff need not show a literal violation of a statute or regulation or other established concept of unfairness, so long as a violation of the penumbra of such statute or regulation or established concept is shown.”  (Charge to the Jury, Court Ex. 8, p. 23.).  FN2. Consistent with the cigarette rule the jury was charged that “The law permits you to find a violation of CUTPA by violation of public policy if you determine that the defendant's acts or conduct is at least within the “penumbra” of some common law, regulatory, or statutory or other established concept of unfairness.  “Penumbra” in this context is defined as “a vague, indefinite, or borderline area.”   Therefore “a plaintiff need not show a literal violation of a statute or regulation or other established concept of unfairness, so long as a violation of the penumbra of such statute or regulation or established concept is shown.”  (Charge to the Jury, Court Ex. 8, p. 23.)

FN3. The quote is from the Insurance Department Guidelines Concerning Labor Rates, January 29, 2007, admitted into evidence at the trial as Plaintiffs' Ex. 5A, and relied upon by both parties.   There is no dispute between the parties over the statement that the Department of Insurance does not have any authority to regulate labor rates charges to an insurer by an auto body shop.   It is also undisputed that auto body shops are licensed by and regulated by the Department of Motor Vehicles and not by the Department of Insurance..  FN3. The quote is from the Insurance Department Guidelines Concerning Labor Rates, January 29, 2007, admitted into evidence at the trial as Plaintiffs' Ex. 5A, and relied upon by both parties.   There is no dispute between the parties over the statement that the Department of Insurance does not have any authority to regulate labor rates charges to an insurer by an auto body shop.   It is also undisputed that auto body shops are licensed by and regulated by the Department of Motor Vehicles and not by the Department of Insurance.

FN4. The initial filing of the Motion for Reconsideration and for Sanctions filed on June 10, 2011 was accompanied by a memorandum of law and an Affidavit of Thomas G. Rhoback, Esq. (No. 536) with attachments A through T consisting of the two letters from Insurance Commissioner Thomas R. Sullivan written on September 27, 2007 and February 25, 2008 which are the basis of the motion, excerpts from oral argument, excerpts from the trial transcript, excerpts from memoranda of law, discovery responses, memoranda and correspondence relating to the two letters, a question submitted by the jury, and the jury interrogatories as completed and signed by the foreman.   The Plaintiffs' Objection to Motion for Reconsideration was likewise supported by an Affidavit of David A. Slossberg (No. 545) with fourteen exhibits.   Thereafter both parties continued to submit supplemental affidavits (some of which were requested by the court in the order of October 16, 2012 (No. 534.87)), up until December 6, 2012 (No. 564).   At oral argument on October 12, 2012 and at all times thereafter neither party offered to put on evidence, nor has the court at any time insisted on live testimony, since the only evidence claimed to have been withheld from discovery compliance and then later discovered post-trial consists of documentary evidence in the form of two letters written to the Attorney General by the Commissioner of Insurance, and the multiple affidavits submitted set forth largely uncontested facts, the issue between the parties being the legal consequences which flow from those facts..  FN4. The initial filing of the Motion for Reconsideration and for Sanctions filed on June 10, 2011 was accompanied by a memorandum of law and an Affidavit of Thomas G. Rhoback, Esq. (No. 536) with attachments A through T consisting of the two letters from Insurance Commissioner Thomas R. Sullivan written on September 27, 2007 and February 25, 2008 which are the basis of the motion, excerpts from oral argument, excerpts from the trial transcript, excerpts from memoranda of law, discovery responses, memoranda and correspondence relating to the two letters, a question submitted by the jury, and the jury interrogatories as completed and signed by the foreman.   The Plaintiffs' Objection to Motion for Reconsideration was likewise supported by an Affidavit of David A. Slossberg (No. 545) with fourteen exhibits.   Thereafter both parties continued to submit supplemental affidavits (some of which were requested by the court in the order of October 16, 2012 (No. 534.87)), up until December 6, 2012 (No. 564).   At oral argument on October 12, 2012 and at all times thereafter neither party offered to put on evidence, nor has the court at any time insisted on live testimony, since the only evidence claimed to have been withheld from discovery compliance and then later discovered post-trial consists of documentary evidence in the form of two letters written to the Attorney General by the Commissioner of Insurance, and the multiple affidavits submitted set forth largely uncontested facts, the issue between the parties being the legal consequences which flow from those facts.

FN5. The letter of 11/14/07 was actually addressed to “Richard Blumenthal and Richard Kehoe”—not to Commissioner Sullivan, but all parties at that point had access to a copy of the letter as attached as Exhibit M to Atty. Rhoback's affidavit.   Mr. Bivona was not confused by this misstatement since his affidavit of October 20, 2012 refers to Exhibit M of the Rhoback affidavit..  FN5. The letter of 11/14/07 was actually addressed to “Richard Blumenthal and Richard Kehoe”—not to Commissioner Sullivan, but all parties at that point had access to a copy of the letter as attached as Exhibit M to Atty. Rhoback's affidavit.   Mr. Bivona was not confused by this misstatement since his affidavit of October 20, 2012 refers to Exhibit M of the Rhoback affidavit.

FN6. The defendant has made it clear that it is not seeking a new trial pursuant to Practice Book § 17–35 or for any other reason.  “As a matter of law, the Code of Ethics cannot be a basis for liability under the plaintiff's CUTPA labor rate claim and thus should not have been considered by the jury” (Memorandum in Support, No. 535, p. 6).  “Unlike Duart [Duart v. Department of Correction, 303 Conn. 479 (2012) ] no new trial is requested or needed;  the record is very clear, based on the jury's questions, the Special Verdict Form, and the court's rulings, and the arguments of counsel on the record.   These letters destroy the only basis for the verdict.”  (Supplemental Memorandum, No. 567, pp. 2–3.).  FN6. The defendant has made it clear that it is not seeking a new trial pursuant to Practice Book § 17–35 or for any other reason.  “As a matter of law, the Code of Ethics cannot be a basis for liability under the plaintiff's CUTPA labor rate claim and thus should not have been considered by the jury” (Memorandum in Support, No. 535, p. 6).  “Unlike Duart [Duart v. Department of Correction, 303 Conn. 479 (2012) ] no new trial is requested or needed;  the record is very clear, based on the jury's questions, the Special Verdict Form, and the court's rulings, and the arguments of counsel on the record.   These letters destroy the only basis for the verdict.”  (Supplemental Memorandum, No. 567, pp. 2–3.)

FN7. This motion does not fall within the scope of Practice Book § 11–11 since final judgment on the jury verdict has not yet entered.   There is still an open motion for permanent injunction to be decided by the court..  FN7. This motion does not fall within the scope of Practice Book § 11–11 since final judgment on the jury verdict has not yet entered.   There is still an open motion for permanent injunction to be decided by the court.

FN8. “The materiality of evidence turns upon what is at issue in the case, which generally will be determined by the pleadings and the applicable substantive law.”  Connecticut Code of Evidence, § 4–1.   Commentary ¶ 3.   Paragraph 24 of the Complaint in this case specifically alleges violations of the Code of Ethics which is the subject matter of the September 27, 2007 letter..  FN8. “The materiality of evidence turns upon what is at issue in the case, which generally will be determined by the pleadings and the applicable substantive law.”  Connecticut Code of Evidence, § 4–1.   Commentary ¶ 3.   Paragraph 24 of the Complaint in this case specifically alleges violations of the Code of Ethics which is the subject matter of the September 27, 2007 letter.

FN9. “ASR” stands for Automobile Services Representative which is the formal name for the appraisers' positions..  FN9. “ASR” stands for Automobile Services Representative which is the formal name for the appraisers' positions.

FOOTNOTE.  FNExhibit A

FOOTNOTE.  FN(Letter of Sept. 27, 2007)

FOOTNOTE.  FNSTATE OF CONNECTICUT

FOOTNOTE.  FNINSURANCE DEPARTMENTSeptember 27, 2007The Honorable Richard BlumenthalAttorney General55 Elm StreetHartford, CT 06106

FOOTNOTE.  FNRe “Enough is Enough”—A Study of Price Fixing in the Collision Repair Industry (July 2007) (the “Report”)Dear Attorney General Blumenthal:Thank you for your letter dated August 27, 2007 in which you request that I authorize legal action against (1) Insurers whose motor vehicle physical damage appraisers have a bias when determining the cost of repairs and (2) insurers who fail to negotiate reasonable and fair prices for such repairs.As you know, I share your concern that consumers throughout the state be treated fairly and that the automobile insurance market remain competitive.   For your information, I would like to take this opportunity to outline the steps the Department has taken and will continue to take—to enforce the insurance laws relative to auto body shop repair work as currently enacted.The Department investigates all complaints—whether they are from consumers or auto body repair facilities—concerning steering or disputes of labor rate.   As stated previously, if your office has knowledge of any consumer who has been required to use a particular repair facility as a prerequisite for payment of his or her claim, I ask that you please forward it to us for investigation.On January 29, 2007, the Department issued administrative guidelines concerning Labor Rates.   These guidelines outline best practices that companies should use when determining labor rates.   We specifically asked companies to consider the geographic location of a body shop, the type of repair facility, the methodology for determining labor rates, the data sources used to determine the labor rates and deviations on individual claims although we are mindful of the fact that the Department has no jurisdictional authority to fix or set the auto body labor rates paid by insurers to the body shops.   A copy of these guidelines are attached for your review.In 2006, the Department reconfigured its independent arbitration program as a means of resolving many of the matters stated in the Report.   The Department has designated the American Arbitration Association to administer the program.   In that regard, whenever there is a dispute between an insurer and claimant over the costs associated with an automobile physical damage claim where liability and coverage are not in dispute, claimants have the right to have their dispute mediated by the Department.   See Conn. Gen.Stat. Section 38a–9 and the implementing regulations.   If mediation does not result in a successful resolution, the claimant has the right to arbitration.To date, only three claimants have elected to arbitrate their dispute.   A final decision on these cases has not been rendered yet.In May 2006, the Department created a poster that was issued to the ABAC for distribution to its members.   The poster notified consumers of their rights to have their cars repaired at a facility of their choice.   The Department is in the process of sending out additional posters to the auto body repair shops who are not associated with the ABAC. A copy is enclosed for your reference.The Department is taking steps to better educate consumers about the value of our arbitration program.   Specifically, the Department is in the process of designing posters to be issued to licensed auto body repair facilities.   The posters direct claimants to arbitration if they cannot come to agree upon price with an insurer.   A copy is enclosed for your reference.The Department has also issued a series of Frequently Asked Questions regarding vehicle repairs to help consumers understand the process.   Please see attached.In this spirit, I have asked my staff to carefully review the data you submitted to us on behalf of Mr. John Shortell, an auto body shop manager from New London, Connecticut.  ‘The Report addresses the issues of negotiated labor rates and steering.   I will address each issue in turn.

FOOTNOTE.  FNI. Illegal “Steering”The Report purports to demonstrate that insurers routinely “steer” consumers to designated auto body repair shops in violation of Connecticut law.   Based on a plain language analysis of Conn. Gen.Stat. § 38a–354 of the Connecticut General Statutes (as required by Conn. Gen.Stat. § 1–2z), the Insurance Department (the “Department”) believes that the statutory language in Section 38a–354 requires evidence of a mandate by an insurer to an insured to use a particular body shop in order for the Department to find a violation thereof.   This section states:(a) No automobile physical damage appraiser shall require that appraisals or repairs should or should not be made in a specified facility or repair shop or shops.(b) No insurance company doing business in this state, or agent or adjuster for such company shall require any insured to use a specific person for the provision of automobile physical damage repairs, automobile glass replacement, glass repair service or glass products unless otherwise agreed to in writing by the insured.  (Emphasis Added.)This law became effective in 1979.   Prior to 1979, the Department's enforcement authority over allegations of “steering” was limited to that which was authorized by regulation, which dealt with the first prong of the above statute in the context of motor vehicle physical damage appraisal licensing conduct under Conn. Agencies Reg. § 38a–790–6.   That regulation provides in part that, “No appraiser shall request that appraisals or repairs be made in a specified repair shop or shops.”   (Emphasis Added.)   That regulation became effective on April 28, 1970 and continues as such in its present form, even though a conflicting statute was enacted in 1979.In seeking to determine differences or inconsistencies between “request” and “require,” the courts look to the common meaning thereof.   Webster's Dictionary defines “require” as “to have as a requisite;  to impose an obligation on or compel ․” Webster's II New Riverside University Dictionary (1994).   The word “request” as defined by Webster's means “to ask for;  to ask one to do something.”Clearly, these words have different meanings:  a requirement is a mandate;  a request is a suggestion.   In the Department's view, if a motor vehicle physical damage appraiser mandated or required a claimant to use a particular auto body shop for repairs, then that action would constitute a violation of the above-cited statute.   A “request” to use a particular shop is interpreted by the Department as simply a suggestion of an auto body shop or shops to use rather than a mandate.   In the Department's view, direct repair shops are simply suggestions for the convenience of the claimant, the consumer is still free to select the shop of his or her choice.   In fact, the Department has been informed that many insureds find this service to be very useful and helpful when dealing with the stress of having their vehicle repaired.The Department is mindful of the principles of statutory construction and case law that support this position.   Specifically, an agency's regulations may not contravene an existing statute and an agency has no authority to promulgate a rule that is contrary to a statute.[fn1]To illustrate, administrative regulations in conflict with the constitution or statutes are generally declared to be null or void.  (Citations omitted.)   Connecticut case law similarly provides that no administrative body or regulatory body can modify, abridge or otherwise change the statutory provisions under which it acquires authority unless the statute similarly grants that power.  Breen v. Department of Liquor Control, 2 Conn.App. 628 (1984).   In Breen, dealing with the removal of a liquor licensee under Conn. Gen.Stat. 30–52, the court stated, “The department's [of Liquor Control] actions, therefore, exceeded its statutory authority.”  Breen also supports the proposition that actions taken by administrative agencies which exceed its statutory authority are void (citations omitted).   The Connecticut Appellate Court in Breen also found that “[t]he power of an administrative agency to prescribe rules and regulations under a statute is not the power to make law, but only the power to adopt regulations to carry into effect the will of the legislature as expressed by the statute.”  Breen at 634, 635.Accordingly, the Insurance Department believes that the above-cited regulation exceeds the statutory grant under Conn. Gen.Stat. Section 38a–354 to the extent the regulation seeks to proscribe conduct of an appraiser in “requesting” that repairs be made at a particular facility when the statute itself does not attempt to prohibit the behavior of making such a request.To summarize, based on Conn. Gen.Stat. section 1–2z, the common meanings of “request” and “require” as defined by Webster's Dictionary, general principles of statutory construction as stated in American Jurisprudence 2d, Administrative Law, Section 225, and the Breen decision, the Department does not believe that the evidence submitted by Mr. Shortell through your office evidences any illegal “steering” activity.

FOOTNOTE.  FNII. Complaints Included in the Report Concerning “Steering”In light of the Insurance Department's interpretation as noted above, my staff has carefully reviewed the complaints submitted to us contained in the Report.   Many of these complaints are not new to the Department.   It appears that we have investigated them previously.   I have attached summaries of these files prepared by Department staff, which outlines the steps we take to thoroughly investigate all claims of steering.   It is important to note that in each case, the consumer stated that they did not feel coerced into getting their car repaired at a specific shop and, in some cases, the consumer did not even know a complaint was submitted on his or her behalf.   Nonetheless, the Department is prepared to investigate all complaints that the Department received in this report to ensure there has not been a violation of the law.To provide you with some history regarding the level of steering complaints the Department has received in the past, I offer the following.   The Department has received 39 complaints of steering since January 1, 2005.   Of those 39, 25 complaints or 64% were submitted by a handful of licensed auto body shops in Connecticut, not by vehicle owners.   The Department investigates all complaints and works with companies and consumers on a case-by-case basis to ensure that the consumer is not adversely affected by a violation of the insurance laws.As you know, it is very difficult to prove steering allegations.   When instances arise where the Department questioned the activities of insurance companies but did not have clear-cut evidence of wrongdoing, we have required that carriers appear before the Insurance Department to explain their activities.   These meetings have resulted in specific changes to company call center scripts to ensure that consumers are aware of their right to choose the shop of their choice for the estimate and repair of their vehicle.   Please see attached for further information.   If your office has knowledge of any consumer who has been required to use a particular repair facility as a prerequisite for insurance carrier paying a claim, I ask that you please forward it to us for investigation.   For your reference, I have attached a letter from the Department to Mr. Tom Bivona regarding the factors the Department considers when determining whether a claimant has been wrongfully “steered” to a particular auto body repair shop.

FOOTNOTE.  FNIII. The Department's Appraiser Licensing RegulationThe materials from Mr. Shortell forwarded to me by your office also allege violations of the licensing regulation (Conn. Agencies Reg. § 38a–790–1 et seq.) promulgated under Conn. Gen.Stat. Sec. 38a–790.   The author of the Report and the ABAC have long argued that appraisers are not “independent” since some are employed by insurance companies and, by virtue of this employment relationship, their appraisals favor the insurance companies.   The body shops point to uniform labor rates throughout the state as evidence of this bias.The aforementioned licensing statute states, in pertinent part, “[n]o person shall act as an appraiser for motor vehicle physical damage claims on behalf of any insurance company or firm or corporation engaged in the adjustment or appraisal of motor vehicle claims unless such person has first secured a license from the Insurance Commissioner ․” Conn. Gen.Stat. Section 38a–790.   Thus, it is the Department's position that Conn. Gen.Stat. § 38a–790 clearly demonstrates an understanding by the legislature that appraisers can lawfully act “on behalf of any insurance company or firm or corporation engaged in the adjustment or appraisal of motor vehicle claims” as long as they are licensed in accordance with state law.  (Emphasis added.)Conn. Agencies Regs. § 38a–790–8 includes a “Code of Ethics” for motor vehicle physical damage appraisers.   Generally, this regulation requires appraisers to act fairly and without “prejudice against or favoritism towards any party.”   It also requires appraisers to disregard the efforts of others to influence his or her judgment.   In addition, the regulation contemplates that an insurer may employ an appraiser.   The regulation states, in part, “[n]o appraiser shall:  (A) Receive directly or indirectly any gratuity or other consideration in connection with his appraisal services from any person except his employer or, if self-employed, his customer ․” Conn. Agencies Reg. Section 38a–790–8 (Emphasis added.)In order to construe the statute and the regulation together, one must be cognizant of the scope of the motor vehicle physical damage appraiser's license.   The appraiser does not have any authority, pursuant to his license, to establish a labor rate for auto body repair work.   Appraisers do not have particular expertise in the economics and development of labor rates and those matters are not part of their licensing qualification.   Their expertise is limited to an assessment of the auto parts in need of repair and the number of hours to do the auto body repair job.   The rate at which a body shop is to be paid is handled by negotiation between the insurer and the body shop.   The Code of Ethics as described above must be analyzed consistent with the work the motor vehicle physical damage appraiser is licensed to perform and consistent with its enabling legislation that specifically contemplates an appraiser operating on behalf of an insurance company.

FOOTNOTE.  FNIV. Complaints Concerning Price–Fixing of Labor Rates.The Report that you forwarded to us contained several complaints regarding an insurer's failure to pay a repair shop's posted labor rate.   As with steering complaints, many of these complaints have already been investigated by our office.   For your information, I would like to provide you with some data regarding labor rate complaints received by the Department from January 1, 2005 to September 14, 2007.   In this time, the Department has received 62 labor rate complaints.   Fifty-four of the 62 complaints or 87% were made by auto body shops.   Six auto body repair shops have filed 40 or 64% of these complaints.Because the Department does not have any statutory or regulatory authority to determine labor rates, the Department investigates each complaint on a case-by-case basis to ensure that the claim was handled properly and that the vehicle owner was not adversely affected.   As with all complaints, the Department will investigate each new complaint forwarded to us to ensure that there have been no violations of the insurance laws.   If the Department is unable to mediate the dispute between the claimant and the insurer, he or she is entitled to have their dispute reviewed by an independent arbitrator.

FOOTNOTE.  FNV. ConclusionBased on the above analysis and due to the fact that these issues are currently pending before a federal district court judge,[fn2] the Department must respectfully decline your request to initiate legal action at this time.   However, if you wish to exercise your antitrust authority to pursue legal action, the Insurance Department would be happy to assist you, as warranted.In addition, the Department believes its position is supported by an legal analysis supplied by an Assistant Attorney General in the context of auto glass repair or replacement shops where she concludes that an antitrust/price-fixing violation does not exist where insurance companies use networks of auto glass repair shops since the networks result in lower prices to insurance purchasing consumers and has pro-competitive effects.   A copy of this opinion is attached for your reference.I know you agree that consumers fare best when competition is fair and robust, and when prices are low.   While I realize a small number of auto body repair facilities are finding it difficult to compete in some markets, I cannot act outside of my authority and jeopardize the marketplace as a whole.In Connecticut, consumers are experiencing favorable trends in auto insurance premiums according to a report published by the National Association of Insurance Commissioners.   From 2004 to 2005, Connecticut enjoyed a slight decrease in combined coverage premiums which was consistent with the national average.   While, both collision and liability premiums were relatively unchanged, comprehensive premiums dropped nearly 5% in the state.   The countrywide decrease for comprehensive coverage was only 2.5%. A likely factor in the decrease of comprehensive coverage premiums is that the average claim severity, i.e. the actual cost per claim, decreased by 1.7%. It is important to note that in Connecticut, the average claim severity is 27% less than the national average—$688.00 as opposed to $941.00.   This means lower costs for consumers and premium increases well below the pace of inflation.   This is good news for consumers and I would like to see this trend continue well into the future.I look forward to a continual and constructive dialogue with you on these issues.   I would be more than happy to meet with you and members of your staff to discuss ways in which we can use the power of our respective offices to help consumers.Sincerely,Thomas R. SullivanInsurance Commissioner[fn1]American Jurisprudence 2d Administrative Law, Section 225 states, “If an agency rule conflicts with a statute, the rule must yield or the statute prevail at least to the extent of the conflict.   Thus, courts have held that rules that violate, conflict, or contravene statutory provisions are invalid, as a matter of law.”[fn2]A & R Body Specialty et al. v. Progressive Insurance Group Company et al., 7CV929WWE, U.S. District Court, District of Connecticut (June 13, 2007).

FOOTNOTE.  FNExhibit B

FOOTNOTE.  FN(Letter of Feb. 25, 2008)

FOOTNOTE.  FNState of ConnecticutThe Honorable Richard BlumenthalAttorney General55 Elm StreetHartford, CT 06106Dear Attorney General Blumenthal:This is in response to your most recent letter regarding several issues related to the report entitled “Enough is Enough.”   Please accept the following in response to your request for additional information on the manner in which steering complaints are investigated and the role of the appraiser in disputes concerning auto body physical damage.   You also forwarded additional complaints to be investigated by the Department.   In order to provide you with a prompt response to the policy issues you have raised, I will forward you the outcomes of the investigations you have requested as they are completed.

FOOTNOTE.  FNTranscripts of calls between the Insured and the InsurerRegarding the specific matters in your letter, you asked whether the Department secures the taped telephone conversations between insurance company customer service representatives and consumers when a claim is initially submitted.   You rightfully pointed out that listening to these tapes may aid the Department in securing evidence of prohibited steering under section 38a–354.   I agree with your assessment and while the Department does request this information in certain instances, I have directed my staff to secure tapes or transcripts (when available) of these conversations for all complaints of steering in the future.   However, in order to protect the privacy of the vehicle owner, I will request that they affirmatively consent to the release of these documents before providing them to a third party.   The question of whether these tapes or transcripts may be used in an evidentiary proceeding or otherwise under Connecticut law, including Section 52–570d, would be a matter for your office to consider.

FOOTNOTE.  FNLabor RatesYou also asked that I explain how similar labor rates across the state demonstrate the exercise of independent judgment on behalf of the appraiser under Conn. Agencies Regs. Section 38a–790–1 et seq.   As the Department has said in the past, it does not have any authority or expertise to determine the rate at which insurance companies (or the appraisers employed by them) should be paying auto body shops.   Further, the Department cannot substitute its own judgment for that of the appraiser.   We are not and should not be the ultimate arbiter of what a “fair” labor rate should be in a specific instance.   In order to allow consumers an opportunity to remedy any financial harm incurred as a result of labor rate disputes, the legislature sought to establish an arbitration program.The rate an auto body shop is paid by an insurer can be determined in two ways;  (1) through negotiation between the appraiser (who is lawfully allowed to work for an insurer pursuant to Conn. Gen.Stat. § 38a–790 and accompanying regulations) and the body shop and (2) by contract entered into by an insurer and an auto body shop, commonly referred to as a direct-repair program or DRP. Determining the appropriate labor rate to be paid under a contractual arrangement can be done with relative ease.   On the other hand, the negotiated labor rate, by its very nature, tends to be more contentious.   As you know, a negotiation does not necessarily mean that an appraiser and an auto body shop split the difference between the shop's posted rate and the rate offered by the insurer.When appraisers are determining the labor rate they will offer to the auto body shop during a negotiation, it is my understanding that they consider the labor rate paid in the marketplace in general, including those paid to DRPs with whom the insurer has a contractual relationship.   This would appear to explain why the labor rate is relatively consistent state-wide.I would also like to point out at this time that the Department does not believe there is anything improper about DRP contracts.   We believe that they are legally permitted based on the informal opinion we received from your office related to auto glass repair networks and case law throughout the nation, as cited in my previous letter to you.   In fact, courts have sanctioned direct repair shop contractual agreements as being pro-competitive and not violative of antitrust laws.   Such direct repair shop agreements have the pro-competitive effect of keeping auto repair costs as low as possible for consumers because insurers can charge all Connecticut insureds lower insurance rates and premiums than they might otherwise be allowed to charge if they were required to pay the shop's posted labor rate.   I do not believe that it is prudent policy to sacrifice the interests of the general public in Connecticut, which benefits from one of the healthiest auto insurance markets nationwide, for the interests of a handful of auto body shops who are finding it difficult to compete with DRPs, particularly when some have made their own business decision to not become a DRP.For your information, I would like to provide you with some data regarding labor rate complaints received by the Department from January 1, 2005 to January 15, 2008.   In this time, the Department has received 66 labor rate complaints.   Fifty-eight of the 66 complaints or 88% were made by auto body shops.   Nineteen individual auto body repair shops have filed 58 of these complaints.[fn1]Based on these numbers, the Department believes that a small, but vocal, number of auto body repair shop owners are trying to apply pressure to insurers to pay their posted labor rate, much to the detriment of their policyholders.   Requiring companies to pay a body shop's posted labor rate would not only be outside of the Department's jurisdiction and bad for consumers, but could also implicate the anti-trust statutes, including the prohibitions on price fixing.

FOOTNOTE.  FNCode of Ethics for AppraisersThe Auto Body Association of Connecticut (ABAC) has also pointed to the Department's regulation governing the code of conduct for as justification for the payment of a higher labor rate by insurers.   It is the Department's position that this regulation is intended to protect consumers from unscrupulous appraisers seeking to charge them more for auto body repair work than is economically justified in an arms-length transaction.   A handful of auto body repair shop owners, however, have sought to use this regulation to demand that insurers pay the posted labor rate.   In effect, these few auto body shops would like the Department to use this regulation as a ‘sword’ to protect their own economic interests in a competitive industry rather than as a ‘shield’ for the protection of insureds.   We do not believe that taking such action would be in the best interests of the insurance buying public and decline to enforce it in the manner suggested by the ABAC.In closing, the Department would like to reiterate to you that Connecticut consumers are benefiting from a healthy and vibrant auto insurance market.   As I stated in a previous letter on this subject, Connecticut policyholders are experiencing favorable trends in auto insurance premiums according to a report published by the National Association of Insurance Commissioners.   From 2004 to 2005, Connecticut enjoyed a slight decrease in combined coverage premiums which was consistent with the national average.   While both collision and liability premiums were relatively unchanged, comprehensive premiums dropped nearly 5% in the state while the countrywide decrease for comprehensive coverage was only 2.5%. A likely factor in the decrease of comprehensive coverage premiums is that the average claim severity, i.e. the actual cost per claim, decreased by 1.7%. Further, it is important to note that in Connecticut, the average claim severity is 27% less than the national average—$688.00 as opposed to $941.00.   Also worth noting is that according to the Department's most recent analysis, the average rate filing for auto body physical damage has decreased for 2007 by .4%. This is good news for consumers and I would like to see this trend continue well into the future.I know that you and your staff have spent a considerable amount of time working on these issues on behalf of one of your constituencies.   I also know that in other contexts, i.e. zone pricing, energy, antitrust enforcement, and cable competition, you have appreciated the benefits that a competitive environment has on the public as a whole.   In light of what I hope would be our shared desire to increase (rather than decrease) competition in our auto insurance industry, I hope that these answers to your questions, and the market data that supports our current system is working to benefit Connecticut policyholders, would allow you to reconsider your position on this issue.Sincerely,Thomas R. SullivanInsurance Commissioner[fn1]For your information, the Department has received 27 complaints eligible for arbitration.   In each instance, the Department notified the consumer that his or her case met eligibility requirements.   Seventeen (63%) did not choose to have their complaint arbitrated and their complaint was closed.   Seven (26%) opted to have their case arbitrated.   In 2 instances, the arbitrator ruled for the consumer.   There are 3 complaints pending the arbitrator's review, one of which concerns labor rate.

FOOTNOTE.  FNExhibit C

FOOTNOTE.  FN(Transcript Excerpt 11/16/09)

FOOTNOTE.  FNEXCERPT II(Jury Enters)THE COURT:  Okay. We have all six jurors back in.   At the Court's request, ladies and gentlemen, in going over the transcript, what I'm going to do is read the answer again.When I read it, it's going to incorporate in actually three places slightly different language.   Disregard entirely the earlier answer.   This—and I'm not going to highlight the changes in any way.I'm just going to read my complete answer which will have the changes that I've decided to make after reading the transcript, and a corrected transcript will be available very shortly which will have what I'm reading now.So I'm reading what I said this morning, and I'm not going to tell you what the changes are or highlight them in any way, but I'm telling you there's a few slight differences in wording from what I said this morning.I'll just characterize them as differences without assigning weight to them.I'm going to start with your questions Number 2 and 3 and answer them together.   First, some background.Section 38a–790–8 is a regulation at the Connecticut Department of Insurance promulgated by the commissioner of insurance.   All administrative regulations must be authorized by enabling legislation.In this case, the legislature has required that any person acting as an appraiser for motor vehicle physical damage claims on behalf of any insurance company or firm or corporation engaged in the adjustment or appraisal of motor vehicle claims must be licensed every two years by the insurance commissioner.That statute which is Section 38a–790 of the Connecticut General Statutes then provides the commissioner may adopt reasonable regulations concerning standards for qualifications, suspension or revocation of such licenses and the methods by which licensees shall conduct their business.   Licensees obviously refers to licensed appraisers.The regulation you have asked about, Section 38a–790–8 is part of a series of regulations entitled conduct of motor vehicle physical damage appraisers.Section 790–8 is the code of ethics which requires certain requirements for the conduct of appraisers.   It starts by saying every appraiser shall and then goes on listing the requirements.It is not a code of conduct for insurance companies generally, nor for auto body repair shops.   It requires each appraiser to:One, conduct himself in such a manner as to inspire public confidence by fair and honorable dealings;Two, approach the appraisal of damaged property without prejudice against or favoritism toward any party involved in order to make a fair and impartial—in order to make fair and impartial appraisals;Three, disregard any efforts on the part of others to influence his judgment in the interest of the parties involved;And four, prepare an independent appraisal of damage.   That's the end of the quote, and you have this regulation with you, of course.It is, therefore, the conduct of the licensed appraiser that is regulated.   This regulation expresses a public policy that licensed appraisers must conduct fair and honorable dealings without prejudice against or favoritism toward any party involved in the appraisal process and must disregard any efforts on the part of others to influence his or her judgment.   The appraiser must prepare an independent appraisal of damage.Now, to your question Number 2 which I shall read.   Question Number 2 is under the code of ethics, Section 38a–790–8.   It reads in Section 2, approach the appraisal of damaged property without prejudice, et cetera.Our question is, is this to suggest the code of ethics has to do solely with damaged property and not the labor rate which is paid?My answer is an appraisers' responsibility to appraise is not limited solely to damaged property.   He or she must assess the extent of physical damage and also—he or she must assess the extent of physical damage and also appraise the cost of repairing that damage which necessarily involves estimating the cost of replacement of parts, the number of hours needed to complete the repairs and an hourly rate which the appraisal fairly and honestly determines in his or her independent judgment to reflect the cost of the labor component of the repairs.Now, you have an Exhibit 5A which is a separate exhibit from the one you asked about, a statement from the commissioner of insurance where he says, to be clear, the department has no statutory or regulatory authority to regulate labor rates—closed quote.An insurance company such as The Hartford, therefore, has a right to state a labor rate which it is willing to pay to repair damage to the automobile of its insureds or other claimants.The issue you must determine is whether or not or to what extent the public policy of the regulation 38a–790–8, the appraisers' code of conduct, is offended by The Hartford's ASRs in this case.In that regard, you can consider whether or not any conduct of The Hartford has interfered with the independence of the licensed appraisers or has caused prejudice against or favoritism toward any party in the—involved in the appraisal process or whether or not any licensed appraiser has not disregarded any efforts on the part of others which term could include the efforts of an insurance company such as The Hartford to influence his or her judgment in the interest of the parties involved.If you did find that the appraiser independence—if you do find that appraiser independence has been interfered with or has caused favoritism toward or against any party involved or that an appraiser has not disregarded any efforts by any party such as but not limited to an insurance company to influence his or her judgment, then you may find on that basis that the public policy of the code of ethics Section 38a–790–8 has been offended.Now, I just made reference several times in giving that answer to the term parties involved which brings me to your question Number 3. And I'm going to read question 3.In Section 3 of Section 38a–790–8, it mentions parties involved.   Does parties include insured and/or insureds and/or body shops and/or appraisers?My answer is as follows:  The regulatory scheme of Section 38a–790, not just Subsection 8 which is Exhibit 3A, but the whole regulatory scheme is broad.It implicates the appraisers' dealings with insureds, with other drivers or claimants involved in accidents with the insureds, insurance companies and repair shops.All the foregoing would be included within the ambit of the term parties involved.Now, that brings me to your question Number 1 which reads:  Would it break the code of ethics if The Hartford influenced the labor rate the ASRs wrote?I'm not going to answer that question directly because, I think, that is actually your function to answer applying the concept I've— concepts I've given you in response to questions 2 and 3.I will address in a moment your use of the term breaks the code of ethics.But the decision whether or not the public policy of the code of ethics has been offended which is the term actually used in the cigarette rule would depend on whether or not or the extent to which the influence hypothesized in your question Number 1 deprive the ASR of his or her independence in making a fair and independent appraisal using as guidance—using the guidance I have offered you in response to questions 2 and 3. Only you and not I can make that determination.Now, you used the term break the code of ethics in question 1. Recall our discussion the other day regarding the jury interrogatory and the word violate as used in the jury interrogatory.I told you then that the first criterion of the cigarette rule is that “plaintiffs may prove in showing a violation of CUTPA whether the act or practice offended or offends public policy that has been established by statute, regulation, the common law or some other established concept of unfairness.”In the interest of consistency, we reprinted the interrogatories, specifically the first sub-question on Interrogatories 1 and 2 changing the words as a violation of public policy to offending public policy.In the further interest of consistency, there's a second place on that same page of the interrogatories in the directions following Interrogatory 1 and 2 where it says if you checked yes in responding to that part of Interrogatory 1 or 2 asking about an unfair trade practice as a violation of public policy, and then it goes on, that should also have been changed in the interest of consistency.Your foreman should cross out the words a violation of in those directions and write in the words as offending.   This is done in the interest of consistency to correct an oversight on my part in not noting that there were two places where the word violation was used on that page.Your questions all go to the first criterion of the cigarette rule, the offense to public policy.   By not mentioning the second and third criteria of the rule, I do not mean to suggest that they are to be disregarded.You should recall my instruction that all three criteria of the cigarette rule do not need to be satisfied to support a finding of unfairness of practice—the transcript has a one word error here, I'm going to read it the way it will be corrected—to support a finding of unfairness of practice—unfairness.A practice may be unfair because of the degree to which it meets one of the criteria or to a lesser extent it meets all three.In assessing the appraisers' code of conduct in regulation 38a–790–8, you may also want to consult the instruction I gave you on the concept or principle of respondeat superior.Since you have my instructions in writing, I will ask that a transcript of my remarks here in answering these questions be prepared and delivered to you.   This may take a little while, but it will be sent to you as soon as it is prepared.So that is my answer to the questions.   And a corrected transcript will be sent to you.   It shouldn't take too long.It will be marked as a Court exhibit and brought in as soon as it's available.   So thank you for your attention.Please be guided by these answers to the extent that they may differ from what I said this morning.   Thank you.(Jury exits.)

Jennings, Alfred J., J.T.R.