Duane Beck v. Utica Mutual Ins. Co. et al. (2013)

MEMORANDUM OF DECISION

The plaintiff Duane Beck, owner of Goatfarm Skateshop, LLC, a skate sport equipment and apparel retailer, brought this suit against Utica Mutual Insurance Company (Utica) an insurance company who issued an insurance policy to plaintiff for his business and Jeffrey Hamm of Municom Claims Service, LLC (Hamm) an independent claims adjuster who has provided claims adjustment services for Utica.   On February 2, 2011, the roof of the warehouse where the plaintiff leased retail space for his skate shop was damaged when it collapsed under the weight of snow.   The roof collapse caused damage inside the warehouse, although not to the plaintiff's retail space, and the plaintiff contacted Utica to report the loss on February 4, 2011.   Before Utica made a final coverage determination, the plaintiff filed an eight-count amended complaint against Utica and Hamm on November 1, 2011.   The plaintiff has brought four claims against each defendant:  breach of contract for failure to provide coverage, violations of Connecticut Unfair Trade Practices Act (CUTPA), violations of Connecticut Unfair Insurance Practices Act (CUIPA), and negligence in handling the plaintiff's claim for coverage.

The plaintiff alleged that Utica failed to communicate with the plaintiff after Hamm conducted an insufficient initial investigation, and that this activity constituted a violation of CUTPA.   Moreover, the plaintiff has alleged that the defendants failed to make a good faith attempt to resolve the plaintiff's claim, and have committed unfair settlement practices with such frequency to constitute a general business practice in violation of state insurance laws.   The plaintiff seeks money damages, reasonable attorneys fees and punitive damages pursuant to CUTPA and CUIPA.

I

COUNTS ONE AND FIVE:  BREACH OF CONTRACT CLAIMS

“An insurance policy is to be interpreted by the same general rules that govern the construction of any written contract ․ In accordance with those principles, [t]he determinative question is the intent of the parties, that is, what coverage the ․ [insured] expected to receive and what the [insurer] was to provide, as disclosed by the provisions of the policy ․ If the terms of the policy are clear and unambiguous, then the language, from which the intention of the parties is to be deduced, must be accorded its natural and ordinary meaning.”  (Internal quotation marks omitted.)  Johnson v. Connecticut Ins. Guaranty Ass'n., 302 Conn. 639, 643 (2011).  “It is a basic principle of insurance law that policy language will be construed as laymen would understand it”;  (internal quotation marks omitted) LaPerla, Ltd. v. Peerless Ins. Co., 51 Conn.Sup. 241, 249 [47 Conn. L. Rptr. 258] (2009);  and “the policy is to be given effect according to its terms ․ When interpreting [an insurance policy], we must look at the contract as a whole, consider all relevant portions together and, if possible, give operative effect to every provision in order to reach a reasonable overall result.”  (Internal quotation marks omitted.)  Johnson v. Connecticut Ins. Guaranty Ass'n., supra.

“In determining whether the terms of an insurance policy are clear and unambiguous, [a] court will not torture words to import ambiguity where the ordinary meaning leaves no room for ambiguity ․” (Internal quotation marks omitted.)  Id. “[L]anguage is unambiguous when it has a definite and precise meaning ․ concerning which there is no reasonable basis for a difference of opinion.”  (Internal quotation marks omitted.)  LaPerla, Ltd. v. Peerless Ins. Co., supra, 51 Conn.Sup. 250.   Moreover, “any ambiguity in a contract must emanate from the language used in the contract rather than from one party's subjective perception of the terms ․ As with contracts generally, a provision in an insurance policy is ambiguous when it is reasonably susceptible to more than one reading ․ Under those circumstances, any ambiguity in the terms of an insurance policy must be construed in favor of the insured because the insurance company drafted the policy.”  (Internal quotation marks omitted.)   Johnson v. Connecticut Ins. Guaranty Ass'n., supra, 643.

“To form a valid and binding [insurance] contract in Connecticut, there must be a mutual understanding of the terms that are definite and certain between the parties”;  (internal quotation marks omitted) John M. Glover Agency v. RDB Building, LLC, 60 Conn.App. 640, 643 (2000);  as well as “an offer and an acceptance based on ․ [that] mutual understanding ․” Steinberg v. Reding, 24 Conn.App. 212, 214 (1991).   In order to succeed in an action for damages for breach of contract on the basis of denial of coverage, the plaintiff must prove “[t]he elements of a breach of contract action [which] are the formation of an agreement [between the parties], performance by one party, breach of the agreement by the other party and damages.”  (Internal quotation marks omitted.)  Rosato v. Mascardo, 82 Conn.App. 396, 411 (2004).

In the present case, the plaintiff argues that Utica's failure to provide coverage was a material breach of the insurance contract, as the plaintiff was deprived of the benefit of insurance coverage that he reasonably expected under the terms of his policy.   The policy provides in relevant part:  “In consideration of the premium, insurance is provided only for described premises ․ and those coverages or kind of property described or specified by a limit of insurance, subject to all the policy terms including forms and endorsements ․” The policy provides coverage for business personal property up to $25,000, and will reimburse the insured for its replacement cost.   The policy also provides coverage for sixty days of extended loss of business income.

Section I of the “businessowners coverage form” provides in relevant part:  “We will pay for direct physical loss of or damage to Covered Property at the premises described ․ caused by or resulting from any Covered Cause of Loss ․ Covered Property includes Buildings [and/or] ․ Business Personal Property ․” (Emphasis added.)   The parties do not dispute the meaning of the operative terms “Buildings” or “Business Personal Property” as they are used in the policy.   The parties do not agree, however, with regard to whether the plaintiff's claim is covered, generally.   Notably, the policy excludes losses caused by “[d]ampness or dryness of atmosphere,” and “[c]ontinuous or repeated seepage or leakage of water, or the presence or condensation of humidity, moisture or vapor, that occurs over a period of 14 days or more.”

With regard to business income, the policy provides:  “We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your ‘operations' during the ‘period of restoration.’   The suspension must be caused by direct physical loss of or damage to property at the described premises.”  “[I]f you occupy only part of the site at which the described premises are located, your premises means ․ [t]he portion of the building which you rent, lease or occupy ․” “Business Income means the:  (i) Net Income ․ that would have been earned or incurred if no physical loss or damage had occurred ․;  and (ii) Continuing normal operating expenses incurred, including payroll.”   The policy also provides coverage for “Extended Business Income” under similar circumstances, and it specifically states that the insurer will compensate the policy holder for “actual loss of Business Income ․” (Emphasis added.)

In the present case, with regard to Hamm, the plaintiff is missing an essential component of a successful breach of contract claim—a contract.   Hamm is an independent insurance adjuster that was retained by Utica, and was in privity of contract with Utica at the time of the claimed loss.   There was, therefore, no contract between Hamm and the plaintiff that Hamm may be liable for breaching.

A valid contract did exist, however, between the plaintiff and Utica at the time the roof collapsed, and also when the warehouse where the plaintiff's store was located was subject to further water damage, an event for which the plaintiff did not submit a claim to Utica.   To determine whether there was a breach of that contract, the court must examine whether the plaintiff's claim was covered, and if so, whether any exclusions apply, which would render the claimed loss uncoverable.

The relevant language in the policy is unambiguous, and in light of its ordinary meaning, it is reasonable to find that the policy's limitation of coverage to direct physical loss or damage is critical to the issue of coverage.   The reasonable meaning of this provision indicates that damage to the warehouse in which the plaintiff's retail space was located does not constitute direct physical loss or damage to the plaintiff's covered property—his goods and fixtures.   The plaintiff has even testified that the area of the warehouse in which his retail space was located was unaffected by the roof's collapse.   He also asserts that he did not initially remove the goods from the space, but on October 31, 2011, he noticed that the goods were damaged while in the process of moving the goods from the retail space to his home.   Thus, while the plaintiff testified at trial that his goods were damaged, as evidenced by the warped wood of skate boards and the musty smell of some of his inventory, it is unclear whether the condition of the goods may be attributed to the February 2, 2011 roof collapse, as he first noticed the condition of the goods more than eight months after the event in question.   Utica cannot be held liable for coverage of damage that may not be attributable to the roof collapse—the event for which the plaintiff submitted his claim.

Moreover, the policy provides coverage for direct physical loss, but the plaintiff asserts that his loss has manifested itself as an alleged loss in value of the goods.   Additionally, the plaintiff asserts that the defendants rely primarily on an analysis of coverage under the term “direct physical loss,” but fail to acknowledge that the policy also provides coverage for “damaged” property.   It is important to note, however, that the policy specifically excludes losses caused by “[d]ampness or dryness of atmosphere,” and “[c]ontinuous or repeated seepage or leakage of water, or the presence or condensation of humidity, moisture or vapor, that occurs over a period of 14 days or more.”   Thus, while the plaintiff attributes the damage to his goods to the alleged dampness of, or formation of mold in, the building;  the policy excludes coverage for damage resulting from dampness or the presence of moisture.

The plaintiff has also claimed that the cost of moving the goods to his home is covered by his policy under the provision entitles “Preservation of Property,” which provides “[i]f it is necessary to move Covered Property from the described premises to preserve it from loss or damage by a Covered Cause of Loss, we will pay for any direct physical loss of or damage to that property.   (1) While it is being moved or while temporarily stored at another location;  and (2) Only if the loss or damage occurs within [thirty] days after the property is first moved.”   This provision is unambiguous in that it only covers loss or damage that occurs within thirty days after the property is moved, but, as previously stated, the plaintiff testified that he noticed signs of damage to his property before it was moved.

There is, therefore, no need to discuss potential exclusions, as the plaintiff's claim is not covered by the policy.   Thus, Utica has not breached its insurance contract with the plaintiff by not offering to cover the plaintiff's alleged losses.¹

II

COUNTS FOUR AND EIGHT:  NEGLIGENCE CLAIMS

“The essential elements of a cause of action in negligence are well established:  duty;  breach of that duty;  causation;  and actual injury.”   (Internal quotation marks omitted.)  Right v. Breen, 88 Conn.App. 583, 586 (2005).  “The nature of the duty, and the specific persons to whom it is owed, are determined by the circumstances surrounding the conduct of the individual ․ Although it has been said that no universal test for [duty] has ever been formulated ․ our threshold inquiry has always been whether the specific harm alleged by the plaintiff was foreseeable to the defendant ․ A duty to use care may arise from a contract, from a statute, or from circumstances under which a reasonable person, knowing what he knew or should have known, would anticipate that harm of the general nature of that suffered was likely to result from his act or failure to act.”  (Internal quotation marks omitted.)  Precision Mechanical Services, Inc. v. T.J. Pfund Associates, Inc., 109 Conn.App. 560, 564 n.4, cert. denied, 289 Conn. 940 (2008).

With regard to the duty owed by an adjuster such as Hamm, the court has assessed “the question of whether, under public policy grounds, a duty of care should be found to extend from an independent insurance investigator, ․ [retained] by an insurance company to investigate a claim, to the holder of the insurance policy.”   Weimer v. Allstate Ins. Co., Superior Court, judicial district of New Haven, Docket No. CV 10 6010177 (December 13, 2010, Zoarski, J.T.R.).   In finding that the court should not permit insurance policy holders to bring negligence claims against independent insurance adjusters.  “In Grossman, the plaintiffs filed an insurance claim with their insurance provider ․ after a fire caused damage to their home ․ [The insurance provider retained] ․ [an independent] insurance adjust[er] ․ to investigate the plaintiffs' claim.   After a dispute arose concerning the amount of compensation the plaintiffs would receive from ․ [the insurance provider] for their claim, the plaintiffs brought suit against both ․ [the insurance provider and the independent insurance adjuster, which] ․ argu[ed] that ․ [it] did not owe a duty of care to the plaintiffs.   The court found that there was no Connecticut case law that addressed whether an independent insurance adjuster owed such a duty of care, but that there was a split of authority in other states, and that the majority of states do not allow a negligence claim to be brought against an independent insurance adjuster.

“The states that do not allow negligence claims to be brought against independent insurance adjusters by the insured reason that the relationship between adjuster and insured is sufficiently attenuated by the insurer's control over the adjuster to be an important factor that militates against imposing a further duty on the adjuster to the insured ․ More important ․ imposing a duty on the adjuster in these circumstances would work a fundamental change in the law.   The law of agency requires a duty of absolute loyalty of the adjuster to its employer, the insurer ․ The independent adjuster's obligation is measured by the contract between the adjuster and the insurer ․ Creating a separate duty from the adjuster to the insured would thrust the adjuster into what could be an irreconcilable conflict between such duty and the adjuster's contractual duty to follow the instructions of its client, the insurer.”  (Internal quotation marks omitted.)  Weimer v. Allstate Ins. Co., supra, Superior Court, Docket No. CV 10 6010177.

In the present case, Utica's duty of care arises from its contract with the plaintiff, which dictates that Utica's duty to the plaintiff was to compensate the plaintiff for losses that are covered by his policy.   Thus, Utica's general duty was to abide by the policy and act in such a way that would not violate its terms, which is the duty to act in good faith in accordance with the terms of the policy.   The evidence indicates that Utica has not breached its duty to do so.   The plaintiff asserts that Utica breached the duty of good faith and fair dealing in the manner in which it handled his claim because it denied the plaintiff's claim over one year after he submitted his February 4, 2011 claim, and denied this claim without a sufficient investigation.   However, bad faith cannot be attributed to Utica on these grounds because, as previously acknowledged, Utica, acting through Hamm, requested documents to support the plaintiff's claim of lost inventory and income in order to expedite the processing of his claim.   The plaintiff did not, however, submit these materials.   Moreover, Utica did not delay its review of the plaintiff's claim, as Hamm had begun to review the plaintiff's claim within one month of the plaintiff's February 4, 2011 claim.   It cannot be said, therefore, that Utica breached a duty to act in good faith by processing the plaintiff's claim in an untimely manner, as alleged.

The court's consideration of Hamm's liability is, however, slightly different.   Under the majority view, the plaintiff cannot recover against Hamm because Hamm, in his capacity as an independent insurance adjuster, did not owe the plaintiff a duty of care.   Hamm cannot, therefore, be held liable for negligence.

III

COUNTS TWO, THREE, SIX, AND SEVEN:  CUTPA AND CUIPA CLAIMS

Connecticut's Unfair Trade Practices Act (CUTPA) provides in relevant part:  “No person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”   General Statutes § 42–110b(a).   While this statute pertains to unfair trade practices generally, General Statutes § 38a–815, which sets forth the general premise of the Connecticut Unfair Insurance Practices Act, provides in relevant part:  “No person shall engage in this state in any trade practice which is defined ․ as, or determined ․ to be, an unfair method of competition or an unfair or deceptive act or practice in the business of insurance ․ The commissioner shall have power to examine the affairs of every person engaged in the business of insurance in this state in order to determine whether such person has been or is engaged in any unfair method of competition or in any unfair or deceptive act or practice ․ ‘[P]erson’ means any individual, corporation, limited liability company, association, partnership, reciprocal exchange, interinsurer, Lloyd's insurer, fraternal benefit society and any other legal entity engaged in the business of insurance, including ․ adjusters.”

Although our appellate courts have not decided whether CUIPA provides a private cause of action, as the language of the statute empowers the commissioner to investigate an insurance company's practices;  see Thomas v. Biller Associates Tri–State, LLC, Superior Court, judicial district of New Haven, Docket No. CV 05 4010695 (August 31, 2011, Corradino, J.T.R.) (“[o]ur [Supreme] [C]ourt has reserved decision on whether a private cause of action can be asserted under CUIPA”);  “[i]t is well established that CUTPA affords a private cause of action to ․ individuals.”  Nazami v. Patrons Mutual Ins. Co., 280 Conn. 619, 625 (2006).   Thus, “[a] CUTPA count must fail [where] ․ the CUTPA violation ․ relies exclusively on an alleged violation of CUIPA.”   (Citations omitted.)  Thomas v. Biller Associates Tri–State, LLC, supra, Superior Court, Docket No. CV 05 4010695.   If, however, a plaintiff's claim under CUTPA does not rely solely on an alleged CUIPA violation, a plaintiff may bring a private cause of action under CUTPA for a CUIPA violation.   See Mead v. Burns, 199 Conn. 651, 662–63 (1986);  see also Lees v. Middlesex Ins. Co., 229 Conn. 842, 850–51 (1994).

When a plaintiff brings a CUTPA action for an alleged CUIPA violation, the plaintiff must prove under CUTPA, as under CUIPA, “that the insurer has engaged in unfair claim settlement practices with such frequency as to indicate a general business practice.   As to what constitutes a general business practice, the Lees court ․ noted:  ‘In requiring proof that the insurer has engaged in unfair claim settlement practices with such frequency as to indicate a general business practice, the legislature has manifested a clear intent to exempt from coverage under CUIPA isolated instances of insurer misconduct.’  ․ Nonetheless, there is no appellate court guidance as to what specific facts and circumstances are sufficient to support such a cause of action.”  (Citation omitted;  emphasis added.)   Southridge Capital Management, LLC v. Twin City Fire Ins. Co., Superior Court, complex litigation docket at Middlesex, Docket No. X04 CV 02 103527 (June 3, 2005, Quinn, J.) (39 Conn. L. Rptr. 635).   In Southridge, for example, the court found that evidence of cases concerning the defendant insurance company's alleged wrongful denial of coverage in at least five states, including the state of Connecticut, was indicative of the insurance company's general business practice.   The outcome in Southridge adheres to the general principle that “claims of unfair settlement practices under CUIPA require a showing of more than a single act of insurance misconduct ․ Alleging improper conduct in the handling of a single insurance claim, without any evidence of misconduct by the defendant in the processing of any other claim, does not rise to the level of a general business practice.”  (Internal quotation marks omitted;  footnote omitted.)  Grossman v. Homesite Ins. Co., supra, Superior Court, Docket No. CV 07 5004413.

In the present case, the plaintiff's claims under CUTPA rely on his allegations that the defendants violated CUIPA.   Thus, as previously stated, the plaintiff cannot recover on either of these claims because CUIPA does not afford a private cause of action to individuals.   However, even if the plaintiff was afforded the opportunity to assert a private cause of action, or his CUTPA claims are considered separate and apart from his CUIPA claims, the unfair practices claims still fail for the reason that the defendants' allegedly wrongful behavior is not indicative of a general pattern of misconduct.   As previously stated, recovery under both CUTPA and CUIPA requires a showing that the allegedly unfair practices have occurred with some frequency.   In the present case, the plaintiff has only asserted that the defendants are liable for misconduct with regard to his particular claim.   While there is no specific guidance concerning what facts and circumstances constitute “general business practices,” it is clear that isolated instances of insurer misconduct are exempt from action under these statutes.

For the foregoing reasons, the defendants are not liable to the plaintiff for breach of contract, negligence, nor for any alleged violations of CUTPA and CUIPA.   Accordingly, judgment shall enter in favor of the defendants and against the plaintiff.

Berdon, J.T.R.

FOOTNOTES

FN1. While the court need not address the issue of damages because the plaintiff is not entitled to coverage, it is important to note that the plaintiff did not provide sound calculations of his damages concerning his claim for coverage of business personal property and fixtures.   Notably, the plaintiff failed to respond to Hamm's July 18, 2011 request for a list of seasonal inventory that may have lost value due to the closing of the store, including a description of the items and their cost to the plaintiff;  see Defs.' Ex. D;  and as of August 2, 2011, the plaintiff had not yet provided Hamm with necessary tax documents.   See Defs.' Ex. E.Additionally, with regard to damages calculations, Utica is not required to compensate the plaintiff for lost income because said coverage only covers actual loss of net income to the business.   The incident for which the plaintiff submitted a claim to Utica occurred on February 2, 2011.   Therefore, Utica cannot be held liable for losses sustained to the plaintiff's business as indicated by the plaintiff's 2010 tax return.   Those losses are in no way attributable to the roof collapse, as records of business losses that were submitted with regard to the period of time leading up to the roof collapse cannot be considered.   Moreover, it would also be illogical to reimburse the plaintiff for losses as reflected on his 2011 tax return.   The plain meaning of the terms of the policy indicates that Utica was only responsible for compensating the plaintiff for his net income—income that would have been earned but for the damaging event—but the business was operating at a loss both before and during 2011..  FN1. While the court need not address the issue of damages because the plaintiff is not entitled to coverage, it is important to note that the plaintiff did not provide sound calculations of his damages concerning his claim for coverage of business personal property and fixtures.   Notably, the plaintiff failed to respond to Hamm's July 18, 2011 request for a list of seasonal inventory that may have lost value due to the closing of the store, including a description of the items and their cost to the plaintiff;  see Defs.' Ex. D;  and as of August 2, 2011, the plaintiff had not yet provided Hamm with necessary tax documents.   See Defs.' Ex. E.Additionally, with regard to damages calculations, Utica is not required to compensate the plaintiff for lost income because said coverage only covers actual loss of net income to the business.   The incident for which the plaintiff submitted a claim to Utica occurred on February 2, 2011.   Therefore, Utica cannot be held liable for losses sustained to the plaintiff's business as indicated by the plaintiff's 2010 tax return.   Those losses are in no way attributable to the roof collapse, as records of business losses that were submitted with regard to the period of time leading up to the roof collapse cannot be considered.   Moreover, it would also be illogical to reimburse the plaintiff for losses as reflected on his 2011 tax return.   The plain meaning of the terms of the policy indicates that Utica was only responsible for compensating the plaintiff for his net income—income that would have been earned but for the damaging event—but the business was operating at a loss both before and during 2011.

Berdon, Robert I., J.T.R.