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

Memorandum of Decision on Plaintiff's Motion for Permanent Injunction (No. 448)

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 plaintiff's 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 repairs 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 an offense to the public policy of 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.  (No. 519).

Since the claim for injunction is equitable in nature it was not submitted to the jury.   The parties have briefed the motion for injunction and have argued it to the court.   This is the court's decision on the claim for a permanent injunction.

The jury found that the Hartford had committed an unfair trade practice under the “offense to public policy” prong of the cigarette rule in that “the defendant's conduct or practices regarding hourly labor rates to be paid to the plaintiffs for auto body repair services.”   It identified the public policy offended as “Section 38a–790–8 of the conduct of motor vehicle physical damage appraisers.”  (Court Ex 10.)   That regulation, promulgated by the State of Connecticut Department of Insurance, 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 defendant's conduct or practices regarding hourly rates to be paid to the plaintiffs for auto body repairs was an unfair trade practice [a]s offending ² the public policy of the Code of Ethics.   The plaintiff is now moving for a permanent injunction to restrain that unfair trade practice.

Discussion

CUTPA provides, at Conn.Gen Stat. § 42–110g(a), that, as a remedy for a finding of an unfair trade practice, “The court may, in its discretion, award punitive damages and may provide such equitable relief as it deems necessary or proper.”   And § 42–110g(d) provides, “In any action brought under this section, the court may, in its discretion, order, in addition to damages, or in lieu of damages, injunctive or other equitable relief.”

There is a threshold issue whether or not the plaintiff class here, seeking equitable relief by injunction to restrain a CUTPA violation, must make the traditional preliminary showings of irreparable harm and a lack of an adequate remedy at law.   See Asporos v. Urban Redevelopment Commission, 259 Conn. 563, 571 (2002).   Plaintiffs argue that because the jury has already found that the Hartford violated CUTPA, the court may presume the absence of an adequate remedy at law and issue the permanent injunctive relief necessary to eliminate the unfair trade practice.   They cite Burns v. Barrett, 212 Conn. 176 (1989), which was an action by the Commissioner of Transportation to enjoin the maintenance of an outdoor advertising sign within 500 feet of a highway interchange, in violation of a regulation.   There was an argument that an injunction was not necessary because the Commissioner had a remedy at law in the form of the power to fine the owner for violating the regulation.   The Supreme Court affirmed the granting of the injunction, saying:

In Conservation Commission v. Price, 193 Conn. 414, 429, 479 A.2d 187 (1984), however, we approved the principle that where a statute expressly provides for equitable remedies in addition to the ordinary legal ones, it may be presumed that there is no adequate legal remedy, because the legislature would not have provided the additional remedies if they were not needed.

See, to the same effect, Department of Transportation v. Pacitti, 43 Conn.App. 52, 58 (1996) (“Irreparable harm need not be shown in a statutory injunction case ․ Enactment of the statute by implication assumes that no adequate alternative remedy exists, and that the injury was irreparable ․ It is not for the courts to second guess agencies on the danger to the public interest or welfare or to second guess the legislature about the relative importance of such a danger vis-vis the burden of harm inflicted on a citizen once the legislature has provided for a statutory injunction”).

While there is little question about the foregoing principle in statutory injunction cases brought by the agency or public official charged with enforcing the statute or the regulation, plaintiff here asks the court to extend the concept to cases such as this where the enforcement action is brought by a private litigant acting as a “private attorney general.”   There is no appellate authority making that extension, but there is Superior Court authority in this district doing so.   Lazzaro v. JFS, Inc. Superior Court, Judicial District of Stamford/Norwalk at Stamford, Docket No. CV96–0150751S (January 15, 1998, D'Andrea, J.) 1998 WL27148 (Conn.Super.).   The plaintiffs in Lazzaro were not government officials but were private homeowners alleging a violation of CUTPA, seeking the relief of a permanent injunction under CUTPA.   The defendant moved to strike the claim seeking an injunction on the ground that there was no allegation of irreparable harm or the lack of an adequate remedy at law.   In denying the motion to strike, Judge D'Andrea, citing Department of Transportation v. Pacitti, supra,³ held that:

In the present case, the relief sought in the fourth claim for relief is an injunction pursuant to a statute.   It is unnecessary therefore for the plaintiff to plead irreparable harm.

Additionally, General Statutes § 42–110g(d) states that a party alleging a violation of CUTPA may properly be awarded an equitable remedy in addition to a legal remedy.   Therefore it would be antithetical to require a party to allege that it lacks an adequate remedy at law when it is seeking both an equitable and legal remedy under CUTPA

Based on the above discussion the court finds that there is no need to plead the common law elements for injunctive relief when seeking same under CUTPA.   (Emphasis in original.   Citation omitted).  Id. at *2.

See, also, AGC, Inc. v. Baillargeon, Superior Court, Judicial District of Hartford at Hartford, Docket No. CV10–601844S (March 9, 2011, Prescott, J.), 2011 Ct.Sup. 6640 (“Where a statute expressly provides for equitable remedies in addition to the ordinary legal ones, it may be presumed that there is no adequate legal remedy, because the legislature would not have provided the additional remedies if they were not needed.”  ․ “Thus, a statute providing for equitable relief such as § 42–110g(a), essentially created a presumption that an injured party has suffered irreparable harm for which there is no adequate remedy at law.   Such a statute does not require the court to make this finding.”  (Citation omitted.)).

This court concurs with the holdings of Lazzaro v. JFS, Inc., and AGC, Inc. v. Baillargeon, which will be applied to the instant motion for injunction by the plaintiff class.   In reaching this conclusion that court has noted that the Appellate Court in Department of Transportation v. Pacitti, supra, was not focusing on the identity of the enforcer, but rather on structure of the enforcement scheme authorized by the legislature.   The CUTPA enforcement scheme particularly Conn. Gen Stat. §§ 42–110(g)(a) and 42–110(g)(d) specifically provide for the discretionary issuance of an appropriate injunction, in addition to an award of damages, without any express requirement that the plaintiff prove the traditional prerequisites of irreparable harm and lack of an adequate remedy at law.   Yet, in a similar statute regulating the conduct of trade and business in Connecticut, the Connecticut Antitrust Act at Conn. Gen.Stat. § 35–34 the legislature has provided that any person may sue for injunctive relief, temporary or permanent, against threatened loss or damage to property or business caused by a violation of the Act, and “[i]n such actions the court shall follow the rules and principles governing the granting of injunctive relief.”   And in the [now repealed] Connecticut Unfair Sales Practices Act, the legislature had provided for a person likely to be damaged by a deceptive trade practice the equitable remedy of injunction “under the principles of equity and on the terms that the court considers reasonable.”   Conn. Gen.Stat. § 52–115e.⁴  The point is that the legislature has seen fit in other similar trade and commerce regulatory contexts to state expressly that the traditional rules of equity apply to the seeking of injunctive relief.   Yet the provisions of CUTPA authorizing injunctive relief make no reference to the application of the traditional rules of equity.   That omission is significant.

As we have often stated, when “a statute, with reference to one subject contains a given provision, the omission of such provision from a similar statute concerning a related subject ․ is significant to show that a different intention existed ․ That tenet if statutory construction is well grounded because [t]he General Assembly is always presumed to know all the existing statutes and the effect that its action or [nonaction] will have upon any one of them” (Citation omitted.)  Saunders v. Firtel, 293 Conn. 515, 527 (2009).

See, also, Plainville Housing Authority v. Galka, Superior Court, Housing Session at New Britain, Docket No. NBSP–053968 (December 17, 2010.Gilligan, J.), 2011 Ct.Sup. 3622, 3611 51 Conn. L. Rptr. 839 (“The legislature's use of a different term in § 42–150bb than it employed in § 47–a–1 indicates a conscious choice not to do so”).

The plaintiff class, suing for relief under CUTPA, is not required to make the traditional showings of irreparable harm on lack of an adequate remedy of law to be entitled to the equitable remedy of an injunction under CUTPA.

Even if traditional requirements for the exercise of the equitable power to enjoin should be held to apply, the plaintiffs in this case would nonetheless be entitled to injunctive relief under CUTPA in order to prevent a multiplicity of legal actions for continuing damages against The Hartford, which continues to maintain in post-trial proceedings that its conduct was not improper, and has given no indication of any intent to change its procedures regarding hourly labor rates.   As the Supreme Court noted in Berlin v. Olson, 183 Conn. 337, 342–43 (1981):

While it is correct that the plaintiff would have an action at law for damages for any further injury from the defendants, that hardly prevents equitable relief in this case for at least two reasons.   Firstly, as we have said, “[t]he prevention of a multiplicity of actions is one of the special grounds of equitable jurisdiction, and for that purpose the remedy by injunction is freely used, and that, too, although there may be a legal remedy.”  Hammerberg v. Leinert, 132 Conn. 596, 602, 46 A.2d 420 (1946);  see also 4 Pomeroy, Equity Jurisprudence (5th Ed. Symonds) § 1537.   Secondly, the circumstance that the injury or the potential for injuries of a continuing nature permits the intervention of equity.   See Burroughs Wellcome & Co. v. Johnson Wholesale Perfume Co., supra, [128 Conn 596], 604 [1942];  Robertson v. Lewie, supra [77 Conn. 345] 346, 347 [1904];  5 Clark, Water and Water Rights § 458.1. It is, therefore, settled that injunctive relief is designed to prevent that which the defendants argue as a reason to preclude such relief, i.e., a multiplicity of lawsuits.

It is well established that granting, nature, and extent of injunctive relief is within the broad discretion of the court.  Broadnax v. City of New Haven, 270 Conn. 133, 170 (2004) (“․ we note that a trial court is vested with broad authority to fashion equitable relief.”)  “It is the court's duty to carry out the intention of the legislature as it is expressed in the statute it has enacted and to make the remedy it has provided an effective and efficient means of dealing with violations of the act and regulations properly promulgated under its authority.”  Conservation Commission v. Price, 193 Conn. 414, 430 (1984).   But it is also provided that “[t]he grant of jurisdiction to ensure compliance with a statute hardly suggests an absolute duty to do so under any and all circumstances, and a [trial judge] is not mechanically obligated to grant an injunction for every violation of law.”  Id., citing TVA v. Hill, 437 U.S. 153, 193 (1978).   Defendant argues that there is no need at all for an injunction, but that, if an injunction is granted, the decree “․ must not be vague, but must be specific;  that such a decree should tell a defendant precisely what he is to do, and what he is not to do, so there will not have to be constant litigation with respect to the interpretation of the decree.”   State Bar Association v. Conn. Bank & Trust Co., 21 Conn.Sup. 42, 48 (Conn. Superior Court, Bogdanski, J., 1958), modified 146 Conn. 556 (1959).

A court must balance the equities when analyzing a request for a permanent injunction.  New Breed Logistics, Inc. v. CT Indy NH TT, LLC, Superior Court, Judicial District of New Haven at New Haven, Docket No. CV08–4032688 (December 9, 2009, Angela Robinson, J.), 2009 Conn.Super. Lexis 3270, *8. The court may “consider and balance the injury complained of with that which will result from interference by injunction.”  Moore v. Serafin, 163 Conn. 1, 6 (1972).   Where the granting of the injunction would cause damage to the defendant greatly disproportionate to the injury of which the plaintiff complains, it may be held inequitable to grant an injunction.  Id. at 6;  Franc v. Beyhrl Holding Co., 73 Conn.App. 114, 142 (2002).   The right to permanent injunction is determined based on the situation as it exists at the time of trial, although the past conduct of the defendant may be considered in determining the probability of future conduct warranting injunctive relief.   Labbadia v. Smyth, 155 Conn. 187 (1964).

The plaintiff asks the court to enter a permanent injunction:

(1) mandating that the Hartford's staff appraisers write labor rates at what they would fairly and reasonably be absent The Hartford's influence and control, which, by definition, involves a mandatory increase from what the Hartford is currently paying. (2) reforming the Hartford's appraisal review practices, including Best Practices and Claims Standards, to permit and encourage its appraisers to write fair and reasonable labor rates free from insurer influence;  (3) precluding the Hartford from suppressing labor rates by causing an increased volume of work to go to a small number of direct repair shops in exchange for labor rate concessions.   This element may be addressed by mandating that the Hartford:

a. permit independent shops to apply for inclusion on the Hartford's list of approved shops in its direct repair program;  and

b. provide the names of all approved shops within a defined geographic area when disclosing information about available repair shops;

(4) prohibiting the Hartford and its staff appraisers from using the direct repair shops as a proxy for the fair and reasonable labor rates to be paid;

(5) appointing a special master to oversee and enforce Parts 1–4 to ensure the appraisal and payment of fair and reasonable labor rates to members.

The plaintiff requests that the court grant to the Special Master, who would be compensated exclusively by the Hartford, powers:  to investigate (I) the labor rate that the Hartford should pay the plaintiff class of shops as reasonable compensation for repair work, (ii) how class members may be included on the Hartford's “approved” list of direct repair shops;  (iii) the Hartford's appraisal practices, including its use of in-house employees as “independent” appraisers:  and (iv) all matters reasonably related to (i)-(iii) including the use of DRP shops as labor rate proxies for non-DRP shops.   The Special master would submit semi-annual reports to the court for a term of five years “renewable by the court” and would have sweeping powers to hear and receive evidence;  to consult informally with the parties and outside experts;  to receive reports and recommendations not in evidence;  to conduct informal working sessions with the Departments of Insurance and Motor Vehicles, their counsel, and the public;  to conduct informal private meetings with each party and their counsel;  to consult frequently with the parties and be reasonably available to the parties for informal discussions and to exchange suggestions;  to hire experts and legal and clerical assistance (with court approval);  and to have full access to all statistics, reports, computer studies, and all other data relating to labor rates paid by the Hartford to both its DRP and non-DRP shops.   The Special master would have “subpoena power of documents and witnesses.”

Parts (1) and (2) of plaintiffs' requested injunction seek mandatory injunctive relief directed at the goal of requiring the Hartford to pay “fair and reasonable labor rates free from insurer influence.”   It is well settled that any request for mandatory injunctive relief is an extraordinary, remedy.   “Mandatory injunctions are disfavored as a harsh remedy and are used only with caution and in compelling circumstances.”  Cheryl Terry Enterprises, Ltd. v. City of Hartford, 270 Conn. 619, 650 (2004).  (“The plaintiff was requesting that the trial court award a new contract to the plaintiff, for a term of five years, and for a total value of cost plus a guaranteed profit of 10 percent.   The plaintiff has failed to cite, both before the trial court and this court, any authority for such a broad use of the extraordinary remedy of a mandatory injunction.”  Id. 651.)   The freedom from insurer influence does relate to the Appraiser's Code of Ethics found by the jury to have been offended, but there is nothing in the Code of Ethics or the entire scheme of the Department of Insurance for regulating automobile damage reimbursements that requires the rates of repair labor to be “fair and reasonable.”   This is not a rate-controlled situation.   The evidence is undisputed that the Department of Insurance has no power to, and does not, control labor rates.  “To be clear, the Department has no statutory or regulatory authority to regulate labor rates.”  (Insurance Department Guidelines Concerning Labor Rates, January 29, 2007, Exhibit 5A.) The policy of the Code of Ethics is not to control the labor rates paid by insurance companies to auto body repair shops, but to ensure that those rates are the prevailing labor rates of the marketplace as determined by fair and impartial appraisals free from influence by any interested party.   The procedures of appraisal are regulated;  the results of appraisal are not regulated.   Parts (1) and (2) of plaintiffs' requested order of injunction improperly would mandate the result of auto damage appraisals, to be “fair and reasonable” rates of labor in the judgment of something or someone ⁵ other than the marketplace.   Parts (1) and (2) cannot be allowed.

Part (3) seeks a prohibitory injunction, related entirely to the conduct of the Hartford's network of direct repair shops (DRPs) under its Customer Repair Service Program (CRSP).  Plaintiffs would have the court preclude the Hartford from suppressing labor rates by causing an increased volume of work to go the DRPs in exchange for labor rate concessions.   This would be antithetical to the verdict of the jury which found specifically that “the defendant's conduct or practices or communications with its insureds regarding utilization of its direct repair shops or CRSP shops by its insureds or other auto body damage claimants” was not an unfair trade practice under any of the three prongs of the cigarette rule.  (Court Ex. 10.)   The Hartford's communications with its insureds and other claimants encouraged increased use of the DRP shops.   The jury found this not to be an unfair practice.   By what reasoning, then, can this court which has the “duty to ․ make the remedy it has provided an effective and efficient means of dealing with violations of the act and regulations ․” (Price, supra ), prohibit the Hartford under penalty of contempt from causing an increased volume of work to go to the DRP shops?   Obviously, I cannot do so.   See New Haven Sand Blast Co. v. Dreisbach,, 102 Conn. 169, 192–93 (1925) (striking language from an injunction that would have enjoined a defendant from engaging in activities that were not the basis of the underlying breach of contract claim).

Although Part (3) generally seeks a prohibitory injunction, the two implementing requests (3a and 3b) would involve mandatory orders of injunction, only allowable in compelling circumstances.  Cheryl Terry Enterprises, supra.   The first, (3a), is hardly compelling.   It asks that the court order the Hartford to permit the plaintiff class of independent shops to apply to be included in the DRP program.   But the uncontroverted evidence was that any auto body shop was free to apply for inclusion on the Hartford's list of approved shops in its direct repair program.   See testimony of Mr. Cirish, October 22, 2009 Tr. 136–37 and of Mr. Kemp, October 30, 2009 Tr. 136–37.   In fact there is in this action a subclass of auto body repair shops which had been at one time direct repair shops of the Hartford, but had stopped being Hartford DRP shops at the time this lawsuit was started.   The whole thrust of the claim by the plaintiff class of shops was that they did not want to be Hartford DRP shops because the DRP rates were inadequate.

Part 3b cannot be granted because the request to order the Hartford to provide the names of all “approved shops within a defined geographic area” when disclosing information about available repair shops is too vague and incapable of enforcement.   The evidence established that the Hartford did routinely disclose to claimants the names of DRP shops within the area.   This request to disclose other “approved shops” must therefore mean something other than DRP shops.   But what does it mean?  “Approved” by whom?   Under what criteria?   Part (3)b cannot be granted.

Part (4) “prohibiting the Hartford and its staff appraisers from using the direct repair shops as a proxy for the fair and reasonable rates to be paid” is likewise denied for several reasons.   As previously explained, there is no requirement in the public policy of the Insurance Department that rates paid by insurance companies to auto body shops be “fair and reasonable” rates.   The Code of Ethics does not purport to regulate the fairness or reasonableness of the hourly labor rates.   The Code of Ethics, read in conjunction with the Insurance Department's 2007 Guidelines, calls for a determination of the “prevailing rate” by a fair and impartial appraisal free from the influence of the parties involved.   There is a difference.   Furthermore, any prohibition against using the DRP hourly rates in determining the prevailing rate for auto body repairs in a given geographic area would itself be offensive to the public policy of the Insurance Department regulatory scheme which has expressly acknowledged the existence and use of DRP rates in determining prevailing rates.  “Relying solely on the Labor Rates paid to direct repairs shops is not a true indication of the Labor rate in the marketplace.   There should be a distinction between the Labor Rate that is determined as a result of contractual arrangements with Direct Repair shops compared with Non–Direct Repair shops that are relevant in the marketplace overall.”  (Insurance Department Guidelines, supra. ¶ 112.)

Because the court has declined to enter any of the four mandatory or prohibitive orders of injunction requested by plaintiffs in their memorandum of law does not end the inquiry as to whether the court should exercise under Broadnax v. City of New Haven, supra, and Conservation Commission v. Price, supra, its broad authority to fashion equitable relief “to carry out the intention of the legislature as it is expressed in the statute it has enacted and to make the remedy it has provided an effective and efficient means of dealing with violations of the act and regulations properly promulgated under its authority.”   The court believes that there is good reason in this case to exercise that authority.

Conclusions

The court interprets the jury's finding that the Hartford's conduct or practices regarding hourly labor rates to be paid to the plaintiffs offended the public policy of Section 38a–790–8 of the conduct of motor vehicle physical damage appraisers, by putting at least implied or indirect pressure on its employed appraisers in their determinations of prevailing labor rates, to give greater weight to the lower DRP shop labor rates in the area than to the rates of non-DRP shops in the area.⁶  And the Hartford took steps to hide or disguise those efforts, which in some cases were contrary to its own written policies.   Granted, the Code of Ethics does not even mention direct repair shops or their contracted hourly rates, and the Insurance Department policy on DRP shop rates (Insurance Department Guidelines, supra,) mandate no particular weight to be given to Non–DRP shop rates as compared to DRP shop rates other than stating that sole reliance on the latter would not be a true indication of the prevailing rate in the marketplace overall.   But the Code of Ethics does direct each licensed appraiser to conduct himself or herself in such a manner as to inspire public confidence by fair and honorable dealings, to approach the appraisal of damaged property without favoritism toward any involved party, to disregard any efforts on the part of others to influence his or her judgment in the interest of the parties involved, and to prepare an independent appraisal of damage.   There is no doubt that the appraisers in the employ of the Hartford felt they were under pressure not to use hourly rates out of line with the DRP shop rate.   Plaintiffs Ex. 2 is a letter dated February 12, 2002 from four licensed staff appraisers of the Hartford to the Attorney General of Connecticut with a copy to the Connecticut Insurance Department.   A redacted copy was allowed into evidence for the limited purpose of showing the state of mind of the four appraisers.   Their concern is evident.

․ [W]e cannot honestly say that we believe the current “prevailing rate” of 40 to 42 dollars an hour is fair.   In fact, we believe that is very low due to insurer influence, and not due to market influence.

There is a lot of pressure and influence in this area.   The Hartford has guidelines they refer to as “service standards” ․ These “standards” are much more than suggestions.   We perceive them, and the reinspections that result from them, to be an obvious and conscious effort to influence how future estimates are written in the interest of reducing claim pay outs.

Essentially, as we understand our legal and moral obligations as appraisers, we are compelled to write an estimate that fairly reflects our own true opinion of what is needed to properly restore a customer's vehicle to pre-loss condition ․ We do not feel that we are in a position to operate in this manner.

The Hartford brought out at trial that none of the four appraisers who signed the letter had actually been subjected to any adverse consequences because of their hourly rate determinations, and that the appraisal reinspection modifications went to factors other than the hourly rate used, and that they were assured verbally by a representative of the Commissioner of Insurance that they would not be disciplined for conducting their appraisals as described in the letter, but that does not totally eliminate the obvious fact that four experienced licensed appraisers were sufficiently concerned about the pressure they felt to conform their appraisals to their employer's positions that they took the extraordinary step of going public and writing to high level public officials.   The pressure put on the Hartford's appraisers by their employer, no matter how slight or indirect, and regardless of the lack of enforcement action by the Insurance Department, could be considered as offensive at least to the “penumbra” of the Code of Ethics.   And since the Hartford still maintains post-trial that its actions were perfectly legal and proper and there is no evidence or even any indication that it has changed its policies or intends to change its policies going forward, the court concludes that an enforceable prohibitory order of injunction can and should be fashioned to prevent repetition of those practices.

Therefore, until further order of this court:

1. The defendant The Hartford Fire Insurance Company shall refrain from interference with the independent judgment of motor vehicle physical damage appraisers licensed by the State of Connecticut in its employ in the performance of their duties in appraising the damage to automobiles and other vehicles including the determination of the hourly rate to be applied in calculating the labor component of costs to repair.

2. The defendant The Hartford Fire Insurance Company shall refrain from taking or threatening expressly or by implication to take any adverse employment action, including but not limited to any termination, unfavorable reassignment, demotion, refusal to promote, reduction in compensation, reprimand or other disciplinary action against any motor vehicle physical damage appraiser licensed by the State of Connecticut in its employ because of the appraisal methodology utilized by such appraiser in assessing the cost of motor vehicle damage repair, including his or her determination of the hourly labor rate to be applied to calculate the cost of labor component of such repairs, so long as such appraiser's appraisal methodology conforms to the guidelines now or hereafter promulgated by the State of Connecticut Insurance Department.

Because of the limited nature of the injunction I have issued as compared to the sweeping nature of the injunction requested by the plaintiffs, the court will not at this time appoint a Special Master to oversee compliance, although the court retains jurisdiction going forward to reconsider that decision and to appoint a Special Master if circumstances so warrant.   Until further order of the court, the enforcement mechanism will remain directly with the court and shall consist of the following:

A.  The defendant The Hartford Fire Insurance Company (“The Hartford”) shall post a copy of the foregoing injunction, as it may hereafter be modified, prominently at each company facility where Connecticut licensed motor vehicle physical damage appraisers employees perform their duties.

B. A copy of the foregoing injunction, as it may hereafter be modified, shall be provided to each present employee of The Hartford who is a Connecticut licensed motor vehicle physical damage appraiser;  and at the time of employment to each employee hereafter hired as a Connecticut licensed motor vehicle physical damage appraiser, and to each employee working as a Connecticut licensed motor vehicle physical damage appraiser at the time of each performance review of such employee.

C. The Hartford shall add to the appraisal report form submitted by each motor vehicle physical damage appraiser with his or her appraisal the following certification to be signed by the appraiser in handwriting or by discreet electronic signature:  “I am a Connecticut licensed motor vehicle physical damage appraiser, License No._. I hereby certify that the foregoing appraisal has been prepared by me as my independent, fair and impartial appraisal without prejudice against, or favoritism toward, any party involved, including, without limitation, my employer The Hartford.   There has been no effort on the part of The Hartford, or any other party involved, to influence my judgment in the interest of such party.

D. The Hartford shall file with the court within thirty days following the last day of each calendar quarter after final judgment in this case a Quarterly Compliance Report in the form of spreadsheet or chart showing (i), for each Connecticut licensed motor vehicle physical damage appraiser in its employ at any time during that calendar quarter (who may be identified by number rather than name):  the range of hourly rates used by such appraiser in his or her appraisals during that quarter, and the average hourly labor rate used by such appraiser during that quarter (ii) the hourly rate or rates charged at any time during the quarter by each Direct Repair Shop (which may also be identified by number rather than name) under contract with The Hartford, (iii) Any changes made by The Hartford during the quarter to the appraisal report or estimate of any Connecticut licensed motor vehicle physical damage appraiser as the result of reinspection or any form of supervisory review;  and (iv) a summary of any adverse employment action including, but not limited to, any termination, unfavorable reassignment, demotion, refusal to promote, reduction in compensation, reprimand or other disciplinary action against any Connecticut licensed motor vehicle physical damage appraiser (who shall be identified by number rather than name) in the employ of The Hartford.

The court's hesitance to appoint a Special Master with broad powers of oversight should not be construed as an opinion that there is no need for oversight in the area of the hourly rates to be used by Connecticut licensed motor vehicle damage appraisers in determining repair costs of damaged vehicles.   But oversight over just one insurance company with only a 6% market share of the automobile insurance market in Connecticut potentially could upset the competitive balance in the market to the serious disadvantage of the one company under review while its competitors are not under review.   The court has balanced the equities by implementing for the present a less aggressive, less expensive, and less inhibiting enforcement mechanism.   But what is actually required, and this court has no power to bring it about, is comprehensive guidance applicable to all competitors in the market as to the interplay between independent appraisers and the direct repair shop factor.   There was uncontroverted evidence in this case that most if not all insurance companies in the automobile insurance market in Connecticut use direct repair shops under contract with the company to charge a certain agreed hourly labor rate.   Some of the plaintiff class members are, or have been in the past, direct repair shops of companies other than The Hartford.   The present policy of the Insurance Department is that it does not regulate hourly labor rates which must be determined by the marketplace, and appraisers must use their own independent judgment to assess prevailing market costs of parts and labor.   But the market for automobile body repairs is not entirely an open competitive market.   A minority of auto damage repair shops have chosen for whatever reason to lock themselves in by contract to a fixed hourly rate to be charged during the term of the contract on all jobs sent to them by the insurance company or companies with whom they have contracted.   The majority of shops operate as independents in a free competitive environment.   The policy of the Insurance Department as set forth in its 2007 Guidelines is that prevailing labor rates should be established, in part, “by a random sample of repair shops in a geographic area ․” but that “relying solely on the Labor Rates paid to direct repair shops is not a true indication of the Labor Rate in the marketplace.”   This presents the licensed appraiser with a serious dilemma.   The appraiser obviously would know that the insurance company by whom he or she is employed would prefer that the lower DRP rates be used as much as possible.   It is legal to use and rely upon DRP rates subject only to the restriction that they shall not be solely the rates relied on.   The appraiser, then, can choose to use a rate based on no DRP rates at all, or based on more than 99% DRP rates, provided at least some non-DRP rate is considered.   But, under the Code of Ethics the appraiser must perform an independent fair and impartial appraisal free from efforts on the part of others to influence his or her judgment.   This puts the appraisers collectively in the position of making judgments within a wide range having implications that extend far beyond the fair impartial resolution of a damaged automobile claim, but also determine policy that can have serious repercussions on the employer's competitive position in the auto insurance marketplace and on the livelihoods of vendors such as the plaintiff class.   And now, with CUTPA's private enforcement provision, those decisions can be made by separate juries, after years of litigation, in cases against individual companies, such as this case.   The prospect of inconsistent rulings ⁷ could result in an unworkable chaotic market for insurance to the detriment of certain competitors and the advantage of others, with unanticipated effects on Connecticut automobile insurance policyholders.   A uniform workable and consistent regulatory policy is urgently indicated.

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 court is not unmindful of the dictum in New Breed Logistics v. CT Indy NH TT, LLC, 129 Conn.App. 563, 569–70(n.7) (2011), suggesting that Pacitti and Price, supra, may be limited to actions brought by a public agency or a public official charged with enforcement of the statute, but the injunction at issue in that case had not been granted pursuant to CUTPA, and the comments on that issue are not binding precedent in a case such as this where the requested injunction is strictly based on a CUTPA violation as found by the jury..  FN3. The court is not unmindful of the dictum in New Breed Logistics v. CT Indy NH TT, LLC, 129 Conn.App. 563, 569–70(n.7) (2011), suggesting that Pacitti and Price, supra, may be limited to actions brought by a public agency or a public official charged with enforcement of the statute, but the injunction at issue in that case had not been granted pursuant to CUTPA, and the comments on that issue are not binding precedent in a case such as this where the requested injunction is strictly based on a CUTPA violation as found by the jury.

FN4. Section 42–155e was not repealed in 1973 when the Unfair Sales Practice Act was largely repealed.   It is unclear at this point as to what conduct § 42–115e applies.   It is not part of CUTPA.   See Langer, Morgan, and Belt, Connecticut Practice Series, Connecticut Unfair Trade Practices, Business Torts, and Anti Trust, 2012–2013 Ed., § 6.9, pp. 816–18..  FN4. Section 42–155e was not repealed in 1973 when the Unfair Sales Practice Act was largely repealed.   It is unclear at this point as to what conduct § 42–115e applies.   It is not part of CUTPA.   See Langer, Morgan, and Belt, Connecticut Practice Series, Connecticut Unfair Trade Practices, Business Torts, and Anti Trust, 2012–2013 Ed., § 6.9, pp. 816–18.

FN5. Michael Walsh, owner of plaintiff class representative T & J Auto Body, testified that the hourly rates would be set by “an economist.”   TR 10/29/09 p. 72..  FN5. Michael Walsh, owner of plaintiff class representative T & J Auto Body, testified that the hourly rates would be set by “an economist.”   TR 10/29/09 p. 72.

FN6. See this court's October 13, 2010 opinion in denying the defendant's motions to set aside the verdict and for judgment notwithstanding the verdict (File position 519), at pp. 10–12 discussing the evidence in support of upholding the verdict..  FN6. See this court's October 13, 2010 opinion in denying the defendant's motions to set aside the verdict and for judgment notwithstanding the verdict (File position 519), at pp. 10–12 discussing the evidence in support of upholding the verdict.

FN7. There is one other known case, almost identical to this, pending in the federal court in Bridgeport against Progressive Insurance Company.   There may be other cases pending or to be brought in the future..  FN7. There is one other known case, almost identical to this, pending in the federal court in Bridgeport against Progressive Insurance Company.   There may be other cases pending or to be brought in the future.

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