LLC v. NGM (2013)

MEMORANDUM OF DECISION

The plaintiff Steve Basso Plumbing, Heating & Air Conditioning, LLC (“Basso”) commenced this action against defendant NGM Insurance Company d/b/a/ National Grange Mutual Insurance Company (“NGM”).  In its four-count amended complaint dated April 12, 2012, it alleges claims for common-law and statutory vexatious litigation, bad faith and violation of CUTPA.   The plaintiff seeks monetary damages, treble damages pursuant to C.G.S. § 52–568, punitive damages pursuant to C.G.S. § 42–110g(a), and attorneys fees which the plaintiff claims it incurred as a result of the prior lawsuit filed by the defendant, CV07–5010430S;  NGM Insurance Company v. Steve Basso Plumbing, Heating & Air Conditioning, LLC.

The case was tried to the court on April 4, 2013.   Following the trial, the plaintiff submitted a post-trial brief on May 21, 2013.   The defendant who had filed a trial memorandum on April 4, 2013, filed a post-trial brief Part II on May 22, 2013.

FINDINGS OF FACT

This action arises out of a previous dispute between the parties CV07 5010430 NGM Insurance Company v. Steve Basso Plumbing, Heating & Air Conditioning, LLC in which NGM sought to recover monies from Basso for unpaid insurance premiums.   Basso claimed that it did not owe NGM any money because it failed to renew the subject insurance policies.

The court has taken judicial notice of the prior lawsuit at the parties' request.   The following facts as related to the prior lawsuit between the parties are relevant to the issues in this case.   Basso is a plumbing, heating and air conditioning contractor with various insurance requirements related to its business operation.   Steven Basso, owner of the plaintiff Basso Plumbing, Heating & Air Conditioning was responsible for maintaining the books and records of the company.   These responsibilities included securing various policies of insurance coverage request by the operations of the business.   The plaintiff Basso is a former insured of the defendant, NGM Insurance Company d/b/a National Grange Mutual Insurance Company (hereinafter NGM).  In 2007 NGM brought a debt collection action against Basso alleging an indebtedness due to amounts due and owing on account of a workers' compensation policy in effect between March 2, 2005 and March 2, 2006 and for renewal policies which were to renew March 2, 2006 or total indebtedness of approximately $20,000.   NGM filed a Motion for Summary Judgment on March 13, 2009 which Basso opposed.   The Court denied the Motion for Summary Judgment basing its ruling on the Connecticut Appellate Court decision in Kane v. American Insurance Company, 52 Conn.App. 187 (1999), which held that the renewal of certain insurance policies did not occur because the insured did not pay the premium.   NGM had cancelled the several policies for non-payment and included within its debt collection action pro-rated premium amounts for each of the four policies for the period between the inception date and the date of cancellation.   Although the Kane decision did not purport to affect the validity of the claim for premium due and owing on account of the earlier policy namely the workers' compensation policy in effect between March 2, 2005 and March 2, 2006, NGM elected to simply withdraw the entire lawsuit rather than continue to attempt to collect a partial amount.

The instant lawsuit by Basso as against NGM alleges the following causes of action:  First Count—Common–Law Vexatious Litigation;  Second Count—Bad Faith;  Third Count—CUTPA;  and Fourth Count—a claim for treble damages based on statutory vexatious litigation pursuant to C.G.S. § 52–568.

The following issues require determination by the court:  1) Whether there was probable cause for NGM's institution of the 2007 underlying suit namely NGM Insurance Company v. Basso Plumbing, Heating and Air Conditioning, LLC;  2) Whether NGM instituted the prior civil suit with malice;  3) Whether the defendant NGM prosecuted the prior civil suit in bad faith;  i.e., whether the plaintiff can establish that the defendant engaged in conduct designed to mislead or deceive or otherwise engage in conduct that was not prompted by an honest mistake as to its rights or duties, Buckman v. People's Express Inc., 205 Conn. 166 (1987);  4) Whether the prosecution of the underlying case constituted a violation of CUTPA;  5) Whether there is evidence to support the Fourth Count predicated upon Connecticut General Statutes § 52–568;  6) Whether NGM commenced and prosecuted the underlying debt collection action without probable cause and with a malicious intent that is acted primarily for an improper purpose i.e., for a purpose other than that of securing a proper adjudication of a claim due.

The prior lawsuit claimed Basso owed money for additional premiums in excess of $20,000 resulting from premiums allegedly due on the above policies including a workers' compensation policy audit for the policy year 2005–2006.   An insurance audit is an industry wide practice seeking to determine if certain criteria that are used to set a premium (e.g. the insured's payroll, etc.) are the same as it was at the beginning of the policy year.   If the insured's payroll, etc. is different, then there is either an additional premium owed or a credit is issued to the insured.

The Main Street America Group was NGM's designated agent for insurance.   Its employee, Marilyn Robbins, identified as both Premium Services Dept. and Collection Coordinator II with the same telephone number and extension on the letterhead, was the contact person for the Basso account.   Ms. Robbins did not testify at the trial.

Scott Basso, Vice President of plaintiff Basso testified that when he received the bill for the additional premium for policies with effective dates of 3/2/05–3/2/06 and 3/2/06–2/2/07 he disagreed and discussed his disagreement with the agent for NGM at least a dozen times.

Basso has asked the agent annually for comparisons of available policies.   Beginning in 2001, Basso had four policies with NGM, workers' compensation, business automobile, commercial umbrella and contractor's liability.

Mr. Basso testified that the agent was slow in providing the requested comparisons, often not giving him the necessary price information until actual renewal time.   The NGM workers' compensation policy dates were 3/2/2005–3/2/2006.   Basso did not send payment when he received the renewal notice for this policy nor did he notify NGM that the company did not intend to renew its insurance with NGM. Instead, he contacted a new agent and he obtained workers' compensation coverage and other required insurance for the business through St. Paul Travelers Insurance effective 6/9/2006.

Basso never sent a check to pay the premium bills, sign any policy renewal forms, or submit proof of substitute insurance coverage prior to the expiration of the NGM policies.   Basso was unable to explain the gap in workers' compensation coverage from 3/2/06 until 6/9/06 except to claim that he had turned his request over to the new agent.

When he received notice that an audit of the 2005–2006 workers' compensation audit resulted in premium increase in the fall of 2006, he disputed this conclusion and requested a copy of the audit.   Tom Weihing, attorney for Basso contacted NGM's attorney after NGM served Basso for collection and asked for a copy of the audit several times.   As of the filing of the motion for summary judgment on the 2007 lawsuit, neither Basso nor its attorney had received a copy of the audit.

After the court sustained Basso's objection on the NGM's motion for summary judgment, NGM withdrew its case.

There is no dispute that Basso did not renew the insurance policies with effective policy dates ending on March 2, 2006, and did not provide the requested replacement policy showing its effective date prior to NGM's cancellation/expiration date.   As a result, NGM billed him for the following year March 2, 2006 through March 2, 2007.   On August 18, 2006, NGM through its agent The Main Street America Group notified Basso of a past due balance which it refused to pay.   Maura McGarry, Manager, ICS Operations for the Main Street America Group testified about defendant's billing procedures.   She did not have any direct contact with plaintiff.

Attorney Weihling testified regarding his efforts and advocacy for his client Basso.   Unfortunately, these actions occurred subsequent to the facts which are determinative to the court's consideration of the issues in this case.   Neither party introduced evidence of the actual written terms and conditions of the subject insurance policies.   Because, there was no documentary evidence of policy contract terms to explain or support the actions of the defendant or plaintiff, the court must rely on the unopposed evidence presented through testimony of Ms. McGarry and letters from Ms. Robbins that NGM requested proof of replacement policies prior to the expiration of the policies under which it provided coverage.

In a letter dated August 18, 2006, Marilyn Robbins advised Basso that the $16,439 past due balance was the result of an audit on the 2005 terms of the workers' compensation policy, as well as earned premium on the 2005 and 2006 terms of Basso's auto, umbrella, liability and workers' compensation policies.   The next letter from Mrs. Robbins to Basso, dated October 24, 2006 references a telephone call with Steven Basso on September 7, 2006, in which Mr. Basso had indicated that he believed that Basso would be entitled to a credit on the basis of the workers' compensation policy credit.   In response Mrs. Robbins stated that the liability audit for the 2005 term had been processed adding $1,934.00, for an outstanding balance of $18,373.00.   The letter demands payment in six installments of $3,072.17 to begin in 10 days and states that the consequence of nonpayment will be referral for legal action.

Thereinafter, on February 20, 2007 Mrs. Robbins notified Basso that a collection attorney is being retained to collect the unpaid balance of $20,117.00 plus allowable costs and that unless full payment is received within seven days a court action will be filed.”   When Basso failed to respond, NGM filed collection action which plaintiff herein claims as vexatious and a violation of CUTPA.

Analysis of the relevant exhibits submitted by both sides indicates the following.   Exhibit K, a copy of the 3/03–3/04 general liability policy audit includes an audit verification and release signed by Scott Basso and the auditor on April 21, 2004.   In Exhibit M, entitled diary notes, Mrs. Robbins indicates that she notified Basso that the 2005 workers' comp audit for 2005 has increased the bill and requested payment of $3,346.17 starting January 7th.

Mrs. Robbins' July 3, 2006 response to interrogatories indicates that as of June 9, 2006, a system generated collection letter was sent to Basso, stating, “If you purchased insurance coverage prior to our cancellation/ expiration date, please send us a copy of your replacement policy showing the effective date of that coverage.   Basso did not respond to this letter or calls from Mrs. Robbins between August 2006 and March 2007 or to demand letters from the CMFS Collection Agency.   It is undisputed that Basso did not communicate with NGM to provide notice or a copy of replacement coverage.   Defendant's position as stated by Mrs. Robbins, is:  In order to be a valid excuse for nonpayment of premium for the 2006–07 coverage, debtor would have to produce the replacement policy.   Such policy would have to give coverage prior to NGM's cancellation date of 4/26/06 (5/1/06 for the workers' comp).   If this is produced, NGM's underwriting department will review it, and if it legitimately proves to be duplicate coverage, recancellation back to the effective date of the replacement policy will be processed.

However, the 2005–06 audit premium and any premium due prior to the 2006–07 renewal is still due.   That premium was the result of coverage fully earned for the period not disputed by Mr. Basso.

Effective policy date and effective cancellation date are two separate events, each triggering different consequences.   Although Basso was entitled to review and question the audit, it remained liable for the premium according to the November 24, 2005 audit report which would have applied to the 3/2004–3/2005 policy period, the premium increased.   It is not clear why Basso believed that it would receive a credit following the 05/06 audit when company records show that the annual audits consistently resulted in additional premiums for various policies.   Additionally, its business with potential liability exposure such as Basso cannot reasonably allow a gap of over three months as occurred in this case.   The risk is simply too great.   Nevertheless, Basso did not provide any reason to withhold payment.

The workers' compensation audit is based on a review of the insured's payroll records for the prior year claims that he thought the company would be entitled to a credit based on the audit.   Basso received notice of the audit results approximately eight months after the expiration of subject audited policy period.   There was no reason for NGM to treat the 2005/2006 renewal any differently regardless of whether Basso would be entitled to a credit or surcharge following the audit.   Both NGM and Basso remained fixed in their positions.   However, by its failure to notify NGM of replacement coverage and decision not to pay any amount of premiums which may have been due, subject to the audit, Basso placed itself at risk for lapsed coverage and litigation, both of which occurred.   Basso still disputes the actions of NGM in this action.   Based on the facts as found and the applicable law, the court issues the following conclusions.

LAW

Count One—Common–Law Vexatious Suit

Defendant relies upon the law as stated by the Supreme Court in McGann v. Allen, 105 Conn. 177, 186 (1926), and the Model Civil Jury Instructions Section 3.13–6 Vexatious Suit–Claim at Common Law:

A person has probable cause to commence or prosecute a civil action on a claim when he or she has knowledge of facts, actual or apparent, strong enough to justify a reasonable person in the belief that he or she has lawful grounds for prosecuting the defendant in the manner complained of.

A person has lawful grounds for prosecuting a claim when he has a genuine belief in the existence of facts that support each essential element in that claim, when those facts would warrant a person of ordinary caution, prudence, and judgment, under the circumstances, to entertain that belief.

Defendant's Exhibits:  D, E, F, L, M, N and O summarized in part about establish that the NGM collection agent whose actions resulted in the institution of the underlying lawsuit Marilyn Robbins, Collection Coordinator II, acted in good faith belief that the insured owed the balance alleged is Exhibit O. This memorandum prepared by Ms. Robbins as a review of Basso's July 23, 2008 responses to Interrogatories and her letters to Basso from August 2006 through March 2007 support NGM's claim that it had probable cause to pursue what clearly appeared to be a valid debt comprised of a balance due for an earlier policy year in connection with the workers' compensation policy issued by NGM to Basso for March 2005 to March 2006 ($10,446.00) and prorated premiums for the four policies that were set to renew effective March 2, 2006:  the workers' compensation policy WC126731;  the commercial umbrella policy CU126731;  contractor's policy MP126731;  and the commercial auto policy BI126731 ($9,526.00).   According to Exhibit F Account Summary since 2001 NGM sent policies and premium notices in advance of the effective date to provide notice and compare shop for a better price.   Basso continued coverage with NGM for five years subsequent to March of 2001.   Accepting Basso's testimony that when he received the renewal premiums and policies in 2006 that he once again contacted the agent to ask for better priced policies, neither Basso nor his agent obtained alternative coverage before the existing policies written by NGM expired in early March of 2006 (March 2, 2006).   Basso's Production responses which were attached to the Affidavit from Carolyn O'Brien establish that Basso did not arrange for alternate coverage until more than three months later when his agent obtained policies through the Travelers.   The Declarations Pages to these policies which include mandatory workers' compensation coverage indicate that the effective date of those Travelers policies was not until June 9, 2006.   Robbins is therefore, correct that there was a lapse in coverage.   NGM maintains that Basso was required to maintain these coverages and due to its renewal procedures which provided Basso with additional coverage or workers' compensation from March 2, 2006 to May 1, 2006 and with respect to the additional policies from March 2, 2006 to April 6, 2006.

Although Basso testified that he had advised his agent that he did not want the NGM coverage there's no corroborating evidence to support that claim and Basso received the benefit of the coverage.   Basso never returned the policies or advised NGM in writing that it did not wish to renew them.   The debt collection correspondence from Marilyn Robbins to Basso covering the period from August 18, 2006 through March 2, 2007 supports NGM's claim that throughout this entire period of time it was unaware of the fact that Basso did not wish to renew as it had done so in the past or that he had obtained alternative coverage.

The June 9, 2006 collection letter sent to Basso, system generated collection letter, included the required procedure for non-renewal, i.e. “please send us a copy of a replacement policy showing the effective date of that coverage.”   Still Basso did not reply or send the requested notice to NGM of replacement coverage until October 2, 2008, more than a year after NGM began the debt collection action.

“A person acts with malice toward another person when he or she primarily acts out of hatred or ill will toward that person or with the intent to vex, harass or annoy him.  Zenik v. O'Brien, 137 Conn. 592, 596–97 (1951).  “A person acts with malice when he/she acts primarily for an improper purpose—that is for a purpose other than of securing a proper judication of the claim on which the action is based.”

The court concluded that based on the evidence submitted by NGM that it acted with the sole purpose of collecting a debt which it felt was owed on account of the past due premiums for the earlier workers' compensation policy as well as the prorated renewal premiums and for no other alternative or purpose in CV 07 5010430.   The facts do not support a conclusion that NGM acted with malice.

Denial of NGM's Motion for Summary Judgment is not a finding on the merits but rather a conclusion by the court as Basso also claimed in its opposition that there remained an issue of fact to be determined with respect to the debt and the amount.  Ancona v. Manafort Brothers, Inc., 56 Conn.App. 701–10 (2000).

Second Count—Bad Faith

The plaintiff alleges that the defendant acted in bad faith by initiating and prosecuting the underlying collection action.   As indicated above, the defendant had probable cause to file CV 07 5010430 NGM Insurance Company v. Steve Basso Plumbing, Heating & Air Conditioning, LLC to recover past due insurance premiums.   There was no evidence that the above lawsuit was commenced and prosecuted with a malicious intent unjustly to vex Basso.

With respect to the second count, bad faith, the court therefore finds that the plaintiff has failed to sustain its burden of proof.

Count Three—CUTPA

In Count three, plaintiff alleges that the previously described actions of the defendant and its agents offended public policy or other concepts of fairness, were immoral, oppressing, unethical, unscrupulous and caused substantial injury to it in violation of C.G.S. § 42–110a et seq.

The Connecticut Unfair Trade Practices Act (CUTPA) provides in pertinent part in § 42–110b(a) as follows:

No person shall engage in unfair methods of competition, in unfair and deceptive acts or practices in the conduct of any trade or commerce.

Connecticut Courts, when determining whether a practice violates CUTPA will consider:

1.  Whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by Statutes, the common law, or otherwise—whether, in other words, it is within at least the penumbra of some common-law statutory or other established concept;

2.  Whether it is immoral, unethical, oppressive or unscrupulous;  and

3.  Whether it causes substantial injuries to consumers (or competitors or other businessmen) ․

Thus, “a violation of CUTPA may be established by showing either an actual deceptive practice ․ or practice amounting to a violation of public policy.”  Landmark Investment Group, LLC v. Calco Construction and Development Co., 141 Conn.App. 140–54 (2013).   Although C.G.S. § 42–110 is entitled to be remedial in nature and thus, liberally construed, courts must still follow established criteria to determine whether alleged conduct constitutes an unfair trade practice.   Under Connecticut law unless the filing of the lawsuit is deemed a “sham lawsuit” NGM's recourse to the Courts to attempt to collect what it viewed a legitimate debt does not constitute a violation of CUTPA.   In Stewart Title Guaranty Company v. Edwin Baum, 5 Conn. L. Rptr. 363 (1991), Judge Satter noted that the First Amendment of the U.S. Constitution and Section 10 of Article First of the State Constitution acknowledge NGM's right to access to the courts to address civil wrongs.

In Suburban Restoration Co, Inc. v. ACMAT Corp., 700 F.2d. 98 (2d.   Cir.1983), the Court recognized that penalizing resort to the Courts would seriously jeopardize First Amendment rights which Connecticut Courts would construe CUTPA to avoid.   Thus it concluded ‘the filing of a single nonsham lawsuit ․ cannot form the basis of a claim under CUTPA.’  700 F.2d at 102.

The Connecticut Superior Court has followed this opinion and has adopted the sham test to determine whether or not bringing a lawsuit constitutes a CUTPA violation.  Abram v. Knowles, 3 Conn. L. Rptr. 9 (1990), involved plaintiff suing for monies due on a construction contract and defendant counterclaiming that the bringing of the suit violated CUTPA.   The Court noted that bringing a sham lawsuit could subject the plaintiff to a CUTPA claim ․ a sham lawsuit is one instituted by plaintiff in bad faith, on grounds so flimsy that no reasonable, prudent person could hold the bonafide belief in the existence of facts necessary to prove the case.  Connecticut National Bank v. Mase, 3 Conn. L. Rptr. 285, 362 (1991).

Applying that test to the facts here would not warrant a conclusion that NGM's underlying debt collection action was a “sham lawsuit.”

In Kane v. American Insurance Company, 52 Conn.App. 497 (1999), the Supreme Court held §§ 38a–340 and 38a–341(2) do not require an insurance company to issue a cancellation notice in accordance with § 38a–343 before terminating coverage.   Unlike the defendant Kane, supra, NGM claims that absent any indication that Basso renew the subject policies, it was entitled to payment for premiums it claims to have earned for the period from 3/2/2006 until Basso obtained replacement coverage several months later.   That issue, however, is not directly presented for decision in this case.   What is presented, is whether NGM acted vexatiously under common law or statute, or in bad faith or otherwise in violation of Connecticut Unfair Trade Practices Act when it attempted to recover insurance premiums it claimed were due under the subject policies.

There is no dispute that the audit showed NGM to be entitled to a surcharge for the workers' compensation policy in question.   Distinguishing Kane, supra, NGM claims that its policy required Basso to provide a copy of substitute insurance coverage prior to the policy expiration.

Having failed to respond to NGM's request, Basso cannot reasonably claim that NGM acted vexatiously, or that the actions by NGM to collect a debt to which it believed it was entitled, was wrongful.

Based upon the facts presented in this case, the court finds that NGM had a reasonable basis to maintain the 2007 collection action that said lawsuit was instituted based on a good faith belief in the insurer's right to recover premiums due, that the subject lawsuit was not a sham, that the defendant did not violate the laws of this state governing its conduct or Connecticut Unfair Trade Practices Act.

Judgment shall enter for the defendant on all counts of the amended complaint.

SOMMER, J.

Sommer, Mary E., J.