Stefan R. Underhill, United States District Judge.
This case arises out of an insurance coverage dispute between Preferred Display, Inc. ("PDI"), and Great American Insurance Company of New York ("Great American"). The loss at issue resulted from a fire at PDI's premises, and Great American acknowledges that there is coverage for that loss. The parties' disagreement revolves around the amount payable for the loss pursuant to the terms of the Great American policy.
The principal issue raised by this case is whether the "Other Insurance" and "Coinsurance" clauses of the Great American policy operate in combination to cumulatively reduce the amount payable to PDI. At my suggestion, the parties filed cross-motions for summary judgment addressing that issue. Great American also seeks dismissal of various claims in PDI's complaint for failure to state a claim.
For the reasons set forth below, I grant summary judgment in favor of PDI on the declaratory judgment and breach of contract claims (Counts One and Two) and deny in substantial part Great American's cross-motion for summary judgment, a portion of which I treat as a motion to dismiss certain of the causes of action in PDI's complaint.
Summary judgment is appropriate when the record demonstrates that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
When ruling on a summary judgment motion, the court must construe the facts of record in the light most favorable to the nonmoving party and must resolve all ambiguities and draw all reasonable inferences against the moving party. Anderson, 477 U.S. at 255, 106 S.Ct. 2505; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); see also Aldrich v. Randolph Cent. Sch. Dist., 963 F.2d 520, 523 (2d Cir. 1992) (court is required to "resolve all ambiguities and draw all inferences in favor of the nonmoving party").
In the context of cross-motions for summary judgment, the same standard is applied. See Scholastic, Inc. v. Harris, 259 F.3d 73, 81 (2d Cir. 2001). However, in
A motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure is designed "merely to assess the legal feasibility of a complaint, not to assay the weight of evidence which might be offered in support thereof". Ryder Energy Distribution Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984) (quoting Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980)).
When deciding a motion to dismiss pursuant to Rule 12(b)(6), the court must accept the material facts alleged in the complaint as true, draw all reasonable inferences in favor of the plaintiff, and decide whether it is plausible that the plaintiff has a valid claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678-79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); Leeds v. Meltz, 85 F.3d 51, 53 (2d Cir. 1996).
Under Twombly, "[f]actual allegations must be enough to raise a right to relief above the speculative level", and assert a cause of action with enough heft to show entitlement to relief and "enough facts to state a claim to relief that is plausible on its face". 550 U.S. at 555, 570, 127 S.Ct. 1955; see also Iqbal, 556 U.S. at 679, 129 S.Ct. 1937 ("While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations."). The plausibility standard set forth in Twombly and Iqbal obligates the plaintiff to "provide the grounds of his entitlement to relief" through more than "labels and conclusions, and a formulaic recitation of the elements of a cause of action". Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (quotation marks omitted). Plausibility at the pleading stage is nonetheless distinct from probability, and "a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of [the claims] is improbable, and ... recovery is very remote and unlikely." Id. at 556, 127 S.Ct. 1955 (quotation marks omitted).
In or about 2015, Great American issued its Select Business Policy (the "Policy") to PDI. At the relevant point in time, the Policy provided up to $4,000,000 in coverage for damage to business personal property in PDI's possession at 32 Roaring Brook Plaza, East Glasonbury, Connecticut (the "Property"). PDI also purchased $2,000,000 of similar insurance from The Hartford Insurance Company.
On or about November 11, 2015, during the coverage period of both policies, a fire caused damage to and destruction of PDI's business personal property located at the Property. For the purposes of this motion, the parties agree that the value of the covered property at the time of the loss was $7,907,217, and the actual cash value ("ACV") of the loss to PDI's covered property was $6,392,119. Def.'s Local Rule 56(a)1 Stmt. at ¶¶ 14-15 (doc. # 56-16); Pl.'s Local Rule 56(a)2 Stmt. at ¶¶ 14-15 (doc. # 58-1). Great American has taken the position that, under the terms of the Policy, it owes PDI substantially less than the $4,000,000 coverage limit of the Policy.
Great American's coverage position relies on two policy provisions, namely the "Other Insurance" and "Coinsurance" clauses. The Other Insurance clause provides:
Policy, Select Business Policy Conditions, Form SB 86 01 (Ed. 07 02) XS at 1 (doc. # 56-5).
The Coinsurance clause provides:
Policy, Select Business Policy — Coinsurance, Form SB 87 23 (Ed. 07/02) XS at 1 (doc. # 56-5). The Declarations for Personal Property provided a coinsurance percentage of 80 percent. Policy, Select Business Policy; Schedule of Additional Property Locations, Form SB 81 18 (Ed. 10 10) at 1 (doc. # 56-5).
It is Great American's position that the Other Insurance and Coinsurance clauses operate together to reduce Great American's liability to $2,680,250.23. It is PDI's position that it is entitled to the $4,000,000 limit of liability.
PDI filed this case to resolve the coverage dispute. In addition to bringing a declaratory judgment claim and breach of contract claim with respect to the amount of insurance proceeds payable under the Policy, PDI brings a claim for breach of the covenant of good faith and fair dealing, and a claim for violation of the Connecticut Unfair Trade Practices Act ("CUTPA"), based on an alleged violation of the Connecticut Unfair Insurance Practices Act ("CUIPA").
Under Connecticut law, "the terms of an insurance policy are to be
"Other insurance" clauses commonly appear in insurance policies. The purpose of such clauses is to "preclude payment of a disproportionate amount of a loss shared with another insurer", 15 Steven Plitt, et al., COUCH ON INSURANCE § 219:1 (3d ed. 2017) ("COUCH"). Connecticut recognizes that other insurance clauses "are valid for the purpose of establishing the order of coverage between insurers, as long as their enforcement does not compromise coverage for the insured". Aetna Cas. & Sur. Co. v. CNA Ins. Co., 221 Conn. 779, 783, 606 A.2d 990 (1992). As the Connecticut Supreme Court has acknowledged in the context of underinsured motorist coverage, there are three basic types of other insurance clauses: excess, pro rata, and escape.
Id. at 784 n.3, 606 A.2d 990 (citations omitted). See also 15 COUCH § 219:5.
Pro rata other insurance clauses are triggered only when the total amount of covered loss is less than the total amount of all available insurances; in those circumstances, an other insurance clause prevents one insurer from paying more than its fair share of overlapping coverage. When the loss exceeds the total coverage, however, a pro rata other insurance clause has no effect. 15 COUCH § 219:31 ("[C]ases may arise where the loss exceeds the total of all insurances, in which instance the proration clause does not become effective and each insurer is required to pay the maximum amount of its policy."); see also Aetna, 221 Conn. at 783, 606 A.2d 990 ("[T]he original reason for `other insurance' clauses was to prevent overinsurance and double recovery...."). Excess other insurance clauses are triggered when a comparison of other insurance clauses in the multiple policies results in one policy paying only after another policy has been exhausted. O'Brien v. U.S. Fidelity and Guar. Co., 235 Conn. 837, 842, 669 A.2d 1221 (1996). An excess other insurance clause will thus have no effect "where the loss exceeds the combined limits of liability of both policies", 15 COUCH § 219:33. On the other hand, where the total available insurance is more than the amount of the covered loss, an excess
The Policy's Other Insurance provision contains both a pro rata clause and a contingent excess clause. In subpart 1, the Other Insurance clause provides that, if PDI has other insurance of the same type as that provided by the Policy, then Great American "will pay our share of the covered loss or damage. Our share is the proportion that the applicable Limit of Insurance under this Coverage Part bears to the Limits of Insurance of all insurance covering on the same basis." Policy, Select Business Policy Conditions, Form SB 86 01 (Ed. 07/02) XS at 1 (doc. # 56-5). In subpart 2, the Other Insurance clause provides that if the insured has insurance covering the loss on a different basis than the Policy, then the Policy becomes excess to that other insurance: "[W]e will pay only for the amount of covered loss or damage in excess of the amount due from that other insurance." Id.
I need not decide whether The Hartford's insurance coverage was provided on the same terms as Great American's, and thus whether the pro rata clause or the excess clause of the Policy applies. Because the amount of the loss ($6.39 million) exceeds the total insurance available from all insurers ($6 million), neither of the other insurance provisions in the Policy can operate to reduce Great American's liability to PDI below the Policy's coverage limit of $4 million. Put differently, because Great American's pro rata share of liability is calculated by the proportion its coverage limit bears to the total combined coverage limits of both policies, and because the total loss exceeds the total combined coverage limits, Great American's actual pro rata share must be higher than its coverage limit, and its liability will default down to its coverage limit. For the same reason, the amount Great American must pay PDI is not reduced even if The Hartford is required by the Policy's excess other insurance clause to pay its policy limits before Great American begins to pay: Because the loss is more than the combined policy limits of both policies, first fully subtracting The Hartford's policy limit from the amount of the loss will still leave more loss than Great American's policy limit. The order of payment in this case is therefore inconsequential and each insurer is liable for the full amount due under its policy. The example cited in COUCH to demonstrate the effect of the loss exceeding the available insurance resembles this case: "[W]here the amount of a fire loss exceeded the total amount recoverable under two fire policies, the insured could recover the full amount of the policy from each insurer", notwithstanding an other insurance clause in one of the policies. 15 COUCH § 219:31 (citation omitted).
Great American's argument that the Other Insurance clause can somehow, in tandem with the Coinsurance clause or otherwise, reduce the amount it owes PDI in this case is simply wrong. As COUCH notes, other insurance clauses "govern the relationship between insurers, they do not affect the right of the insured to recover under each concurrent policy." Id. at § 219:1 (citations omitted). Because this is not a case of potential double recovery by the insured, the Other Insurance clause has no impact on the amount owed by Great American under the Policy.
The term "coinsurance" means "a relative division of the risk between the
The Coinsurance clause in the Policy does operate to leave a large amount of total loss as PDI's responsibility, for which PDI must "rely on other insurance or absorb the loss [it]self". Policy, Select Business Policy — Coinsurance, Form SB 87 23 (Ed. 07/02) XS at 1 (doc. # 56-5). However, because the amount payable by Great American after application of the Coinsurance clause still exceeds the $4 million Limit of Insurance under the Policy, the Coinsurance clause has no practical impact in this case.
The Coinsurance clause potentially limits Great American's exposure in this case because the value of Covered Property at the time of the loss (approx. $7.9 million), multiplied by the 80% Coinsurance percentage shown on the Declarations, results in a sum (approx. $6.3 million) that is greater than the ($4 million) Limit of Insurance for the property. The Coinsurance clause provides, therefore, that Great American will pay the lesser of the result of a calculation set forth in the clause or the $4 million Limit of Insurance.
Specifically, the calculation called for by the Coinsurance clause has four steps:
The result of the Coinsurance clause calculation is thus $4,016,736.84. The Coinsurance clause further provides that "[t]he most we will pay is the amount determined in Step (4) or the Limit of Insurance, whichever is less." Because the $4,000,000 Limit of Insurance is less than $4,016,736.84, a straightforward application of the terms of the Coinsurance clause requires Great American to pay PDI the $4 million Limit of Insurance.
Great American argues that it owes PDI only $2,680,250.23 under the terms of the Policy. It reaches that facially erroneous result by inventing an additional step for the calculation described in the Coinsurance clause: reduction of the amount payable to PDI pursuant to the Coinsurance calculation by an additional one-third, based on the unrelated Other Insurance clause. In short, Great American seeks to rewrite the terms of the Coinsurance clause.
Great American seeks to justify its contractual sleight of hand with two versions of the Coinsurance calculation, both of which employ numbers inappropriately modified by Great American in place of the numbers actually called for by the terms of the clause. In the first version, Great American improperly reduces by one-third
Great American ineffectively justifies its distortion of the Coinsurance calculation by arguing that the Policy requires the application of the Other Insurance clause's two-thirds/one-third apportionment as part of the Coinsurance calculation, without pointing to any language in the Policy that calls for such application.
In addition to clashing with the plain meaning of the Coinsurance clause, Great American's approach is also in conflict with the terms and purpose of the Other Insurance clause. As a preliminary matter, other insurance clauses are not intended to be used for the purpose advocated by Great American — other insurance provisions prioritize payouts among insurers, they do not reduce the coverage provided to the insured. Aetna, 221 Conn. at 783, 606 A.2d 990. In fact, as Great American itself acknowledges, other insurance clauses are only valid under Connecticut law where their enforcement does not reduce the coverage available to the insured. See Def.'s Br. at 16 ("[O]ther insurance clauses do not violate public policy if there is no denial or diminution of coverage."); Aetna, 221 Conn. at 783, 606 A.2d 990 ("`[O]ther insurance' clauses are valid for the purpose of establishing the order of coverage between insurers, as long as their enforcement does not compromise coverage for the insured." (emphasis added)). That limited purpose is consistent with the recognized fact, discussed above, that other insurance clauses have no practical effect in cases like this one, where the total amount of loss exceeds the total amount of insurance, because there is nothing to apportion among multiple insurers — each must pay its full policy limits unless some other provision of the policy calls for a lesser payment.
The only decision cited by Great American in support of its contra-contractual mathematics is Sun Ins. Office, Ltd. v. Thomas, 262 Ky. 516, 90 S.W.2d 675 (1935). That case is inapposite here, however, because the policy language in Sun Insurance expressly provided for the cumulative reduction approved in that decision:
Id. at 678 (emphasis added). The Kentucky Supreme Court held that the insurance company was only liable for its pro rata proportion of the three-fourths value because that is exactly what the contract said.
Great American's interpretation of the Policy is entirely meritless. PDI is entitled to summary judgment on the declaratory judgment and breach of contract claims.
Great American seeks the dismissal of Counts Three (bad faith) and Four (CUTPA/CUIPA). Because I expressly stayed discovery on matters not pertaining to the construction of the Other Insurance and
PDI's bad faith claims, outlined in the Amended Complaint at paragraph 49, can be broken into two categories. The first category represents allegations relating to what PDI believes to be an unfair or unreasonable interpretation of the Policy. The second category of PDI's bad faith claims concern what it perceives to be Great American's improper methods of adjusting the claim. See Am. Compl. at ¶¶ 49(b)-(d), (g), and (h).
Connecticut law implies a duty of good faith and fair dealing as a covenant into every contractual relationship. De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn. 424, 432, 849 A.2d 382 (2004). Connecticut courts use the terms "bad faith", "lack of good faith", and "breach of the covenant of good faith and fair dealing" interchangeably, and accordingly apply the same standards for each type of claim. Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 308 Conn. 760, 794 n.34, 67 A.3d 961 (2013). In order to prevail on a bad faith claim, the plaintiff must show "actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive". De La Concha, 269 Conn. at 433, 849 A.2d 382. A plaintiff may not bring a bad faith claim when an insurer denies benefits based on a "fairly debatable" interpretation of the policy language. See McCulloch v. Hartford Life & Acc. Ins. Co., 363 F.Supp.2d 169, 177 (D. Conn. 2005). Rather, the plaintiff must show "a dishonest purpose". De La Concha, 269 Conn. at 433, 849 A.2d 382.
With respect to PDI's first category of bad faith claims, as is evident from my discussion above, Great American's interpretation of the Policy is neither reasonable nor fairly debatable. Still, it remains to be seen whether PDI can develop evidence sufficient to show that Great American acted with a dishonest purpose. That determination must await discovery and another round of summary judgment motions. At this point, however, it is clear that PDI has adequately alleged its first bad faith claim, so I will not dismiss it on the pleadings.
In the second category of PDI's bad faith claims, PDI alleges that Great American (1) applied an unduly and unreasonably high rate of depreciation for the damaged property; (2) failed to timely issue payment of withheld depreciation within a reasonable time after receiving documentation of replacement of those items; (3) failed to timely respond to PDI's correspondence; (4) requested unnecessary, irrelevant, and/or duplicative information in an effort to delay adjustment of the claim; and (5) took the unreasonable and unsupported position that the damaged business personal property could be repaired and/or restored despite clear and uncontroverted evidence to the contrary.
An essential element of a bad faith claim is that the insurer performed some action, in bad faith, to "injure the right of [the insured] to receive the benefits of the agreement". Capstone Bldg., 308 Conn. at 795, 67 A.3d 961 (quoting Home Ins. Co. v. Aetna Life and Cas. Co., 235 Conn. 185, 200, 663 A.2d 1001 (1995)) (internal quotation marks omitted); see also Royal Indem. Co. v. King, 532 F.Supp.2d 404, 414 (D. Conn. 2008), aff'd sub nom. Arrowood Indem. Co. v. King, 699 F.3d 735 (2d Cir. 2012) (plaintiff must show that "injurious actions were the product of the
In the instant case, the parties agree that Great American has already paid PDI approximately $2,975,000 of its $4,000,000 policy limit. Pl.'s Local Rule 56(a)1 Stmt. at ¶ 6. The remaining $1,025,000 is being withheld by Great American as a result of the dispute regarding the application of the Other Insurance and Coinsurance provisions. PDI does not allege any facts to support a theory that PDI has been denied any benefit under the policy separate and apart from their dispute over the application of those provisions. For example, one of PDI's allegations is that Great American failed to reimburse PDI for a security service that was retained shortly after the loss at Great American's insistence. Another is that Great American improperly disregarded PDI's expert's opinion regarding the ability to restore the damaged property. Those allegations are irrelevant to whether Great American has denied a benefit under the policy (namely, the approximately $1.025 million) in bad faith because Great American's denial of that benefit is based solely on its interpretation of the Coinsurance and Other Insurance provisions. Moreover, because the loss significantly exceeded the coverage here, it does not appear that the disputes regarding the claim handling could have any material impact on the amount due to PDI. Accordingly, the remaining allegations regarding Great American's claim settlement practices do not state an independent bad faith claim and that portion of the bad faith count is dismissed.
PDI's CUTPA/CUIPA claim rests on the allegation that Great American has violated CUIPA with sufficient frequency to constitute a general business practice. See Am. Compl. at ¶ 73. In support of its allegation, PDI references five cases other than its own in which Great American allegedly committed unfair insurance practices.
A plaintiff may allege a CUTPA violation on account of an alleged violation of CUIPA. Mead v. Burns, 199 Conn. 651, 663, 509 A.2d 11 (1986). Claim settlement practices violate CUIPA if they are "[c]ommitt[ed] or perform[ed] with such frequency as to indicate a general business practice". Conn. Gen. Stat. § 38a-816(6). To allege a violation of CUIPA, "[t]he plaintiff must show more than a single act of insurance misconduct; isolated instances of unfair settlement practices are not sufficient to establish a claim." Karas v. Liberty Ins. Corp., 33 F.Supp.3d 110, 117 (D. Conn. 2014).
To determine whether instances of insurance misconduct spanning different cases and different parties are sufficiently related to constitute a "general business practice", courts faced with a motion to dismiss have considered the following factors:
Belz v. Peerless Ins. Co., 46 F.Supp.3d 157, 166 (D. Conn. 2014).
As Great American's moving papers point out, the coverage disputes in the cases listed in the Amended Complaint do not resemble the allegations in this case. See Def.'s Br. at 25-27. In response, rather than attempting to engage with any of Great American's claims regarding the dissimilarities of the cases, PDI argues that additional discovery will produce evidence that Great American has engaged in the same or similar conduct in those cases as it did in the handling of PDI's claim. See Pl.'s Opp'n at 15-16. PDI may not rely on what additional discovery might uncover when faced with a motion to dismiss brought under Rule 12(b)(6). See Belz, 46 F.Supp.3d at 166.
PDI has shown that it is entitled to additional recovery based on a faulty interpretation of the Policy, and has alleged that Great American engaged in some delay tactics or improper adjusting methods during the course of the handling of the claim. The dissimilarity between this case and PDI's cited cases makes it implausible that the complained-of conduct in this case has been committed with sufficient frequency to constitute a general business practice.
For the foregoing reasons, and treating PDI's motion for partial summary judgment (doc. # 53) as a motion for summary judgment on Counts One and Two of the Amended Complaint, PDI's motion is granted; Great American's motion for summary judgment (doc. # 56) is granted in part and denied in part. Great American's motion is granted to the extent that it seeks dismissal of PDI's bad faith claim based on claim handling and PDI's CUTPA/CUIPA claims, and is denied in all other respects.
Although the parties only agreed to the facts regarding the estimated loss amount for the purposes of this motion, it appears that there are no facts that would warrant a judgment in favor of PDI on the breach of contract claim for any amount other than the balance of Great American's $4,000,000 limit of liability. Because Great American has already issued $2,975,238.61 in partial payments, see Pl.'s Local Rule 56(a)1 Stmt. at ¶ 6, it appears that judgment should enter in favor of PDI in the amount of $1,024,761.39 plus prejudgment interest on Count Two. If either party wishes to challenge that amount, it must file a notice of an intent to do so within fourteen (14) days of this ruling. Absent timely filing of such notice, the court will enter judgment in the amount of $1,024,761.39 plus prejudgment interest in favor of PDI as well as a declaration that it is entitled to that sum under the terms of the Policy.
The parties shall meet and confer regarding appropriate deadlines for completion of discovery and filing of dispositive motions addressing the remaining claims. Within fourteen days of this ruling, they shall file a proposed scheduling order.
So ordered.
