When does an insured sufficiently allege that an insurer had engaged in a general business practice of unfair insurance practices? A Connecticut trial court recently explored that question.
Michael Rood claimed that his uninsured motorist insurance carrier had unfairly delayed paying him his full policy proceeds following an accident. More specifically, he claimed that his carrier (Covenant Life Insurance Co. or its parent, Arbella Insurance) had engaged in a policy of unfair insurance practices that violated the Connecticut Unfair Insurance Practices Act (CUIPA).
In his view, this meant that he could sue for punitive damages and attorney fees under the Connecticut Unfair Trade Practices Act (CUTPA).
In response to Rood’s lawsuit, the insurer moved to strike his CUTPA claim, saying that Rood had not alleged that it had engaged in a general business practice of unfair insurance practices.
Rood agreed that he had to plead a general business practice for his claim to withstand the insurer’s motion, but he argued that he had done so by listing in his complaint cases and claims where other persons had complained about decisions made by the insurer.
The Court’s Decision
The court granted the insurer’s motion.
In its decision, the court explained that some of the claims cited by Rood were “nothing more than unresolved or unsuccessful complaints.” In the court’s view, they could “hardly be said to plead a general business practice as a matter of fact” because they were not “facts” but, rather, were “merely allegations.”
Some complaints, the court acknowledged, had been resolved against Arbella or Covenant. One clearly involved the allegations made by Rood: unreasonable delay in resolving an insured’s uninsured motorist claim. There also were a few other delay decisions: In two, the Connecticut Insurance Department held that the insurer had taken too long to decide a homeowner’s claim, while in a couple of others, third-party claimants established wrongful coverage refusals.
The court then asked:
But is it right to say that every wrongful claim denial or relatively small group of them is enough to allege general unfair insurance practices?
In the court’s view, it was “hard to believe” that there were any significant insurers that had been “free from misjudgment or even multiple misjudgments.” In the “Information Age,” the court added, it was “easier than ever to scrutinize thousands of decisions to find those an insurer got wrong.” The court then stated that this did “not automatically mean that in every suit subsequent to a few mistakes an insurer should find itself facing a CUTPA claim.”
The court said that CUTPA only applied when misjudgments amounted to misdeeds—“conscious decisions (at least inferred) to choose wrong over right.”
Put differently, the court said that “there must be alleged wrongdoing not neglect” and “there must be an alleged general practice of it.”
The court noted there was little appellate guidance explaining what was enough to allege a general practice of wrongdoing under CUIPA that might result in liability under CUTPA. In the court’s view, to distinguish between something that happened and something that happened because of a general business practice, “there should at least be something alleged that allow[ed] the inference of an actual business judgment.”
The court conceded that, without access to discovery, it was hard to allege a general practice. It then stated that the remedy for this could not be to “indulge the hopes for greater damages—or at least of greater leverage—shared by virtually everyone who sues an insurer by allowing a CUTPA claim with every complaint.”
Rather, the court said, “[s]ome good faith allegation must be made” with “some specific facts to support it,” even if those facts were alleged based on information and belief.
In the court’s opinion, there were “many ways” this could be done—listing many very similar cases, using something the insurer wrote, discerning some specific practice described as the basis for handling the current claim—but “it can’t be like blindly swinging at a piñata” or insurers would face CUTPA claims virtually every time they wrongly denied any claim.
Likewise, the court said, “just being wrong multiple times” was “unlikely to amount to an adequate allegation” unless there was “some substantial common thread of behavior” running through wrongful denials. In particular, the court said, it “might be enough to cite unreasonable delays in a smaller number of cases” if they were “substantially identical in rationale,” such as a claim review process “being restarted five times because of a trivial paperwork mistake.”
The court found that Rood’s complaint did not allege enough facts to allege a pattern or practice. Instead, it relied on “pointing to a few other claims” where delays had been found wrongful; there was nothing about these allegations that created a “substantial common thread of behavior running from the cases cited to [Rood’s] case.” Pointing to a handful of cases generically claiming unfair delays was “little better than pointing to cases about wrongful denial and claiming that as a common thread.”
CUIPA violations were serious, the court said. The court concluded that nothing alleged by Rood merited the label “general business practice.”
The case is Rood v. Covenant Life Ins., No. X07HHDCV156059856S (Connecticut Superior Court, July 10, 2018).
Steven A. Meyerowitz is director of FC&S Legal, editor-in-chief of the Insurance Coverage Law Report and founder-president of Meyerowitz Communications. A graduate of Harvard Law School, he worked as a Wall Street attorney before founding the company.