Insurance Bad Faith Litigation, a Primer

JurisdictionConnecticut,United States
Publication year2021
CitationVol. 67 Pg. 380
Connecticut Bar Journal
Volume 67.

67 CBJ 380. Insurance Bad Faith Litigation, A Primer


Insurance Bad Faith Litigation, A Primer


The duty of good faith and fair dealing has helped to form the boundary for acceptable insurance acts and practices in Connecticut for over sixty years. (fn1) For the past thirty years, insurance consumers have increasingly recognized the possibility of successfully suing insurers and bad faith insurance litigation in Connecticut and elsewhere, particularly California, has become common. This article provides an overview of bad faith insurance litigation to the bench, bar and insurers who may be unfamiliar with the available causes of action or who are looking for a quick reference. Since California first developed the theory of breach of implied


covenant of good faith and fair dealing (fn2) and has been the cutting edge of insurance bad faith law in other ways, (fn3) California law is used to supplement Connecticut law where Connecticut law is less developed. Part I describes the causes of action and their elements; part II discusses who can sue or be sued; part III contains the statutes of limitations and other possible limits on the time for bringing suit; part IV lays out the defenses to a bad faith claim; and part V describes the damages available under each theory.


Connecticut plaintiffs can choose a number of causes of action against insurers including negligence, (fn4) fraud, (fn5) and even intentional infliction of emotional distress, (fn6) but there are four predominant theories: breach of contract, breach of an implied covenant of good faith and fair dealing, violation of the Connecticut Unfair Trade Practices Act, (fn7) and violation of the Connecticut Unfair Insurance Practices Act. (fn8) These four causes of action often overlap and a plaintiff may use one or all depending upon the underlying facts. (fn9) In fact, plaintiffs must carefully draft their complaints because a bad faith cause of action not joined in the original suit may be barred from a later suit by res judicata. (fn10)

A. Breach o f Contract

Breach of contract has been a valid cause of action since Roman times and before. (fn11) In the insurance context, a plaintiff may claim that an insurer breached its contract if the language of the policy obligates the company and it fails to perform. (fn12) The plaintiff must first allege that the insurer had a contractual duty. Usually, this is shown by alleging that a policy was in effect and by highlighting the applicable provisions. The contractual duty should be identified fairly specifically. (fn13) Second, the complaint must allege that the insurer breached its duty by failing to perform what was required of it by the policy. (fn14) It is not necessary to allege that damages were proximately caused by the insurer's breach, as nominal damages are available for virtually every breach of an insurance contract. (fn15)

Typically, breach of contract claims arise out of an insurer's failure to defend (fn16) or indemnify (fn17) the insured. Additional claims have arisen from a failure to determine, prior to the sale of a health insurance policy, whether the insured's dependent could be covered according to the broker's prior agreement, (fn18) a refusal


to arbitrate, (fn19) a failure to follow state insurance regulations, (fn20) and a failure to increase benefits in accordance with the policy rider. (fn21)

B. Breach o f an Implied Covenant o f Good Faith and Fair Dealing

This cause of action can be characterized as both tortious and contractual. (fn22) The trend is for courts to treat a breach of good faith and fair dealing claim as sounding in tort. (fn23) Connecticut has followed suit in Grand Sheet Metal Products v. Protection Mutual Ins. Co., (fn24) finding that public policy is best served by having a separate tort action. (fn25)

An insurance company breaches an implied covenant of good faith and fair dealing when it fails to reasonably carry out the obligations of the contract. (fn26) One commentator has described it as an implied duty to in good faith do or refrain from doing whatever may be required to fulfill the express duties written into the contract. (fn27) In Connecticut, a covenant of good faith and fair dealing is implied into every insurance contract. (fn28) A breach of covenant claim contains three essential elements. First, the insurer must have a duty to the insured imposed by the insurance


policy. (fn29) It is not necessary that the duty be expressly stated in the policy provisions. (fn30) Second, the plaintiff must allege that the insurer breached its duty by acting unreasonably. (fn31) Finally, since a breach of implied covenant of good faith and fair dealing is viewed as a tort in Connecticut and California, the plaintiff must have suffered damages proximately caused by the breach. (fn32) Some examples of an insurer's bad faith acts include: false accusations of an insured's bad faith (fn33) or criminal conduct; (fn34) improper investigation; (fn35) improper refusals of settlements when the insured is exposed to excess liability; (fn36) late or no restitution for valid claims; (fn37) late notice of a denial of a claim; (fn38) or arbitrary denial of a claim. (fn39)

C. Connecticut's Statutory Bad Faith Claims

Connecticut has both an Unfair Trade Practices Act (CUTPA) and an Unfair Insurance Practices Act (CUIPA). While CUIPA is more specifically oriented towards the insurance industry, Connecticut courts have found that both acts apply to bad faith insurance claims. (fn40) Although very similar in effect, (fn41) CUTPA and CUIPA arose out of different sources and function


somewhat differently.


CUTPA was modeled after the Federal Trade Commission Act to help prevent general bad faith practices against consumers. (fn42) The Act contains a general prohibition against bad faith trade practices, and then lists a few exceptions. (fn43) Under CUTPA, the plaintiff does not have to claim that the insurer's practices violate the law. (fn44) A plaintiff only has to allege that the insurer engaged in unfair or deceptive acts and practices and that the plaintiff lost money or property because of those unfair acts. (fn45) Therefore, CUTPA may provide relief when the common law does not. (fn46)

As a guide to deciding what types of acts are unfair, Connecticut courts have adopted the standards found in the Federal Trade Commission Act, Section 5(a)(1). Under this standard, acts are unfair if they: (1) come close enough to legally prohibited acts to violate established public policy; (2) are immoral, unethical, oppressive, or unscrupulous; or (3) cause substantial injury to the consuming public. (fn47)

Some examples of insurance practices found to be violative of CUTPA include: a failure to timely indemnify while attempting to avoid full payment, (fn48) the use of two conflicting meanings of "actual cash value" when selling insurance and settling a claim, (fn49) a failure to adequately investigate, (fn50) a false accusation of bad faith on the part of the insured, (fn51) and an improper refusal to arbitrate. (fn52)



CUIPA was based on a model act developed by the National Association of Insurance Commissioners in 1947. (fn53) CUIPA begins with a list of prohibited trade practices, (fn54) and then adds a blanket prohibition for all unfair practices not listed. (fn55) Some of the prohibited insurance practices that are listed in CUIPA include: misrepresentations and false advertising generally and with regard to insurance policies in particular; defamation; boycott, coercion, and intimidation; false financial statements; unfair claims settlement practices; and violations of anti-discrimination statutes. (fn56) CUIPA can also cover unfair practices that are not illegal under the common law and, therefore, may be a successful alternative to suing in contract or tort.


A. Breach o f Contract/Implied Covenant o f Good Faith and Fair Dealing

1. Plaintiffs

In general, the same persons who can sue under a breach of contract claim can also sue for breach of implied covenant of good faith and fair dealing. It is fundamental that the insured can sue under both theories, but in California and possibly Connecticut, it has been held that unnamed additional insureds can also sue. (fn57) In addition, joint insureds may also bring a limited number of claims. For example, there have been a few instances where a joint insured has sued an insurer for a bad faith breach of another joint insured's policy. (fn58) Another type of possible plaintiff is the insured's successor in interest, including


bankruptcy trustees, assignees, insurers that have acquired an insured's right to sue through subrogation or assignment, and the estate of the insured. (fn59) Excess and additional insurers have been suing primary insurers for bad faith acts or practices which have exposed them to excess liability under five legal theories: (1) third-party beneficiary, (2) assignment, (3) indemnity, (4)subrogation, and (5) contribution. (fn60)

2. Defendants

Only the insurer or an assignee of the insurer may be sued for breach of contract or breach of implied covenant; defendants are limited to those parties that are obligated to perform under the contract. (fn61) In California, there is a single exception: a management organization acting as an insurer's attorney-in-fact can breach an implied covenant of good faith. (fn62) It is unclear whether or not insurer-retained counsel can be liable to the insured for malpractice or for conspiring to breach the implied covenant of good faith. (fn63) Agents and employees of the insurer, even if they have acted in...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT