• Appellate Court Challenges Liability Insurers' Right to Litigate Coverage Issues
  • September 11, 2003 | Author: John W. Lemega
  • Law Firm: Halloran & Sage LLP - Hartford Office
  • In DaCruz v. State Farm Fire & Casualty Co., 69 Conn. App. 507 (2002), the Connecticut Appellate Court essentially eviscerated the right of a liability insurer to obtain an adjudication of coverage under a liability policy outside of the underlying tort action against its putative insured. Although the Supreme Court has now granted certification and will hear that appeal again, the Appellate Court's decision has had a potentially draconian impact on how liability insurers in Connecticut should handle coverage disputes.

    We start, as we must, with what appears to have been a fairly simple set of underlying facts. State Farm's insured, Bullock, assaulted DaCruz and, as a consequence of that assault, DaCruz brought suit against Bullock alleging both intentional and negligent torts. State Farm retained counsel to provide Bullock with a defense and commenced a declaratory judgment action seeking a judicial declaration that it had no obligation either to defend or to indemnify Bullock. State Farm moved for summary judgment in the declaratory judgment action. It is at this point that this litigation began to take some odd turns.

    In the declaratory judgment action, captioned State Farm Fire & Surety Co. v. Bullock, 1997 Conn. Super LEXIS 1506 (1997), Judge Blue considered State Farm's Motion for Summary Judgment on both the duty to defend and the duty to indemnify. Although it is axiomatic that the duty to defend is both broader than and different from the duty to indemnify and that, as a consequence, the duty to indemnify is viewed as being subsumed within the duty to defend, Judge Blue concluded that State Farm had no duty to defend Bullock, but denied State Farm's Motion for Summary Judgment on the duty to indemnify. While Judge Blue's decision in 1997 may have been subject to debate, in a subsequent decision, QSP, Inc. v. Aetna Casualty & Surety Co., 256 Conn. 343 (2001), the Connecticut Supreme Court explicitly held that "where there is no duty to defend, there is no duty to indemnify, given the fact that the duty to defend is broader than the duty to indemnify." Id. at 382.

    In any event, State Farm did not take an appeal from Judge Blue's decision in the declaratory judgment action and, instead, instructed its designated defense counsel to withdraw its appearance on behalf of Bullock in the underlying tort action.

    Bullock was thereafter defaulted in the underlying tort action and the case went to judgment. Subsequent to the entry of the judgment, DaCruz, as the judgment creditor of Bullock, brought suit against State Farm pursuant to Section 38a-321 of the Connecticut General Statutes, Connecticut's so-called "direct action statute." Both DaCruz and State Farm moved for summary judgment in that case and the trial court granted State Farm's Motion for Summary Judgment while denying that of the plaintiff, DaCruz.

    On the appeal by DaCruz to the Appellate Court, that court examined the court file in the underlying tort action which had been reduced to a judgment in favor of DaCruz and against Bullock, noted that the trial judge in that case had based his decision on a finding that the injuries sustained by DaCruz were "based on negligence in part," and concluded that such a finding bound State Farm. The court held that because "the judgment rendered in the DaCruz action was based on negligence in part, Bullock would have had a viable contractual claim against State Farm. Therefore, the plaintiff may recover against State Farm pursuant to Section 38a-321 as a matter of law." 69 Conn. App. at 516.

    The problem with the Appellate Court's decision is that it essentially turns the rule as to how liability carriers in Connecticut may obtain an adjudication of coverage disputes on its head. If the Appellate Court is correct in its "analysis," then, in every coverage dispute, a liability carrier would be bound by whatever factual determinations may be made in an underlying tort action, without reference to the contractual conditions and exclusions which serve as the predicate for the liability carrier's claim of no coverage. In DaCruz, the situation was even more absurd because the Appellate Court apparently simply chose to ignore the Supreme Court's decision in QSP and agreed with Judge Blue that the duty to indemnify can exist even if there is no duty to defend.

    However, the Appellate Court's decision also flew in the face of at least three other Connecticut Supreme Court decisions in which that court has explicitly held that a liability insurer is entitled a separate determination as to coverage, unrelated to whatever findings may be made by the trier of fact in the tort action. Manthey v. American Automobile Ins. Co., 127 Conn. 516, 520 (1941); Rochon v. Preferred Accident Ins. Co., 118 Conn. 190, 195 (1934); Guerin v. Indemnity Ins. Co., 107 Conn. 649, 653 (1928). These cases stand squarely for the proposition that a liability insurer is entitled to the independent sort of adjudication of coverage disputes inherent in the commencement of a declaratory judgment action.

    The potential significance and draconian negative impact of DaCruz cannot be overstated. If the Supreme Court affirms the decision of the Appellate Court, then the ability of a liability insurer to obtain a coverage adjudication in the state court will essentially disappear. If a liability insurer's obligations under a contract with its insured are to be measured by the tort relationship between a plaintiff and a defendant, then the state court's door will be shut to the liability insurer obtaining such an adjudication. That is clearly a consequence which the Appellate Court did not consider. And, it is a consequence which could close the door to state court coverage actions.