The Supreme Court of Connecticut recently issued a decision in a case that addresses potential bad faith liability for an insurer based on practices adopted in litigation with its insured. Dorfman v. Smith, 342 Conn. 582 (2022), decided on March 29, 2022, addressed an insured’s claims against its insurer for breach of the implied covenant of good faith and fair dealing, negligent infliction of emotional distress, and violation of the Connecticut Unfair Trade Practices Act, based on the insurer’s statements and actions during the litigation process, and focused on whether Connecticut’s common law litigation privilege barred those claims.
The Dorfman suit arose following an automobile accident. The plaintiff insured was injured when her vehicle collided with the vehicle of another driver who ran through a stop sign. The other driver was underinsured, so the plaintiff made a claim for underinsured motorist benefits under her policy with the defendant. The defendant conditioned payment of the claim on the plaintiff providing an affidavit of no excess insurance. Rather than provide the affidavit, the plaintiff sued for breach of contract for failing to pay the claim.
During the course of the litigation, the defendant deliberately withheld its file notes, which included the identity of a third-party witness and his recorded statement confirming that the other driver was at fault, along with the conclusions of the defendant’s own claim specialists that the other driver was 100% liable for the accident with its insured. The defendant also asserted a special defense of contributory negligence against its insured, even though its own file proved the defense to be baseless. These facts came to light during the defendant’s deposition, when its designated witness admitted to all of it. Based on the deposition testimony, the plaintiff moved to amend her complaint to add the bad faith and negligent infliction claims.
After a lengthy review of the historical common law litigation privilege, the court’s majority decided that the absolute protection for actions taken and statements made during the course of litigation afforded by the privilege did apply to the plaintiff’s claims to the extent they were based on the defendant’s withholding of relevant file and witness information, and the assertion of a defense that it knew was unfounded, because it all occurred during, and as part of, litigation that was not otherwise vexatious or improper. The court upheld the plaintiff’s claims that were based on the defendant’s initial action of requiring the plaintiff to provide an affidavit of no excess insurance as a condition of underinsured motorist coverage under her policy, as that action fell outside of the litigation (and in fact instigated it).
It should be noted that, although the defendant insurer successfully employed the common law litigation privilege to protect its litigation tactics, the Dorfman decision raises a prominent red flag for any insurers contemplating a similar path. The decision contains a lengthy dissent questioning the majority’s decision that the common law litigation privilege bars the plaintiff’s claim. The dissent is based on two arguments, namely, that the defendant insurer’s duty to its insured includes the duty to not act abusively in litigation, and that coverage litigation is an “integral and intrinsic part of its commercial activity” which sets an insurer apart from the class of parties the litigation privilege is intended to protect. In light of the unique status conferred on insurers by statutes in every states, and the heightened duty to which they are held by those statutes, there is no certainty that another state’s court addressing these issues would not hold the insurer liable for the actions committed by the Dorfman defendant in the course of litigation with its insured.
Authored by Clint McCord, Esq.