American Progressive Life and Health Ins. Co. v. Better Benefits, LLC, No. 17940.

• Decision Date: 09 June 2009
• Docket Number: No. 17940.
• Citation: 292 Conn. 111,971 A.2d 17
• Court: Connecticut Supreme Court
• Parties: AMERICAN PROGRESSIVE LIFE AND HEALTH INSURANCE COMPANY OF NEW YORK et al. v. BETTER BENEFITS, LLC, et al.

971 A.2d 17

292 Conn. 111

AMERICAN PROGRESSIVE LIFE AND HEALTH INSURANCE COMPANY OF NEW YORK et al. v. BETTER BENEFITS, LLC, et al.

No. 17940.

Supreme Court of Connecticut.

Argued March 18, 2009.

Decided June 9, 2009.

Steven D. Ecker, Hartford, with whom, on the brief, were George C. Jepsen and Alinor C. Sterling, for the appellants (defendants).

E.J. Robbin Greenspan, with whom were Denise Purpura and, on the brief, Marci J. Silverman, Hartford, for the appellees (plaintiffs).

KATZ, PALMER, VERTEFEUILLE, ZARELLA and McLACHLAN, Js.

KATZ, J.

This appeal arises out of an action originally brought by the named plaintiff, American Progressive Life and Health Insurance Company of New York,¹ against the defendants, Better Benefits, LLC (Better Benefits), an independent insurance company, and three of Better Benefits' independent insurance agent/ owners, Michael Klein, Marc Sullivan and William Barry.

After the defendants filed a five count counterclaim,² the plaintiff moved for summary judgment on all but one of those counts, which the trial court granted and rendered judgment for the plaintiff, from which the defendants now appeal.³ Although the defendants contest the propriety of the granting of the motion for summary judgment on several grounds, the dispositive issue is whether the trial court properly granted the motion when it challenged the legal sufficiency of the counterclaim, and the defendants were not given the opportunity to replead. We conclude that, under the circumstances of the present case and in accordance with our decision in Larobina v. McDonald, 274 Conn. 394, 876 A.2d 522 (2005), the trial court should have allowed the defendants to replead. We, therefore, reverse the trial court's judgment.

The record reveals the following undisputed facts and procedural history. In January, 2001, the plaintiff entered into a general agent agreement with Klein that authorized Klein to submit applications for insurance and annuities to the plaintiff in exchange for commissions on policies written on those applications. Subsequently, the plaintiff entered into producer agreements with Sullivan and Barry, under which they were authorized to procure applications under Klein's direction. After the parties' terminated their relationship, under circumstances on which the parties do not agree, the plaintiff commenced an action against the defendants in December, 2002, alleging, inter alia, that they had breached the general agent agreement and/or producer agreements by engaging in a false and misleading campaign directed at the plaintiff's insureds in an effort to get them to switch their coverage to a different insurance company.

In November, 2003, the defendants filed their counterclaim against the plaintiff asserting: (1) breach of contract; (2) tortious violation of the implied covenant of good faith and fair dealing; and (3) violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq. See footnote 2 of this opinion. The defendants claimed, inter alia, that, after they had terminated their relationship with the plaintiff in accordance with their agreements, the plaintiff failed to pay commissions owed and "sent a letter to [the defendants] purporting to terminate the agreement by alleging multiple false allegations of misconduct on the part of [the defendants]...." In March, 2004, the plaintiff filed an answer to the counterclaim, without having previously filed a motion of strike.

After discovery had concluded, in October, 2006, the plaintiff filed a motion for summary judgment on all counts of the counterclaim except the breach of contract count. The plaintiff contended that the allegations in support of these other counts were legally deficient because they related solely to the alleged breach of contract and: (1) the economic loss rule bars recovery in tort when a complaint alleges merely a breach of contract; and (2) a CUTPA claim cannot be based on a simple breach of contract. In response, the defendants contended that the economic loss rule is inapplicable because it is limited to contracts covered by the Uniform Commercial Code (UCC), General Statutes § 42a-1-101 et seq., which governs contracts for the sale of goods. The defendants further contended that their counterclaim, while not particularly artfully drafted, alleged misconduct outside the scope of the contract that was legally sufficient for purposes of recovery under tort law and CUTPA. Although both parties submitted memoranda of law in support of their relative positions, neither party filed affidavits or other documentary evidence. At oral argument on the motion for summary judgment, the parties informed the trial court that they had settled the action in the plaintiff's original complaint against the defendants.

The trial court thereafter issued a decision rendering summary judgment in favor of the plaintiff on the tort and CUTPA counts of the counterclaim. In setting forth the basis of its decision, the court first concluded that the counterclaim had alleged no conduct that fell outside the context of the contract between the parties. The court therefore turned to the applicability of the economic loss rule, which it characterized as "preclud[ing] recovery under tort law for conduct wholly regulated by contract law." The court noted a split of trial court authority as to whether this court's recognition of the economic loss rule in Flagg Energy Development Corp. v. General Motors Corp., 244 Conn. 126, 709 A.2d 1075 (1998),⁴ a UCC case, should be expanded to business relationships that are not regulated by the UCC. The trial court ultimately found persuasive the logic of those cases that had expanded application of the economic loss rule to cases not covered by the UCC in which both parties were "sophisticated," such that they would have been free to negotiate the allocation of risks under the terms of the contract. The trial court found that the parties in the present case were sophisticated because the plaintiff holds a national market position and the defendants' pleadings had "disclosed that [Better Benefits] was a top producer sophisticated in the global world of insurance products...." It therefore concluded that the economic loss rule barred the count of the counterclaim alleging tortious violation of the implied covenant of good faith and fair dealing. The court further concluded that the CUTPA claim must fail because the defendants alleged nothing more than a simple breach of contract, specifically, the plaintiff's failure to pay commissions owed and the existence of a letter from the plaintiff stating that the commissions were forfeited due to alleged misconduct by the defendants. Neither the trial court nor the parties addressed this court's decision in Larobina v. McDonald, supra, 274 Conn. at 394, 876 A.2d 522, which set forth certain parameters for the use of summary judgment in lieu of a motion to strike for challenging the legal sufficiency of a pleading.

In light of the split of trial court authority on the extension of the economic loss rule and the potential waste of judicial resources that would result if there were two trials addressing the same set of facts upon a successful subsequent appeal, the defendants filed a motion for an immediate appeal, pursuant to Practice Book § 61-4, which the trial court granted. See footnote 3 of this opinion. We thereafter transferred the appeal from the Appellate Court to this court pursuant to General Statutes § 51-199(c) and Practice Book § 65-1.

On appeal, the defendants contend that the trial court improperly: (1) failed to construe their allegations of tortious conduct broadly and, to the extent that the allegations were inadequate, failed to provide them the opportunity to replead as required under Larobina v. McDonald, supra, 274 Conn. at 401-403, 876 A.2d 522; (2) concluded that the economic loss rule bars recovery under the circumstances of the present case; (3) found, as a matter of law, that the defendants are sophisticated parties; and (4) concluded that the CUTPA count alleged mere breach of contract. With respect to their right to replead, the defendants contend that, under Larobina, the plaintiff had the burden of proving that repleading would not cure the deficiencies in their counterclaim, a burden that the plaintiff did not meet.

In response, in addition to defending the propriety of the trial court's legal conclusions, the plaintiff contends that the defendants are not entitled to replead. Specifically, the plaintiff contends that the defendants waived their right to replead because, under Larobina, they were required to object to the use of the summary judgment procedure to avoid waiving that right. It further contends that, even if the defendants had been entitled to replead, their amended claims would have been barred by the applicable statute of limitations.

Even if we were to assume, without deciding, that the allegations were legally insufficient because they failed to allege conduct that fell outside the context of the contract, we conclude that the defendants were entitled to replead.⁵ We further conclude that, because the plaintiff conceded at oral argument before this court that the economic loss rule would not bar a claim for tortious conduct that clearly fell outside the scope of the contract, it would be premature for us to address the issue of whether this court's recognition of the economic loss rule in Flagg Energy Development Corp. v. General Motors Corp., supra, 244 Conn. at 126, 709 A.2d 1075, should be expanded to business relationships that are not regulated by the UCC.

We begin with certain basic principles that distinguish the procedural devices of a motion for summary judgment and a motion to strike. "Practice Book [§ 17-49] provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any...