Carpentino v. Transport Ins. Co.

• Decision Date: 13 March 1985
• Docket Number: Civ. A. No. N-84-141 (RCZ).
• Parties: Frederick CARPENTINO, Plaintiff, v. TRANSPORT INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Connecticut

609 F. Supp. 556

Frederick CARPENTINO, Plaintiff, v. TRANSPORT INSURANCE COMPANY, Defendant.

Civ. A. No. N-84-141 (RCZ).

United States District Court, D. Connecticut.

March 13, 1985.

Joseph J. Kempf, Jr., Pearson, Baum & Weinstein, Hartford, Conn., for plaintiff.

Stephen I. Traub, Lynch, Traub, Keefe and Snow, New Haven, Conn., for defendant.

RULING ON MOTION TO DISMISS

ZAMPANO, Senior District Judge.

Pending before the Court is a motion to dismiss that raises interesting issues of federal diversity jurisdiction and Connecticut state law. For the reasons that follow, the motion to dismiss is denied.

I. FACTS

Accepting the factual allegations of the complaint as true, as the Court must, Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974), the following facts are relevant for the purposes of the motion to dismiss.

On January 16, 1981, plaintiff Frederick Carpentino, a Connecticut citizen, was injured while working for the Perkins Trucking Company ("Perkins"). He received worker's compensation benefits from Perkins' insurance carrier, defendant Transport Insurance Company ("Transport"), under a "voluntary agreement." Transport is an Iowa corporation with its principal place of business outside Connecticut.

After an unspecified period of time, Transport unilaterally stopped making payments as required by the voluntary agreement, in violation of the procedures set forth under the Connecticut Worker's Compensation Act, Conn.Gen.Stat. § 31-296. As discussed subsequently, the act requires state agency approval before "voluntary agreement" benefits may be discontinued.

Plaintiff states in his memorandum in opposition to this motion that he submitted a claim for past due benefits following the termination with the Compensation Commissioner. The Court has not been informed as to the status of those proceedings. This separate action was commenced in two counts on March 1, 1984, seeking unspecified "consequential damages" for 1) the bad faith breach of contractual obligations grounded on the defendant's unilateral discontinuance of benefits; and 2) a violation of the Connecticut Unfair Trade Practices Act, Conn.Gen.Stat. § 42-110b, based on the alleged "unfair" treatment of the plaintiff by the defendant.

Defendant moves to dismiss the complaint in its entirety for lack of jurisdiction, and to dismiss either one or both of the causes of action for failure to state a claim on which relief may be granted.

II. JURISDICTION

Although the defendant concedes there is diversity of citizenship between the named parties, it contends that the action must be dismissed under 28 U.S.C. § 1332(c), which provides in pertinent part:

In any direct action against the insurer of a policy or contract of liability insurance, whether incorporated or unincorporated, to which action the insured is not joined as a party-defendant, such insurer shall be deemed a citizen of the State of which the insured is a citizen, as well as of any State by which the insurer has been incorporated and of the State where it has its principal place of business.

The plaintiff has neither joined the insured, Perkins, as a party nor submitted proof of Perkins' citizenship.¹ Therefore, defendant argues, the Court lacks jurisdiction over the plaintiff's "direct action" against the insurer of Perkins.

In 1964, Congress enacted § 1332(c) "to eliminate from diversity jurisdiction tort claims in which both parties are local residents, but which under a state direct action statute, are brought against a foreign insurance company without joining the local insured as a defendant." Velez v. Crown Life Ins. Co., 599 F.2d 471, 473 (1 Cir.1979) (citing White v. United States Fidelity and Guaranty Co., 356 F.2d 746, 747 (1 Cir.1966)). See also Irvin v. Allstate Ins. Co., 436 F.Supp. 575, 576-77 (W.D.Okla. 1977); Bourget v. Government Employees Ins. Co., 313 F.Supp. 367, 370-71 (D.Conn. 1970), rev'd on other grounds, 456 F.2d 282 (2 Cir.1972). Thus, on the state of the present record, the defendant's motion must be granted unless the Court determines that this lawsuit is not a "direct action" against the insurer.

It is well established that the term "direct action" as used in § 1332(c) is defined "as those cases in which a party suffering injuries or damage for which another is legally responsible is entitled to bring suit against the other's liability insurer without joining the insured or first obtaining a judgment against him." Beckham v. Safeco Ins. Co. of America, 691 F.2d 898, 902 (9 Cir.1982). See also Irvin, 436 F.Supp. at 575. The gravamen of the plaintiff's complaint here concerns the conduct of the insurer and not the insured. Monetary relief is sought for Transport's wrongful termination of plaintiff's benefits; no unlawful acts are alleged to have been committed by Perkins. Therefore, because Transport's liability is grounded on its own conduct and not Perkins', the Court is satisfied that § 1332(c) is not applicable to the case sub judice.

III. WRONGFUL TERMINATION OF BENEFITS

Count one of the complaint alleges that the defendant acted tortiously and in bad faith by terminating plaintiff's compensation benefits contrary to the procedures mandated by the Workers Compensation Act (the "Act"), Conn.Gen.Stat. § 31-296. In challenging the viability of this cause of action in a judicial forum, the defendant asserts that the grievance falls within the exclusive subject matter jurisdiction provision of the Act. Therefore, it is argued, the plaintiff is bound to follow the administrative procedures set forth in the Act to remedy the alleged wrong, and may not obtain redress through this independent tort action.

As with most states, Connecticut has adopted a comprehensive and detailed statutory scheme for the filing and enforcement of workers' compensation claims against employees. Section 31-284(a) of the Act, the general exclusivity provision, broadly prescribes in relevant part that "all rights and claims between employers and employees ... arising out of the personal injury or death sustained in the course of employment as aforesaid are abolished other than rights and claims by this chapter."

The Act expressly provides for the filing of a voluntary agreement between an injured employee and the employer (or the insurance carrier) for the payment of compensation benefits. Id. § 31-296. Upon approval of the agreement by the Compensation Commissioner, it has the same legal effect as a compensation award and may not be discontinued without notice and stated reasons to the Commissioner and the employee. Id. § 31-300. A discontinuance of benefits does not become effective until approved by the Commissioner in writing. Id. § 31-296. Because the Commissioner has jurisdiction over "any proper action" concerning a voluntary agreement "during the whole compensation period applicable to the injury in question," id. § 31-315, it seems clear that disputes directly relating to the modification or discontinuance of benefits under a voluntary agreement must be resolved by the Commissioner under the procedures set forth in the Act. In addition, should there be a unilateral discontinuance of benefits without proper notice and approval, the Commissioner is empowered to levy a penalty against the employer or insurer of "a reasonable attorney's fee together with interest at a rate of six percent per annum on the discontinued payments." Id. § 31-300.

The Court is convinced that, if the plaintiff in the instant action was seeking a recovery measured by loss of compensation payments under the voluntary agreement, the exclusivity provisions of the Act would preclude independent relief here, and the motion to dismiss would of necessity be granted. But, as emphasized by the plaintiff, he seeks no such relief. Rather, he seeks redress for the "bad faith" conduct on the part of the insurer which, he argues, is a tort separate and apart from any wrong covered by the Act. Damages would not be assessed by the value of the compensation benefits withheld, but by the injury proximately caused by the insurer's intentional acts.

Hence, the precise issue presented is whether the exclusivity provisions of the Act bar an employee's action at law for "consequential damages" caused by the intentional "bad faith" conduct of an employer's insurer in terminating voluntary compensation payments under the Act. No reported case by the Connecticut Supreme Court has addressed the question; therefore, this Court "must make an estimate of what the state's highest court would rule to be its law." Cunningham v. Equitable Life Assurance Soc. of the United States, 652 F.2d 306, 308 (2 Cir.1981).

The Court's research discloses that the jurisprudence on the issue which has evolved in other states has resulted in conflicting decisions. In at least seven states, statutes that contain either an exclusive remedy provision or a penalty clause have been construed to bar a tort action against an insurer for wrongful termination or delay of compensation payments. See Escobedo v. American Employers Ins. Co., 547 F.2d 544, 545 (10 Cir.1977) (applying New Mexico law); Whitten v. American Mutual Liability Ins. Co., 468 F.Supp. 470, 475 (D.S.C.1977) (applying South Carolina law), aff'd mem., 594 F.2d 860 (4 Cir.1979); Hixon v. State Compensation Fund, 115 Ariz. 392, 393, 565 P.2d 898, 899 (1977); Old Republic Ins. Co. v. Whitworth, 442 So.2d 1078, 1979 (Fla.App.1983); Bright v. Nimmo, 253 Ga. 378, 320 S.E.2d 365, 368 (1984); Robertson v. Travelers Ins. Co., 95 Ill.2d 441, 448 N.E.2d 866, 871 (1983); Jadofsky v. Iowa Kemper Ins. Co., 355 N.W.2d 550, 552 (Wisc.App.1984).² California and Alabama would apparently bar an independent action in cases that merely allege "bad faith" on the part of the insurer, although perhaps in outrageous cases of insurance company misconduct an independent action would be allowed. See Palmer v. R.L. Kautz & Co., 141 Cal.App.3d 155, 190 Cal. Rptr. 139, 144 (1983);...