Utica Mut. Ins. Co. v. Denwat Corp.

• Decision Date: 07 October 1991
• Docket Number: Civ. No. 2:91-135 (TEC).
• Citation: 778 F. Supp. 592
• Parties: UTICA MUTUAL INSURANCE COMPANY v. DENWAT CORPORATION, Minwax Company, Inc.
• Court: U.S. District Court — District of Connecticut

778 F. Supp. 592

UTICA MUTUAL INSURANCE COMPANY v. DENWAT CORPORATION, Minwax Company, Inc.

Civ. No. 2:91-135 (TEC).

United States District Court, D. Connecticut.

October 7, 1991.

John E. Tener, Charles D. Gill, Robinson & Cole, Hartford, Conn., for plaintiff Utica Mut. Ins. Co.

Louis B. Blumenfeld, Cooney, Scully & Dowling, Hartford, Conn., for defendant Denwat Corp.

James H. Rotondo, Day, Berry & Howard, Hartford, Conn., for defendant Minwax Co., Inc.

RULING ON MOTION TO DISMISS

CLARIE, Senior District Judge.

The plaintiff, Utica Mutual Insurance Company ("Utica") brings this subrogation action against Denwat Corporation ("Denwat") and Minwax Company, Inc. ("Minwax") after satisfying a claim by its insured, Marlborough Country Barn ("Country Barn") for losses suffered as a result of a fire allegedly caused by a product manufactured and distributed by the named defendants. More specifically, Utica has asserted claims under the Connecticut Product Liability Act ("PLA"), General Statutes § 52-572m et seq., the Uniform Commercial Code ("UCC"), General Statutes §§ 42a-2-313 et seq., 42a-2-714, 42a-2-715, and under the Connecticut Unfair Trade Practices Act ("CUTPA"), General Statutes § 42-110b et seq. Defendants Minwax and Denwat now move to dismiss Utica's claims for punitive damages under the PLA, and its claims under the UCC and CUTPA.

I. STATEMENT OF THE LAW

The facts alleged in the complaint, construed favorably to the pleader as the non-moving party, are presumed to be true for the purposes of the present motion to dismiss. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Corcoran v. American Plan Corp., 886 F.2d 16, 17 (2d Cir.1989). A complaint shall not be dismissed unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of the claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); Patton v. Dole, 806 F.2d 24, 30 (2d Cir.1986). At this stage of the litigation, the Court is not concerned with whether "the plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. at 236, 94 S.Ct. at 1686.

II. BACKGROUND

The defendant Denwat, a California corporation, is in the business of manufacturing, distributing and selling an oil finish product called Watco Danish Oil Finish ("Watco"). (Complaint, ¶ 1.) A label on the Watco container includes the following instruction:

"WATERSOAK OILY CLOTHS TO AVOID SPONTANEOUS COMBUSTION and place cloths outside building and away from other combustible materials. Dispose in accordance with local regulations."

(¶ 11). A sales brochure distributed by the defendant Denwat included the following admonition regarding the process that should be followed for discarding the rags used for application of the product: "Let soak thoroughly and discard in rubbish for removal." (¶ 12). On July 18, 1989, an employee of the plaintiff's insured, Country Barn, attempted to apply Watco to unfinished furniture, using rags. (¶ 5). Before proceeding to apply Watco, the employee read the preceding instructions. (¶ 13). After applying Watco, the employee rinsed out the rags with water and laid them flat in an outdoor area. (¶ 6). A few hours later, a fire erupted at Country Barn. (¶ 7). The plaintiff alleges the cause of the fire was the "spontaneous combustion" of the rags containing the Watco finish. (¶ 8). The plaintiff paid property damage claims to Country Barn in the amount of $636,783.13 and alleges it paid a claim for "business income losses" in the amount of $225,630.20. The total amount paid to Country Barn is alleged to be $862,413.33.

The plaintiff alleges that Watco is a defective product under the PLA, and seeks monetary damages, attorneys fees, and punitive damages.

III. DISCUSSION

a. Punitive Damages

In the instant motion, the defendants contend that the plaintiff is not entitled to punitive damages because a subrogee is only entitled to indemnity to the extent of the amounts paid to discharge its obligation to its insured. The parties concede, and the Court so finds, that this particular issue has never been addressed by a Connecticut court. However, under Connecticut law it is axiomatic that a subrogee's rights can arise no higher than those of a subrogor. Continental Ins. Co. v. Connecticut Natural Gas Corp., 5 Conn. App. 53, 60, 497 A.2d 54 (1985); see also Connecticut Savings Bank of New Haven v. The First National Bank and Trust Company of New Haven, 138 Conn. 298, 305, 84 A.2d 267 (1951), citing 11 Appleman, Insurance Law & Practice § 6505. It is from this premise that other courts have deduced the rule that punitive damages are unavailable to a subrogee. See e.g. Colorado Farm Bureau Mutual Insurance Co. v. Cat Continental, Inc., 649 F.Supp. 49, 52 (D.Colo.1986); Colonial Penn Insurance Co. v. Ford, 172 N.J.Super. 242, 411 A.2d 736, 737 (1979); Maryland Cas. Co. v. Brown, 321 F.Supp. 309, 312 (N.D.Ga.1971); Bituminous Fire & Marine Insurance Co. v. Culligan Fyrprotexion, Inc., 437 N.E.2d 1360, 1371 (Ind. App.1982).

The rule espoused by the courts that have addressed the issue is based on the accepted premise that because a subrogee's status is derivative, the subrogee is not entitled to achieve any greater rights than those which the subrogor would have been entitled. Colorado Farm Bureau Mutual Ins. Co. v. Cat Continental, Inc., 649 F.Supp. at 52. As such, the subrogee "is entitled to indemnity only to the extent of the money actually paid to discharge the obligation." Id. Based on Colorado Farm Bureau and the other cited cases considering the issue, a logical extension of the Connecticut Appellate Court's teachings in Continental Insurance Co. supports eliminating the availability of punitive damages in this case. The circumstances do not warrant departure from the rule enunciated in the cases cited herein. As the plaintiff's action as a subrogee is truly one of indemnification, the plaintiff's recovery should be consistent with the traditional principles of indemnity law.

The plaintiff's contention that public policy concerns favor the ability of a subrogee to claim punitive damages is without merit. Courts have rejected the theory that, because the purpose of imposing punitive damages is punishment and deterrence, a subrogee's claim for punitive damages should not be precluded. See Maryland Cas. Co. v. Brown, 321 F.Supp. at 312; Colonial Penn Insurance Co. v. Ford, 411 A.2d at 737. Judge Zampano, in National Semiconductor Corp. v. Allendale Mut. Ins. Co., 549 F.Supp. 1195, 1201 (D.Conn. 1982), recognized that the purpose behind the imposition of punitive damages under Connecticut law is in fact not to punish, but actually to compensate:

Connecticut in theory recognizes the doctrine of "punitive damages," but in practice the courts have consistently rejected the notion of "punishing" the defendant and grant such damages merely as compensation for plaintiff's actual injuries and losses. Citing Doroszka v. Lavine, 111 Conn. 575, 578 150 A. 692 (1930).

Sound policy considerations, as well as the weight of authority, support the bar to punitive damage recovery in subrogation actions. The cases relied on by the plaintiff do not support a different result. Thus, in keeping with judicial trends and the spirit of the law in Connecticut, the defendants' motion to strike count 2 is GRANTED.

b. UCC

In the third count of its complaint, the plaintiff alleges a breach of warranty under the UCC for "commercial losses" suffered by its insured, and satisfied by the plaintiff. The defendants seek to dismiss this count on the basis that the complaint does not allege the existence of privity between the parties to the action.

The pleadings in the action sound in product liability, warranty under the UCC, and CUTPA. Essentially, this is a product liability case under General Statutes § 52-572m et seq. The question presented is whether privity is required under a warranty claim alleging economic loss in a products liability action. For purposes of this motion, the Court takes as true the plaintiff's allegation that its insured was reimbursed for "business income losses" as part of the amount paid to satisfy the overall loss suffered by the insured, and that such a claim is compensable in this subrogation action.

Connecticut's Product Liability Act permits recovery for "harm" caused by "a product." General Statutes § 52-572n(a).¹ The statute defines harm as "damage to property, including the product itself, and personal injuries including wrongful death." General Statutes § 52-572m(d). The 1984 amendments to the statute specifically exclude "commercial loss" from the statutory definition of harm: "As between commercial parties, `harm' does not include commercial loss." Id.

Section 572n(c), added in 1984, illustrates the manner in which commercial loss may be recovered in an action for damages caused by a product:

As between commercial parties, commercial loss caused by a product is not harm and may not be recovered by a commercial claimant in a product liability claim. An action for commercial loss caused by a product may be brought only under, and shall be governed by, title 42a, the Uniform Commercial Code.

General Statutes § 52-572n(c). It is evident from the language of the statute itself that the plaintiff may not recover commercial losses under the PLA, and an action for economic damages may only be brought under the Uniform Commercial Code.² See McKernan v. United Technologies Corp., Sikorsky Aircraft Div., 717 F.Supp. 60, 65-66 (D.Conn.1989) (Nevas, J.); Cf. Comind, Companhia de Seguros v. Sikorsky Aircraft Div. of United Technologies Corp., 116 F.R.D. 397, 418-19 (D.Conn. 1987) (Clarie, J.). The legislative history of subsection c reflects that the primary purpose of the amendment is to allow commercial entities to contractually appropriate the risk of...