Tucker v. American Intl Group, Inc et al

Filing 140

RULING (see attached) denying 139 Defendants' Motion for Reconsideration. Signed by Judge Charles S. Haight, Jr. on March 2, 2012.(Dorais, L.)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF CONNECTICUT
TERI TUCKER,
Plaintiff,
v.

3:09 - CV - 1499 (CSH)

AMERICAN INTERNATIONAL GROUP,
INC.; NATIONAL UNION FIRE
INSURANCE COMPANY OF
PITTSBURGH, PA., A SUBSIDIARY OF
AMERICAN INTERNATIONAL GROUP,
INC.,
Defendants.

RULING ON DEFENDANTS’ MOTION FOR RECONSIDERATION (DOC. #139)
HAIGHT, Senior District Judge:
I.

INTRODUCTION
Plaintiff Teri Tucker (“plaintiff” or “Tucker”) commenced the present action to recover

damages from her former employer’s insurers, American International Group, Inc. (“AIG”) and
National Union Fire Insurance Company of Pittsburgh, PA (“National Union”) (collectively
“defendants”), arising from her unlawful discharge in 2003, pursuant to an employment practices
liability insurance policy (herein “EPL Policy”). In this action, she seeks to collect from defendant
insurers the $4 million judgment in her favor in Tucker v. Journal Register East, Doc. # 3:06-CV307 (SRU) (herein “Tucker I”), the prior action against her former employer, Journal Register East.1
Pending before the Court is defendants’ Motion for Reconsideration (Doc. #139) with respect

1

A full discussion of the facts is set forth in this Court’s prior rulings, familiarity with
which is assumed. Doc. #39, 44, 123.
1

to the Court’s recent rulings on National Union’s and AIG’s Objections to Re-Notice of Depositions.
Doc. #138, 138-1. The Court notes at the outset that three days before the designated March 1
deadline for discovery, the parties continue to skirmish over the content of depositions. Moreover,
defendants contend within their present motion that the very objections upon which the Court
recently ruled were originally served on plaintiff on May 6, 2011, but not addressed by plaintiff to
the Court at the January 19, 2012 status conference. The Court reminds the parties that at that
conference, both counsel agreed that there were six outstanding discovery issues, most resolved prior
to the conference and none pertaining to the extensive list of objections presently before the Court.
Rather, both counsel averred at the January 19 hearing that they saw no reason that discovery could
not be successfully completed prior to March 1, 2012.2

Upon inquiry by the Court, both counsel

confirmed that, aside from a disagreement with respect to whether Attorney Bagnell should be
deposed as a fact witness on settlement negotiations in the underlying action, no impediments
remained to the completion of discovery. Yet, once again this case is plagued by discovery clashes
between the parties.
In what it believed would be its last need to intervene to expedite discovery, the Court ruled
on defendants’ list of objections to the plaintiff’s prospective deposition topics only to learn that such
assistance has now engendered further dispute. The Court is presented with defendants’ motion for
reconsideration on objections deemed unworthy by counsel of presentation to this Court on January
2

Mr. Brown himself, as counsel for defendants, assured plaintiff and the Court that, after
speaking briefly with plaintiff’s counsel, Mr. Bagnell, before the hearing, with respect to the
“general objections” at issue, “we [the defendants] [wi]ll waive those, withdraw them, whatever
needs to be done to clean up the record.” Draft transcript (1/19/2012 hearing), p. 39, l. 5-7.
Furthermore, Brown later conceded that “withdrawing the general objections will take away a lot
of the ambiguity or issues.” Id., p. 41, l. 17-20. The Court naturally concluded that those
general objections were withdrawn.
2

19, 2012. Nonetheless, the Court considers those objections and rules on them herein.

II.

STANDARD FOR RECONSIDERATION
Pursuant to Local Rule 7(c)(1) of this District, a motion for reconsideration “shall be

accompanied by a memorandum setting forth concisely the matters or controlling decisions which
counsel believes the Court overlooked in the initial decision or order.” D. Conn. L. Civ. R. 7(c)(1).
Moreover, as the Second Circuit explained in Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d
Cir.1995), “[t]he standard for granting such a motion is strict, and reconsideration will generally be
denied unless the moving party can point to controlling decisions or data that the court
overlooked—matters, in other words, that might reasonably be expected to alter the conclusion
reached by the court.” See also Virgin Atl. Airways, Ltd. v. Nat'l Mediation Bd., 956 F.2d 1245,
1255 (2d Cir.1992), cert. denied,

506 U.S. 820 (1992) (“The major grounds justifying

reconsideration are ‘an intervening change of controlling law, the availability of new evidence, or
the need to correct a clear error or prevent manifest injustice.’”) (quoting 18 C. Wright, A. Miller
& E. Cooper, Federal Practice & Procedure § 4478 at 790); Lo Sacco v. City of Middletown, 822 F.
Supp. 870, 876–77 (D. Conn.1993) (“[The function of a motion for reconsideration is to present the
court with an opportunity to correct ‘manifest errors of law or fact or to consider newly discovered
evidence.’”) (quoting Bothwell Cotton Co. v. Rosenthal & Co., 827 F.2d 246, 251 (7th Cir.1987)).

III.

DISCUSSION
A.

Rulings on Objections at Issue

In their Memorandum, defendants describe the specific “areas of subject matter addressed

3

in this motion” for reconsideration as follows:
As to National Union
8.

Resources shared by AIG and National Union, including administrative services, and
office space.

ORDER:

12.

Revenue sharing with AIG.

ORDER:

13.

Defendant’s objection is overruled. The information sought is relevant to
plaintiff’s assertion that AIG is a proper party to this action (i.e., piercing of
its corporate veil). Fed. R. Civ. P. 26(b)(1); Fed. R. Evid. 401, 402.

Defendant’s objection is overruled. The information sought is relevant to
plaintiff’s assertion that AIG is a proper party to this action (i.e., piercing of
its corporate veil). Fed. R. Civ. P. 26(b)(1); Fed. R. Evid. 401, 402.

Any allegations of bad faith or reckless claims handling practices against National
Union and/or its subsidiaries prompting any internal review of claims handling
practices at any time from 2004 to the present.

ORDER:

Defendant’s objection is overruled. The information sought relates to
National Union’s general business practices and is thus relevant to plaintiff’s
CUIPA claim. Fed. R. Civ. P. 26(b)(1); Fed. R. Evid. 401, 402.

As to AIG
11.

The capitalization of AIG subsidiaries.

ORDER:

16.

Resources shared by AIG and any of its subsidiaries, including administrative
services, and office space.

ORDER:

21.

Defendant’s objection is sustained in part as to relevance. [Fed. R. Civ. P.
26(b)(1); Fed. R. Evid. 401, 402]. Plaintiff may, however, inquire as to
capitalization of National Union.

Defendant’s objection is sustained in part because Plaintiff’s request is overly
broad. [See Fed. R. Civ. P. 26(b)(2)(c)(iii).] Plaintiff may, however, inquire
as to resources and office space shared by AIG, National Union, and other
AIG entities involved in issuing the EPL policy or handling the claim at
issue.

Revenue sharing among AIG and its subsidiaries from 2004 to 2009.
4

ORDER:

22.

Defendant’s objection is sustained in part as to relevance. [Fed. R. Civ. P.
26(b)(1); Fed. R. Evid. 401, 402.] Plaintiff may inquire as to revenue
sharing among AIG, National Union, and any other AIG entity involved with
issuing the EPL policy or handling the claim at issue.

Any allegations of bad faith or reckless claims handling practices against AIG and/or
any of its subsidiaries prompting any internal review of claims handling practices at
any time from 2004 to the present.

ORDER:

Defendant’s objection is overruled. Plaintiff’s request is relevant to her
CUIPA claim. [Fed. R. Civ. P. 26(b)(1); Fed. R. Evid. 401, 402.]

Doc. #139, p. 3-4.
In sum, defendants base their motion for reconsideration on two subject areas: (1) questions
regarding allegations of bad faith and reckless claims handling, which defendants argue are
inadmissible to prove a CUTPA/CUIPA claim; and (2) questions relating to shared resources,
revenue and capitalization of National Union and AIG, which defendants claim should not be
considered in the context of piercing the corporate veil of AIG because of National Union’s unique
nature as a regulated insurance entity subject to capitalization requirements. As set forth below, the
defendants have presented no newly discovered evidence or manifest error of law to alter the Court’s
prior rulings on their objections at issue.

B.

Bad Faith and Reckless Claims Handling

Defendants object to the Court’s rulings that allow plaintiff to seek information related to
allegations of bad faith and reckless claims handling on the ground that “Connecticut state and
federal decisions addressing the standard of proof for CUTPA/CUIPA claims operate to rule out
Plaintiff’s reliance on allegations in order to prove a ‘general business practice’ under CUIPA.”3
3

Under CUIPA, Conn. Gen. Stat. § 38a-815, et seq., an insurer is prohibited from
engaging in “a general business practice” of unfair claims settlement, as detailed in Conn. Gen.
5

Doc. #139, p. 5. In support, defendants cite Conn. Gen. Stat. § 38a-816 (6) and Lees v. Middlesex
Ins. Co., 229 Conn. 842, 850-51 (1994) for the proposition that “[i]n order to prove a CUIPA
violation based on the handling of an insurance claim, a plaintiff must prove that the defendant
insurer committed or performed the acts in question with such frequency as to constitute a general
business practice.”4 Doc. #139, p. 5. Moreover, defendants contend that “[m]ere allegations of bad
faith claims handling are not sufficient to establish that an insurer ‘committed or performed’ the acts
in question.” Id. (citing Craig v. Colonial Penn, Ins. Co., 335 F. Supp. 2d 296, 308-09 (D. Conn.
2004) (court rejected plaintiffs’ argument that decisions in two other lawsuits against the defendant
insurance company established general business practice of improper claims handling). Defendants
further assert that courts within the Second Circuit have stricken references to other lawsuits from
pleadings where the other lawsuits were not resolved on their merits. Doc. #139, p. 6 (citing RSM
Prod. Corp. v. Fridman, 643 F. Supp. 2d 382 (S.D.N.Y. 2009)).
Defendants’ cited cases, however, are inapposite. In Craig v. Colonial Penn Ins. Co., 335
F. Supp. 2d 296 (D. Conn. 2004), the court was asked to rule on defendant insurer’s motion for
summary judgment in which defendant argued that decisions in two lawsuits against it failed to
establish as matter of law that it engaged in a general practice of improper claims handling. The

Stat. § 38a-816 (6). See n.4, infra.
4

Conn. Gen. Stat. § 38a-816 (6) enumerates the various business practices which
comprise “[u]nfair claim settlement practices.” Those practices include, inter alia, “failing to
acknowledge and act with reasonable promptness upon communications with respect to claims
arising under insurance policies;” “failing to affirm or deny coverage of claims within a
reasonable time after proof of loss statements have been completed;” and “not attempting in good
faith to effectuate prompt, fair and equitable settlements of claims in which liability has become
reasonably clear.” Conn. Gen. Stat. § 38a-816 (6).

6

Craig court examined the proffered lawsuits to determine that neither case provided sufficient
evidence that defendant engaged in a general business practice of unfair claims settlement. The court
thus granted summary judgment for the defendant.5
Specifically, the Craig court found that in the first cited case regarding improper claims
handling, McGeouch v. Colonial Penn Ins., No. C-92-343-L, 1994 WL 260684 (D.N.H. April 7,
1994), the court “finds no wrongdoing and merely denies the insurer’s motion for summary judgment
given the factual disputes in the case.” 335 F. Supp.2d at 308-09 (citing McGeouch, 1994 WL
260684, at * 2) (“The actual cause of the damage [and thus whether it was covered by the insurance
policy] presents a genuine issue of material fact that must be resolved at trial.”)). As to the second
cited case, Eveleno v. Colonial Penn Ins., 188 Misc.2d 454, 728 N.Y.S.2d 907 (2001), the Craig
court stated that Eveleno found “a violation of a New York statute requiring a response by the insurer
within 15 days after receipt of proof of loss-a statutory violation that [was] not at issue here.” 335
F. Supp.2d at 309 (citing Eveleno, 188 Misc.2d at 456, 728 N.Y.S.2d 907). In sum, the underlying
facts of the two cited lawsuits relating to improper claims handling provided no factual assistance
in Craig – the first case because there was no factual determination of wrongdoing by defendant and
the second case because it involved wrongdoing that was not at issue in Craig.
Furthermore, the Court notes that the Craig case dealt with evidence for purposes of
summary judgment, which is by its nature more stringent than the standard of “relevance” imposed
5

The Craig court in dictum pointed out the plaintiffs’ failure, prior to the close of
discovery, to follow through on their initial requests for copies “of all similar [claims handling]
complaints against [defendant insurer] filed with the Connecticut Department of Insurance over
the past three years.” 335 F. Supp. 2d at 309. In so doing, the court left open the prospect that
such information might have assisted plaintiffs in obtaining the necessary proof of a pattern of
unfair claims settlement practices by defendant to prevent the present outcome (i.e., the granting
of defendant’s summary judgment motion).
7

during discovery. The case at bar remains in the discovery phase in which parties are given a broad
scope to inquire “regarding any nonprivileged matter that is relevant to any party’s claim or
defense.”6 Fed. R. Civ. P. 26(b)(1). For purposes of discovery (i.e., as opposed to undisputed facts
necessary for summary judgment or facts admissible at trial), “ [r]elevant information need not be
admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of
admissible evidence.” Id. (emphasis added). Evidence of complaints of bad faith handling of
insurance claims may not be sufficient, standing alone, to establish whether National Union or AIG
engaged in general practices of improper claims handling; and the Court has not intimated otherwise.
Nonetheless, plaintiff may seek evidence of such complaints as a reasonably calculated starting
point to obtain evidence of defendants’ actual practices.7 It logically follows that where there are
numerous, similar complaints of unfair practices, one may, upon further investigation, compile the
necessary facts to determine whether such practices occurred.

6

Federal Rule of Civil Procedure 26(b) sets forth the permissible “scope of discovery” in
broad terms, as follows:
Parties may obtain discovery regarding any nonprivileged matter that is relevant to
any party's claim or defense — including the existence, description, nature,
custody, condition, and location of any documents or other tangible things and the
identity and location of persons who know of any discoverable matter. For good
cause, the court may order discovery of any matter relevant to the subject matter
involved in the action. Relevant information need not be admissible at the trial if
the discovery appears reasonably calculated to lead to the discovery of admissible
evidence.
Fed. R. Civ. P. 26(b)(1).
7

If upon further investigation, plaintiff determines that the discovered allegations of bad
faith or reckless claims handling turn out to be false, she is duty bound not to present meritless
claims at trial. If, however, such allegations prove fruitful (e.g., resulting in cites to cases
adjudicated successfully on the merits), such allegations may yield proof.
8

In RSM Prod. Corp. v. Fridman, 643 F. Supp. 2d 382 (S.D.N.Y. 2009), also cited by
defendants, the district court granted defendant’s motion to strike plaintiff’s references in its third
amended complaint to defendant’s commission or performance of tortious activities because the
lawsuits referenced as proof were not “resolved on the merits.” 642 F. Supp. 2d at 403. In fact,
“neither complaint resulted in an adjudication on the merits or legally permissible findings of fact.”
Id. (internal quotations and citation omitted). Absent adjudication on the merits, those lawsuits
comprised allegations rather than factual matter. Accordingly, the court in RSM Prod. Corp. struck
those allegations from the complaint as “immaterial” pursuant to Fed.R.Civ.P. 12(f).8
The Court acknowledges that it is hornbook law that unproven, non-adjudicated allegations
are not evidence. In the case at bar, however, plaintiff has neither moved for summary judgment
based on allegations nor contended that other non-adjudicated lawsuits comprise evidence of
defendants’ wrongdoing. Rather, she seeks to investigate other insured’s allegations of bad faith
and/or reckless claims handling in an effort to establish sufficient evidence to prevail on her CUIPA
claim.

8

Similarly, Impulsive Music v. Pomodoro Grill, Inc., 08cv6293, 2008 U.S. Dist. LEXIS
94148, at *8 (W.D.N.Y. Nov. 19, 2008), another case cited by defendants, is inapposite. In that
case, plaintiffs brought an action for copyright infringement against defendants. Defendants filed
a motion to strike portions of the plaintiffs’ complaint as “irrelevant and immaterial as well as
impertinent and scandalous.” Id., at * 4. The paragraph at issue alleged the existence of a
“virtually identical infringement action” against one of the defendants. Id., at *5. The court
ruled to strike the cited paragraph because its “inclusion would be prejudicial to the defendants
and has no bearing on the current litigation.” In such a copyright case, prior alleged acts of
infringement by one of the defendants, even if proven, would not be relevant to the present action
and would thus only serve to prejudice the named defendant. In a CUIPA case, however,
because general business practices are at the core of the action, other instances of unfair claims
handling, if proven, are relevant.
9

C.

Evidence regarding Piercing the Corporate Veil

Defendants object to plaintiff’s questions regarding “[r]esources shared by AIG and National
Union, including administrative services, and office space;” “[r]evenue sharing [of National Union]
with AIG;” the capitalization of National Union; and resources and revenue shared by AIG, National
Union, and other AIG entities involved in issuing the EPL policy or handling the claim at issue. See
Doc. #139, p. 3-4. Defendants concede that, under the “identity test” for piercing the corporate veil,
the Connecticut Supreme Court has examined a number of factors relating to corporate dominance
which include, inter alia, such factors as:

“inadequate capitalization,” “common office space,

address and phones;” “whether the corporations are treated as independent profit centers;” and
“whether the corporation in question had property that was used by other of the corporations as if
it were its own.” Doc. #139, p. 8 (quoting Naples v. Keystone Bldg. & Development Corp., 295
Conn. 214, 233 (2010)). On its face, Naples lists capitalization and resource and revenue sharing
as properly considered facts when assessing whether to pierce the corporate veil.9
Nonetheless, defendants argue that such factors should not be examined with respect to
National Union because it is “a heavily regulated commercial insurance carrier, licensed to issue
insurance in many states and subject thereby to extensive regulatory regimes that impose capital,

9

Defendants concede that control or domination of a company over its subsidiary is the
key factor under the “instrumentality test” of piercing the corporate veil. Doc. #139, p. 7 (citing
Naples v. Keystone Bldg. & Development Corp., 295 Conn. 214, 232 (2010) (“instrumentality
rule” requires control and completion domination of finances, policy, and business practice with
respect to transaction at issue; use of control to commit fraud or wrong that violated plaintiff’s
rights, and control must be proximate cause of plaintiff’s injury). In sum, under the
instrumentality test, there must be such domination over the controlled corporation that it has “no
separate mind, will or existence of its own and is but a business conduit for its principal.” Doc.
#139, p. 8 (quoting Angelo Tomasso, Inc. v. Armor Const. & Paving, Inc., 187 Conn. 544, 55657 (1982)).
10

minimum surplus, reserve, and related requirements” on it. Doc. #139, p.9 (citing Conn. Gen. Stat.
§ 38a-76 (“[e]ach insurance company transacting business in this state shall, at all times, maintain
reserves equal in amount to its liability under all its policy contracts”).10 Following that argument
to its natural conclusion, defendants broadly suggest to the Court that it should rely on the heavily
regulated nature of the insurance industry to dismiss any consideration of the Naples factors with
respect to piercing the corporate veil of an insurer.11 Yet, defendants present no law to support such
a broad proposition. Rather, they quote extensively from a 2008 Brigham Young University Law
Review article by Professor Douglas Smith to suggest that insurance “[re]gulators monitor
corporations operating within the industry to ensure that they observe corporate formalities” and
“[a]ccordingly, the rationale behind the veil piercing doctrines simply does not apply.” Doc. #139,
p. 9-10 (citing Douglas G. Smith, Piercing the Corporate Veil in Regulated Industries, BYU L.
Rev., 2008 No. 4, p. 4-5).
While Professor Smith’s conclusion posits an interesting academic theory, in actuality even
corporations that are monitored may at some point violate relevant regulations, violations which
regulators fail to prevent and which injure third parties. The regulation of an industry, standing

10

With respect to financial auditing, defendants also cite Conn. Gen. Stat. § 38a-54,
captioned “Audited reports” (“[e]ach domestic insurance company . . . doing business in this
state shall have an annual audit conducted by an independent certified public accountant and
shall annually file an audited financial report with the commissioner”).
11

Such reasoning, carried to its logical conclusion, would yield the untenable result that
courts may not consider the merits of any claim where compliance with state or federal regulation
would be inconsistent with wrongdoing. For example, if a hospital were charged with failing to
provide a medically safe environment, the court might preclude discovery with respect to any
hospital conditions regulated by the state or federal government. This Court declines to endorse
such a concept. Furthermore, the Court notes that compliance at one point in time does not
equate with compliance at all relevant times. Thus, compliance when monitored would not rule
out violation at a later time.
11

alone, does not immunize its members from liability under the laws of tort or contract, including the
piercing of corporate veils when appropriate. The defendants at bar do not cite, nor has the Court’s
research discovered, any precedent within this Circuit or the Connecticut courts that supports a
categorical exemption of insurers from the established analysis of factors for piercing the corporate
veil and imposition of liability if the veil is pierced. Rather, as Professor Smith states in the later
portions of his article, even when courts have “reject[ed] attempts to pierce the corporate veils of
entities operating in the insurance industry”:
[T]hese decisions are utterly devoid of any theoretical analysis regarding the
inappropriateness of applying alter ego principles in such regulated industries.
Rather, they typically involve a standard application of the multi-factoral analysis
that is applied in any other case.

Doc. #139-2, p. 31 (Douglas G. Smith, Piercing the Corporate Veil in Regulated Industries, BYU
L. Rev., 2008 No. 4, at p. 30 (emphasis added)). “The inappropriateness of applying alter ego
principles in such regulated industries” sums up the author’s theory, to which the First Amendment
entitles him, but the contrary court decisions he dismisses have, in this Court’s opinion, gotten it
right.
Absent statutory or precedential authority to preclude analysis of the requisite factors for
piercing the corporate veil of insurers, the Court finds the factors of capitalization, shared resources,
and shared revenue among AIG, National Union and any other AIG entity involved in handling the
claim in this case to be relevant considerations in this action. Having so stated, the Court does not
negate National Union’s right to provide evidence of corporate compliance with regulations on
capitalization as one form of proof that AIG’s corporate veil should not be pierced.

In sum,

capitalization and shared offices, resources, and profits remain viable areas of questioning with
12

respect to the “identity test” of piercing the corporate veil. See, e.g., Naples v. Keystone Building
& Development Corp., 295 Conn. 214, 233 (2010).

IV.

CONCLUSION
As set forth above, defendants have failed to present newly discovered evidence or manifest

error of law to support their motion for reconsideration. First, with respect to the issue of bad faith
or reckless claims handling, they point to cases that are inapposite to the issue of “relevance” for
purposes of discovery. Defendants fail to contemplate that areas of inquiry that may not constitute
“relevant” proof at trial (e.g., allegations in nonadjudicated cases) are permissible during discovery
if they are reasonably calculated to lead to evidence that will be admissible at trial. Fed. R. Civ. P.
26(b)(1). Because complaints of bad faith or reckless claims handling might reasonably lead to
evidence of general business practices by National Union and/or AIG, the Court will allow plaintiff’s
inquiry into their existence during the discovery phase.
Second, with respect to piercing the corporate veil, defendants argue that resources, revenue
sharing, and particularly capitalization of National Union are improper areas of inquiry by plaintiff
because National Union is heavily regulated by state law as an insurance carrier. Defendants cite
to Conn. Gen. Stat. §§ 38a-76 and 38a-54 to suggest that National Union must, by state law,
maintain proper capitalization to cover its liability under all its policy contracts. Defendants,
however, cite no authority, either in statute or case precedent, to establish that insurers are per se
exempt from examination with respect to the theory of piercing the corporate veil. Rather, they rely
on the opinion of a commentator to suggest that the law should be changed to abolish veil piercing
of regulated industries. That opinion does not constitute authority for this Court to exempt National

13

Union from examination on plaintiff’s claim that AIG’s corporate veil should be pierced.
Furthermore, that very commentator cited expressly conceded later in the same article that courts
continue to apply the standard application of the multi-factoral analysis even when they ultimately
conclude that piercing is not warranted.
In sum, in the absence of any controlling decision or data that the Court overlooked — i.e.,
any matters that might reasonably alter the Court’s conclusion with respect to its prior rulings,
defendants’ Motion for Reconsideration (Doc. #139) is DENIED.
It is SO ORDERED.
Dated: New Haven, Connecticut
March 2, 2012

/s/Charles S. Haight, Jr.
Charles S. Haight, Jr.
Senior United States District Judge

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