Allstate Ins Co v. Jean-Pierre et al

Filing 69

ORDER granting in part and denying in part 51 Motion to Dismiss. See attached Memorandum of Decision. Signed by Judge Vanessa L. Bryant on 8/30/11. (Hildebrand, J.)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT

ALLSTATE INSURANCE COMPANY, :
Plaintiff,
:
:
v.
:
:
LUIGI JEAN-PIERRE ET AL.,
:
Defendants.
:

CIVIL ACTION NO.
3:10-cv-506 (VLB)
August 30, 2011

MEMORANDUM OF DECISION GRANTING IN PART AND DENYING IN PART
PLAINTIFF’S MOTION TO DISMISS DEFENDANT’S COUNTERCLAIMS [Doc. #51]

This is a declaratory judgment action filed by Allstate Insurance Company
(“Allstate”) against its insured Luigi Jean-Pierre (“Jean-Pierre”) seeking an order
from this court declaring that Allstate has no duty to defend or indemnify JeanPierre from liability or losses arising out of a house fire. Currently pending
before the Court is the Allstate’s motion to dismiss, pursuant to Fed. R. Civ. P.
12(b)(6) and D.Conn. Local Rule 7(a), Counts Two, Three, and Four of JeanPierre‘s Counterclaim and the prayer for punitive damages and legal fees and
costs that corresponds with Count Four [Dkt. #51] on the basis that they fail to
state a claim upon which relief can be granted. Jean-Pierre, the Defendant and
Counterclaim Plaintiff, filed a counterclaim for damages against Allstate, the
Plaintiff and Counterclaim Defendant, alleging breach of contract (Count One),
waiver and estoppel (Counts Two and Three), and breach of the common law
implied covenant of good faith and fair dealing (Count Four). For the reasons set
forth below, Allstate’s motion to dismiss is GRANTED in part and DENIED in part.

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I. BACKGROUND
Allstate is a foreign corporation incorporated under the laws of Illinois and
authorized to transact business and sell insurance products in the State of
Connecticut. [Dkt. #1, Complaint]. Jean-Pierre is a resident of Connecticut.
Allstate issued Jean-Pierre a Deluxe Homeowners Policy (the “policy”), providing
liability and property insurance coverage for the property located at 2345 Fairfield
Avenue, Bridgeport, Connecticut (the “property”). Jean-Pierre claims that at the
time he applied for the policy he listed a mailing address in Stamford,
Connecticut where Allstate later sent all premium invoices. . [Dkt. #51] JeanPierre also asserts that Allstate or its agents knew that he did not reside at the
property and that he rented commercial and residential units at the property. Id.
Finally, Jean-Pierre claims that Allstate accepted policy premium payments from
him for the policy for nearly two years, from February 2007 through December
2009. Id.
On December 7, 2007, a fire broke out at the property. Following the fire,
Jean-Pierre sought defense and indemnification from Allstate under the policy.
Allstate in turn razed the property, paid-off the mortgage encumbering the
property, and attempted to negotiate claims. Allstate also continued to accept
Jean-Pierre’s policy premium payments. On November 24, 2009, Jean-Pierre was
sued by several tenants, occupants, and lessees of the property for various
injuries sustained in the fire. The lawsuit, Maria C. Muniz, Administrator of the

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Estate of Arturo Icelo, et al. v. Luigi Jean Pierre et al, docket number FBT-CV-095029068-S, is currently pending in the Superior Court of the State of Connecticut,
Judicial District of Bridgeport (the “Muniz lawsuit”). Thereafter, Jean-Pierre
alleges, Allstate denied coverage under the policy on the basis that Jean-Pierre
did not reside at or maintained commercial space on the property, triggering a
coverage exclusion. Jean-Pierre claims that Allstate acted in bad faith by relying
upon, and it either waived or is estopped from asserting the exclusion on the
basis of facts it either knew, or of which knowledge is imputed to it, prior to the
issuance of the policy. Id. Allstate denies that it knew that Jean-Pierre did not
reside at the property or that he rented space at the property to a residential or
commercial tenant. Allstate seeks a declaratory judgment that the policy affords
no coverage for the fire by virtue of a coverage exclusion based on his use of the
property for economic benefit. [Dkt, #1].

II. STANDARD OF REVIEW
“Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a
‘short and plain statement of the claim showing that the pleader is entitled to
relief.’” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). While Rule 8 does not
require detailed factual allegations, “[a] pleading that offers ‘labels and
conclusions’ or ‘formulaic recitation of the elements of a cause of action will not
do.’ Nor does a complaint suffice if it tenders ‘naked assertion[s]’ devoid of
‘further factual enhancement.’” Id. (internal quotations omitted). “To survive a
motion to dismiss, a complaint must contain sufficient factual matter, accepted

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as true, to ‘state a claim to relief that is plausible on its face.’ A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.”
Id. (internal citations omitted).
In considering a motion to dismiss for failure to state a claim, the Court
should follow a “two-pronged approach” to evaluate the sufficiency of the
complaint. Hayden v. Paterson, 594 F.3d 150, 161 (2d Cir. 2010). “A court ‘can
choose to begin by identifying pleadings that, because they are no more than
conclusions, are not entitled to the assumption of truth.’” Id. (quoting Iqbal, 129
S.Ct. at 1949-50). “At the second step, a court should determine whether the
‘well-pleaded factual allegations,’ assumed to be true, ‘plausibly give rise to an
entitlement to relief.’” Id. (quoting Iqbal, 129 S.Ct. at 1950). “The plausibility
standard is not akin to a probability requirement, but it asks for more than a sheer
possibility that a defendant has acted unlawfully.” Iqbal, 129 S.Ct. at 1949
(internal quotation marks omitted).

III. DISCUSSION

A. Analysis of Defendant’s Counterclaim Asserting that Allstate Acted in Bad
Faith (Count Four)
Jean-Pierre asserts a counterclaim of bad faith alleging that Allstate
breached the policy’s implied covenant of good faith and fair dealing by seeking
to deny coverage to Jean-Pierre and refusing to settle the Muniz lawsuit. As
evidence of bad faith, Jean-Pierre cites Allstate’s affirmative actions such as

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accepting premium payments, razing and paying the mortgage encumbering the
property, and trying to negotiate a resolution of the property damage claims
arising from the fire and then refusing to settle the underlying lawsuit and
attempting to void coverage two years later on the basis of facts it or its agents
knew when the policy was issued.
In this diversity case, federal law governs the degree of particularity with
which such an allegation must be pled in a federal complaint while Connecticut
law defines the elements of a cause of action for bad faith. Martin v. Am. Equity
Ins. Co., 185 F. Supp. 2d 162, 164 (D. Conn. 2002) (citing Stern v. General Electric
Co., 924 F.2d 472, 476, n.6 (2d Cir. 1991)).
Although Fed. R. Civ. P. 8 does not require detailed factual allegations, “[a]
pleading that offers ‘labels and conclusions’ or ‘formulaic recitation of the
elements of a cause of action will not do.’ Nor does a complaint suffice if it
tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Ashcroft v.
Iqbal, 129 S. Ct. 1937, 1949 (2009). Id. (internal quotations omitted). “To survive a
motion to dismiss, a complaint must contain sufficient factual matter, accepted
as true, to ‘state a claim to relief that is plausible on its face.’ A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.”
Id. (internal citations omitted). “The plausibility standard is not akin to a
probability requirement, but it asks for more than a sheer possibility that a
defendant has acted unlawfully.” Iqbal, 129 S.Ct. at 1949 (internal quotation
marks omitted).

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Connecticut law implies a duty of good faith and fair dealing as a covenant
into every contract or contractual relationship. See De La Concha of Hartford, Inc.
v. Aetna Life Ins. Co., 269 Conn. 424, 432, 849 A.2d 382 (2004). This implied
covenant of good faith and fair dealing is applicable to insurance contracts. See
Verrastro v. Middlesex Ins. Co., 207 Conn. 179, 190, 540 A.2d 693 (1988).
Additionally, Connecticut law recognizes an independent cause of action in tort
for bad faith arising from an insurer’s breach of its common-law duty of good
faith. American Equity Ins. Co., 185 F.Supp.2d at 164 (citing Buckman v. People
Express, Inc., 205 Conn. 166, 170, 530 A.2d 596 (1987)). As another court in this
district has held, in order to establish a claim for bad faith under Connecticut
Law, the plaintiff is required to show: “(1) That the plaintiff and the defendant
were parties to a contract under which the plaintiff reasonably expected to
receive certain benefits; (2) that the defendant engaged in conduct that injured
the plaintiff’s right to receive some or all of those benefits; and (3) that when
committing the acts by which it injured the plaintiff’s right to receive benefits he
was reasonably expected to receive under the contract, the defendant was acting
in bad faith.” Franco v. Yale Univ., 238 F.Supp.2d 449, 455 (D.Conn 2002).
The Connecticut Supreme Court has defined bad faith as:
“the opposite of good faith, generally implying a design to mislead or
to deceive another, or a neglect or refusal to fulfill some duty or
some contractual obligation not prompted by an honest mistake as
to one’s rights or duties . . . Bad faith is not simply bad judgment or
negligence, but rather it implies the conscious doing of a wrong
because of dishonest purpose or moral obliquity . . . it contemplates
a state of mind affirmatively operating with furtive design or will.”
Van Dorsten v. Provident Life and Acc. Ins. Co., 554 F.Supp.2d 285,
287 (D.Conn. 2008) (citing Buckman v. People Express Inc., 205
Conn. 166, 171 (1987)).

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Consistent with this requirement that the conduct alleged to have constituted a
breach of the implied covenant of good faith and fair dealing must have been
committed with a state of mind affirmatively operating with furtive design or will,
Connecticut courts have required specific factual pleading of a sinister intent in
order to sufficiently plead a claim of bad faith.
For example, in Michalek v. Allstate Ins. Co., a policy holder’s estate
brought a bad faith claim against her insurer after it allegedly retained premium
payments paid by the insured but refused to provide coverage under the policy.
No. CV075008280, 2008 WL 283945, at *3 (Conn. Super. Ct. Jan. 18, 2008). The
court held these allegations to be insufficient because the plaintiff did not allege
“an interested or sinister motive on the part of Allstate, which is necessary to
plead sufficient facts to support the claim of ad faith.” Id. The court further noted
that without specific factual allegations of bad faith motive to review within the
complaint, the court may not “look beyond the complaint for facts not alleged.”
Id. (quoting Holler v. Buckley Broadcasting Co., 47 Conn. App. 764, 769 (1998).
In Michalek, Allstate sent a letter to the Insured stating that it would cancel
her policy effective Dec. 16, 2005 for non-payment of the premium unless it
received a minimum payment of $102.30 by Dec. 15, 2005. Then, on Dec. 22, 2005,
Allstate sent a letter to the Insured and the Insured’s mortgage lender, stating
that it was canceling the policy effective Jan. 10, 2006 if it did not receive
payment by Jan. 9, 2006. The Insured relied on the second notice and handdelivered a check to her insurance agent on Dec. 30, 2005. On Jan. 2, 2006, a fire
occurred at the Insured’s house, causing significant damage and killing the

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Insured. The Insured’s insurance agent cashed the check on Jan. 3, 2006. On Jan.
4, 2006, Allstate sent the Insured a letter stating that the policy was canceled,
effective Dec. 16, 2005 and reinstated on Jan. 3, 2006. Allstate thereby denied the
Insured’s claim for the Jan. 2, 2006 loss. See Michalek, No. CV075008280, 2008
WL 283945 (Conn. Super. Ct. Jan. 18, 2008).
The court reasoned that the allegations of improper refusal of plaintiff’s
insurance claim, conflicting notices of cancellation, and improper processing of
the insurance payment contained no allegation of a dishonest purpose. “They
simply do not rise to the level of bad faith because they lack any explicit or
implicit allegation of improper motive by Allstate.” Id. at *3. The court noted that it
was not clear why the conflicting notices of cancellation were sent, but that there
was no allegation that they were sent to confuse the plaintiff.
Similarly, Connecticut courts have found claims of bad faith to be
insufficient where they assert only “conclusory allegations” providing “no basis
for th[e] Court to reasonably infer bad faith,” Martin v. American Equity Insurance
Company, 185 F.Supp.2d 162, 164-65 (D.Conn 2002). In Am. Equity Ins. Co., the
court held that the Insured failed to allege sufficient facts to support a bad faith
claim where the insured alleged only that the defendant insurer acted in bad faith
by collecting premiums yet refusing to provide her with representation or a
defense or to adhere to the terms of the insurance policy, but did not include any
reference to specific facts demonstrating a sinister intent. 185 F.Supp.2d at 164.
Those cases are distinguishable from the case at bar.

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Here, Jean-Pierre’s bad faith counterclaim is supported by particularized
facts. He has alleged more than mere conclusory allegations. The parties do not
dispute the issuance of a casualty insurance policy ostensibly insuring the
property and its owner against certain losses and liabilities. Jean-Pierre pleads
sufficient factual content from which the trier of fact may reasonably infer bad
faith. See Am. Equity. Ins. Co., 185 F.Supp.2d at 164-65. Specifically, Jean-Pierre’s
bad faith counterclaim has alleged that Allstate issued the insurance policy “with
full knowledge” that he did not reside at the subject property, and that the subject
property was not an owner occupied dwelling, but rather included rental units
and a commercial space for lease, (Def. Countercl. ¶¶5-6), and that Allstate
collected policy premium payments under the policy for nearly two years, mailing
invoices to his address at a different location (Def. Countercl. ¶8). Further, he
alleges that “following the December 7, 2007 fire at issue, Allstate tendered
certain payments and took certain action, including but not limited to, razing the
insured property, and trying to negotiate a resolution of the property damage
claim(s) arising from the fire…all of which lead Jean-Pierre to reasonably believe
he had coverage under the policy,” (Def.’s Countercl. ¶16). Moreover, Allstate
continued to accept policy premium payments after the fire. (Def.’s Countercl. ¶8).
Subsequently, Jean-Pierre asserts Allstate “has sought to void coverage.” (Def.’s
Countercl. ¶ 14). Jean-Pierre asserts that Allstate took all of these actions
“willfully and in reckless disregard for Mr. Jean-Pierre’s rights under the Policy in
that it has arbitrarily and in bad faith failed […] to settle and/or compromise [the
underlying lawsuit.]” (Def.’s Countercl. ¶ 23).

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These allegations, laying out in detail Allstate’s conduct in issuing the
policy, taking action consistent with the policy for nearly two years, with the
knowledge that Jean-Pierre did not reside at the property and that the property
included rental units an a commercial space for lease, and then subsequently
denying coverage under the policy, along with the assertion that the acts were
committed with a bad faith motive, are sufficient to state a claim of breach of the
implied covenant of good faith and fair dealing when reviewed in the light most
favorable to the Plaintiff. Therefore, Allstate’s motion to dismiss Jean-Pierre’s
count four counterclaim must be denied.

B. Analysis of Defendant’s Counterclaims Asserting Waiver and Estoppel (Count
Two and Three)
Jean-Pierre also raises counterclaims of estoppel and waiver based on
Allstate’s actions during the two years after the December 2007 fire. In these
counterclaims, Jean-Pierre asserts that Allstate’s conduct, including accepting
his premium payments, razing and paying-off the mortgage encumbering the
property, and trying to negotiate a resolution of the property damage claims
arising from the fire, led him to reasonably believe he had coverage under the
policy, on which he relied to his detriment, thereby constituting a waiver of
Allstate’s right to deny coverage and estopping Allstate from attempting to deny
coverage on the basis of facts which Allstate knew or to which knowledge is
imputed to Allstate.
Under both Federal and Connecticut law, estoppel and waiver are properly
raised as defenses, and may not be relied upon as affirmative causes action. See

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Readco, Inc. v. Marine Midland Bank, 81 F.3d 295, 301 (2d Cir. 1996) (“equitable
estoppel is a principle or an affirmative defense that serves to stop another party
from denying a material fact”); General Motors Corp v. Watson Enters., Inc., No.
04-CV-120, 2004 WL 2472268, at *3 (D. Conn. Oct. 27, 2004) (“equitable estoppel is
appropriately used as a shield rather than as a sword”);
Covey v. Comen, 698 A.2d 343, 345 n.5 (Conn. App. Ct. 1997) (treating
Defendants’ counterclaim of estoppel in quiet title action as a special defense
rather than as a counterclaim because estoppel is properly pleaded as a special
defense rather than a cause of action); DJFM Properties, LLC v. Wells Fargo
Bank, No. CV-64008922S, 2006 WL 2730150, at *3 (Conn. Super. Ct. Sept. 5, 2006)
(quoting Dickau v. Glastonbury, 156 Conn. 437, 242 A.2d 777 (1968) (“equitable
estoppel is available only for protection and cannot be used as a weapon of
assault”); AFSCME, Council 4, Local 704 v. Dep’t of Pub. Health, 866 A.2d 582,
585 (Conn. 2005) (“[w]aiver is based upon a species of the principle of estoppel
and where applicable it will be enforced as the estoppel would be enforced”).
Whether or not the actions taken by Allstate in the two years after the
December 2007 fire meet the substantive criteria for estoppel and waiver,
because these claims were raised as affirmative causes of action rather than as
special defenses, the claims are not recognized. General Motors Corp., 2004 WL
2472268 at *3; see also DJFM Properties, 2006 WL 2730150 at *3.
Jean-Pierre’s reliance on several cases to support his argument that waiver
and estoppel may be raised as affirmative causes of action is misguided. These
cases discuss the merits of defenses of estoppel and waiver, rather than

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supporting his claim that estoppel and waiver may be used affirmatively as
causes of action. See Val Drugs, Inc. v. Lynn, 402 F. Supp. 174, 177 (W.D.N.Y.
1975) (“it is well settled that the acts of an insurer which led the insured to believe
he is covered under the policy estop the insurer from denying coverage under the
policy”); Boyce v. Allstate Ins. Co., 236 Conn. 375, (Conn. 1996) (reviewing the
use of estoppel as a defense against defendant’s counterclaim seeking
reimbursement for previously paid damages); Popowicz v. Metropolitan Life Ins.
Co., 114 Conn. 333, 333 (Conn. 1996) (holding that plaintiff could not rely on the
defense of waiver “if it could exist at all,” without properly pleading it); Fields v.
Metropolitan Life Ins. Co., 132 Conn. 588, (Conn. 1946) (finding that while
plaintiff’s waiver claim had some merit, waiver must be pleaded in order to be
considered by the court).
Under Connecticut law, waiver and estoppel are properly plead as special
defenses, not affirmative claims. Covey v. Comen, 698 A.2d at 345 n.5 (Conn. App.
Ct. 1997); AFSCME, Council 4, Local 704 v. Dep’t of Pub. Health, 866 A.2d at 585.
Because Jean-Pierre has raised waiver and estoppel in counterclaims as
affirmative causes of action and not special defenses, these claims must be
dismissed. The Court notes, however, that Jean-Pierre has also raised both
waiver and estoppel as affirmative defenses, and these defenses will remain
extant regardless of this dismissal of counterclaims two and three. This holding
does not and should not be construed to be a ruling on the merits of such
defenses.

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IV. CONCLUSION
Based upon the foregoing reasoning, Allstate’s motion to dismiss JeanPierre’s Counterclaims is GRANTED as to Counts Two and Three, and DENIED as
to Count Four. The court holds that Jean-Pierre has sufficiently plead specific
acts of bad faith to support a claim of breach of the implied covenant of good
faith and fair dealing. The court further holds that waiver and estoppel are
special defenses and may not be raised affirmatively as causes of action.

IT IS SO ORDERED.
/s/
Vanessa L. Bryant
United States District Judge

Dated at Hartford, Connecticut: August 30, 2011.

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