Karas et al v. Liberty Insurance Corp
ORDER denying 12 Motion to Dismiss. Signed by Judge Stefan R. Underhill on 7/21/2014. (Martin, M.)
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
STEVEN KARAS and GAIL KARAS,
No. 3:13cv01836 (SRU)
LIBERTY INSURANCE CORP.,
RULING ON MOTION TO DISMISS
Steven and Gail Karas (the “Karases”) bring suit against their homeowner’s insurance
provider, Liberty Insurance Corporation (“Liberty Mutual”), for its alleged failure to indemnify
them for damages to the basement walls of their home.1 The complaint contains three counts
alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and
unfair and deceptive practices in violation of the Connecticut Unfair Insurance Practices Act,
Conn. Gen. Stat. § 38a-816 et seq. (“CUIPA”), and the Connecticut Unfair Trade Practices Act,
Conn. Gen. Stat. § 42-110a et seq. (“CUTPA”). Liberty Mutual argues that the plaintiffs’
complaint should be dismissed in its entirety for failure to state a claim. For the reasons stated
below, I DENY defendant’s motion to dismiss (doc. #12).
Standard of Review
A motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) is designed
“merely to assess the legal feasibility of a complaint, not to assay the weight of evidence which
might be offered in support thereof.” Ryder Energy Distribution Corp. v. Merrill Lynch
Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984) (quoting Geisler v. Petrocelli, 616 F.2d
Liberty Insurance Corporation is part of the Liberty Mutual Group. Compl. at ¶ 2. This court adopts “Liberty
Mutual” in this ruling to refer to Liberty Insurance Corporation, as the plaintiff does in the complaint.
636, 639 (2d Cir. 1980)).
When deciding a motion to dismiss pursuant to Rule 12(b)(6), the court must accept the
material facts alleged in the complaint as true, draw all reasonable inferences in favor of the
plaintiff, and decide whether it is plausible that the plaintiff has a valid claim for relief. Ashcroft
v. Iqbal, 556 U.S. 662, 678-79 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007);
Leeds v. Meltz, 85 F.3d 51, 53 (2d Cir. 1996).
Under Twombly, “[f]actual allegations must be enough to raise a right to relief above the
speculative level,” and assert a cause of action with enough heft to show entitlement to relief and
“enough facts to state a claim to relief that is plausible on its face.” 550 U.S. at 555, 570; see
also Iqbal, 556 U.S. at 679 (“While legal conclusions can provide the framework of a complaint,
they must be supported by factual allegations.”). The plausibility standard set forth in Twombly
and Iqbal obligates the plaintiff to “provide the grounds of his entitlement to relief” through
more than “labels and conclusions, and a formulaic recitation of the elements of a cause of
action.” Twombly, 550 U.S. at 555 (quotation marks omitted). Plausibility at the pleading stage
is nonetheless distinct from probability, and “a well-pleaded complaint may proceed even if it
strikes a savvy judge that actual proof of [the claims] is improbable, and . . . recovery is very
remote and unlikely.” Id. at 556 (quotation marks omitted).
Liberty Mutual insures the Karases’ home. In October 2013, the Karases noticed a series
of horizontal and vertical cracks in the basement walls of their home. They immediately
investigated the condition and discovered that the cracks were due to a chemical compound
found in certain basement walls constructed in the late 1980s and the early 1990s with concrete
most likely from the J.J. Mottes Concrete Company. The aggregate that company used to
All background information is taken from the plaintiffs’ complaint, unless otherwise noted.
manufacture concrete at the time contained a chemical compound which, when mixed with
water, sand, and cement necessary to form the concrete, began to oxidize and expand, breaking
the bonds of the concrete internally and reducing it to rubble. There is no known way to reverse
the deterioration, which continues whether or not there is visible water present. At some point
between the date on which the basement walls were poured and October 2013, the structural
integrity of the basement walls suffered a substantial impairment. It is only a question of time
until the basement walls of the Karases’ home will fall in, and as a result the entire home will fall
into the basement.
The Karases first learned of the existence of the substantial impairment in October 2013
and notified Liberty Mutual on November 15, 2013 of their claim for coverage under the
Homeowner’s Policy (the “Policy”). Liberty Mutual’s claims representative denied the claim
that same day by letter claiming that the policy does not afford coverage for deterioration. The
Policy provides coverage for “direct physical loss to covered property involving collapse of a
building or any part of a building caused only by one or more of the following: . . . (b) Hidden
decay; . . . or (f) Use of defective material or methods in construction, remodeling or
renovation.” Compl. Ex. A, at 12, 32 (doc. #1-1). The Karases allege that Liberty Mutual’s
denial of coverage breached its contractual obligation under the Policy.
This action followed, and the Karases have brought claims alleging breach of contract,
breach of the implied covenant of good faith and fair dealing, and violation of CUIPA and
CUTPA. On February 18, 2014, Liberty Mutual filed a Motion to Dismiss the Complaint in its
A. Count One: Breach of Contract
The elements of a breach of contract claim are the formation of an agreement,
performance by one party, breach of the agreement by the other party, and damages. Flagstar
Bank, FSB v. Ticor Title Ins. Co., 660 F. Supp. 2d 346, 350 (D. Conn. 2009); Meyers v.
Livingston, Adler, Pulda, Meiklejohn and Kelly, P.C., 311 Conn. 282, 291 (2014).
Construing the allegations in the light most favorable to the plaintiffs, the Karases have
alleged the existence of insurance for the Karases’ home issued by Liberty Mutual, and thus have
shown the formation of an agreement. See Compl. at ¶ 6; Compl. Ex. A (doc. #1-1). The
Karases have also shown their performance of the agreement, which allegedly includes the
payment of premium each year and a timely claim for coverage. See Compl. at ¶¶ 6, 18.
With respect to the breach of the agreement, the Karases allege that the basement walls
suffered a substantial impairment to their structural integrity, which constitutes a collapse. See
Beach v. Middlesex Mut. Assurance Co., 205 Conn. 246, 251-53 (1987) (finding the term
“collapse” sufficiently ambiguous to include coverage for any “substantial impairment of the
structural integrity of a building”). The collapse was allegedly caused by the use of a defective
concrete and its decay. The Karases allege that their loss should be covered by the Policy, but
Liberty Mutual denied the coverage and therefore breached the agreement. Liberty Mutual
moves to dismiss the claim, however, because the basement walls are the “foundation” or
“retaining walls” of the house, which are excluded from coverage.3
If the words in the policy are plain and unambiguous, the language must be accorded its
natural and ordinary meaning; however, if the insurance coverage is defined in terms that are
ambiguous, such ambiguity is resolved against the insurer, and the construction most favorable
to the insured will be adopted. See Empire Fire & Marine Ins. v. Lang, 655 F. Supp. 2d 150,
The Policy provides that “[l]oss to . . . [a] foundation, [or] retaining wall . . . is not included [under coverage for a
collapse caused by hidden decay or use of defective material or methods in construction, remodeling or renovation]
unless the loss is a direct result of the collapse of a building.” Compl. Ex. A, at 12, 32 (doc. #1-1).
156-57 (D. Conn. 2009); Peerless Ins. Co. v. Gonzalez, 241 Conn. 476, 482 (1997); Beach, 205
Conn. at 249-50. A contract is unambiguous when its language conveys a definite and precise
meaning. Mount Vernon Fire Ins. Co. v. El Rancho De Pancho LLC, No. 3:12cv00459 (WGY),
2013 WL 6326609, at *3 (D. Conn. Nov. 22, 2013); Isham v. Isham, 292 Conn. 170, 181 (2009);
Poole v. City of Waterbury, 266 Conn. 68, 88 (2003). If the language is susceptible to more than
one reasonable interpretation, the contract is ambiguous. El Rancho De Pancho, 2013 WL
6326609, at *3; Isham, 292 Conn. at 181; Poole, 266 Conn. at 88.4 Nevertheless, the mere fact
that the parties advance different interpretations of the language in question does not necessitate
a conclusion that the language is ambiguous. Poole, 266 Conn. at 88; Kelly v. Figueiredo, 222
Conn. 31, 37 (1992).
Liberty Mutual argues that the undefined terms “foundation” and “retaining wall” should
be interpreted on the basis of their dictionary definitions. See New London Cnty. Mut. Ins. Co. v.
Zachem, 145 Conn. App. 160, 166 (2013) (finding it proper to turn to the dictionary definition
when determining the meaning of an undefined term in an insurance policy). The MerriamWebster Dictionary, as Liberty Mutual argues, defines “foundation” as “a usually stone or
concrete structure that supports a building from underneath; . . . an underlying base or support;
especially: the whole masonry substructure of a building”; “retaining wall” is defined as “a wall
built to resist lateral pressure other than wind pressure; esp: one to prevent an earth slide.”
Def.’s Mem. Supp. Mot. Dismiss 5-6, 8. Liberty Mutual further argues that the United States
District Court for the District of New Jersey held in Wurst v. State Farm Fire & Cas. Co., 431 F.
In Poole, the Connecticut Supreme Court interpreted a health care coverage agreement between retired firefighters
and a city, which provided that the city “shall continue in full force and effect the medical benefits for each . . .
employee who retires . . . after [the execution of this agreement].” 266 Conn. at 92. The Court held that both
parties’ interpretations of the provision—the benefits shall continue throughout the retirement or stop when the
agreement expires—were reasonable, thus the agreement was ambiguous. Id. In Isham, the Court interpreting the
alimony provision in the parties’ separation agreement held that both interpretations of the term “salary”—to include
or to not include bonuses—are reasonable, therefore the agreement was ambiguous. 292 Conn. at 184.
Supp. 2d 501, 506 (D.N.J. 2006) that “foundation” in an insurance policy includes the basement
walls. In contrast, the Karases argue that the dictionary definition of “foundation” could be the
footing upon which the basement walls rest, which does not include the basement walls. See
Bacewicz v. NGM Ins. Co., No. 3:08cv1530 (JCH), 2010 WL 3023882, at *4 (D. Conn. Aug. 2,
2010) (citing Turner v. State Farm Fire & Cas. Co., 614 So. 2d 1029, 1032 (Ala. 1993)) (finding
that “foundation” could mean the piece of concrete at the base of the wall rather than a concrete
basement wall itself, thus the term is ambiguous). The Karases also argue that the
Encyclopaedia Britannica defines “retaining wall” as a “freestanding wall that either resists some
weight on one side or prevents the erosion of an embankment.” Pls.’ Mem. Opp’n Def.’s Mot.
Dismiss 8-9. Each party thus has a reasonable but different interpretation of the phrases
supported by dictionaries and case law, so the phrases are ambiguous, and the insurance policy
should be construed against Liberty Mutual. Therefore, the Karases have alleged facts that
constitute a breach of the agreement by the other party.
Moreover, the Karases have alleged that they have incurred financial loss and damage
because of Liberty Mutual’s alleged breach of agreement, which includes the cost of replacing
the basement walls, along with the related restoration of the deck, landscaping, driveway and
walks. In addition, the Karases allege that the substantial impairment took place at some point
between the date on which the basement walls were poured and the date on which they
discovered the impairment, which includes the period covered by the Policy, thus the Karases’
factual allegation with regard to the time when the loss occurred is also enough to raise their
right to relief above the speculative level. Therefore, the Karases’ factual allegations constitute a
plausible claim for breach of contract. Accordingly, Liberty Mutual’s motion to dismiss Count
One is denied.
B. Count Two: Breach of the Implied Covenant of Good Faith and Fair Dealing
The duty of good faith and fair dealing is a covenant implied into a contract or a
contractual relationship. Garbinski v. Nationwide Mut. Ins. Co., No. 3:10cv1191 (VLB), 2011
WL 3164057, at *8 (D. Conn. July 26, 2011); De La Concha of Hartford, Inc. v. Aetna Life Ins.
Co., 269 Conn. 424, 432 (2004). Every contract carries an implied duty requiring that neither
party do anything that will injure the right of the other to receive the benefits of the agreement.
Garbinski, 2011 WL 3164057, at *8; De La Concha, 269 Conn. at 432. To constitute a breach of
the implied covenant of good faith and fair dealing, the acts by which a defendant allegedly
impedes the plaintiff’s right to receive benefits that he or she reasonably expected to receive
under the contract must have been taken in bad faith. Garbinski, 2011 WL 3164057, at *8; De
La Concha, 269 Conn. at 433. Bad faith in general implies both actual or constructive fraud, or a
design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some
contractual obligation, not prompted by an honest mistake regarding one’s rights or duties, but
by some interested or sinister motive. Garbinski, 2011 WL 3164057, at *8; Habetz v. Condon,
224 Conn. 231, 237 (1992). Bad faith means more than mere negligence; it involves a dishonest
purpose. Garbinski, 2011 WL 3164057, at *8; Habetz, 224 Conn. at 237. An insurer’s failure to
conduct an adequate investigation of a claim, when accompanied by other evidence, reflecting an
improper motive, properly may be considered as evidence of bad faith. Capstone Bldg. Corp. v.
Am. Motorists Ins. Co., 308 Conn. 760, 801 (2013). In the absence of a breach of an express
duty under the insurance policy, however, there is no independent cause of action for the breach
of the implied covenant of good faith and fair dealing. Id.
As discussed above with respect to Count One, the Karases have alleged a plausible
claim of breach of contract. The Karases also allege that Liberty Mutual’s denial of coverage
was made without the benefit of any inspection of the basement walls at issue in order to verify
the damage or its possible causes. The Karases further allege that Liberty Mutual ignored the
coverage provided for “collapse,” intentionally cited inapplicable policy provisions, and misled
the Karases solely for the purpose of preserving its own assets. These factual allegations
describe the failure of Liberty Mutual to conduct an adequate investigation, accompanied by its
intent to mislead the insured and a motive to benefit itself. Thus the complaint alleges the
existence of bad faith. Accordingly, Liberty Mutual’s motion to dismiss Count Two is denied.
C. Count Three: Violation of CUIPA/CUTPA
A plaintiff may assert a private cause of action based on a substantive violation of
CUIPA through CUTPA’s enforcement provision. See McCulloch v. Hartford Life and Acc. Ins.
Co., 363 F. Supp. 2d 169, 181 (D. Conn. 2005); Mead v. Burns, 199 Conn. 651, 663 (1986). In
order to sustain a CUIPA cause of action under CUTPA, the plaintiff must allege conduct that is
proscribed by CUIPA. McCulloch, 363 F. Supp. 2d at 181; Nazami v. Patrons Mut. Ins. Co., 280
Conn. 619, 625 (2006). The plaintiff must also allege that the proscribed act proximately caused
the harm alleged. See McCulloch, 363 F. Supp. 2d at 181; Abrahams v. Young & Rubicam, Inc.,
240 Conn. 300, 306 (1997). A claim of unfair settlement practice under CUIPA/CUTPA
requires the plaintiff to allege that the defendant has committed the alleged proscribed act with
sufficient frequency to indicate a general business practice. See Conn. Gen. Stat. § 38a-816(6);
Bacewicz v. NGM Ins. Co., No. 3:08cv1530 (JCH), 2009 WL 1929098, at *3 (D. Conn. June 30,
2009); Quimby v. Kimberly Clark Corp., 28 Conn. App. 660, 672 (1992). The plaintiff must
show more than a single act of insurance misconduct; isolated instances of unfair settlement
practices are not sufficient to establish a claim. See Bacewicz, 2009 WL 1929098, at *3; Lees v.
Middlesex Ins. Co., 229 Conn. 842, 848-49 (1994); Quimby, 28 Conn. App. at 672; Mead, 199
Conn. at 663-64.
The Karases allege that Liberty Mutual gave them a knowingly false and misleading
reason for the denial of coverage, and thus failed to attempt “in good faith to effectuate prompt,
fair and equitable settlements of claims in which liability has become reasonably clear,” which is
proscribed by CUIPA5. The Karases also allege that they have suffered loss and damages caused
proximately by Liberty Mutual’s alleged misconduct. The Karases further allege that Liberty
Mutual and its related entities have refused to provide coverage in at least three separate
instances involving other homeowners experiencing the same damages caused by the same
mechanism and involving policy language identical to that in the Karases’ policy.6 Those
allegations plausibly allege that Liberty Mutual has committed the proscribed act with sufficient
frequency to indicate a general business practice. Therefore, the complaint states a plausible
claim for violation of CUTPA. Accordingly, Liberty Mutual’s motion to dismiss Count Three is
For the reasons stated above, I DENY defendant’s motion to dismiss (doc. #12).
It is so ordered.
Dated at Bridgeport, Connecticut, this 21st day of July 2014.
/s/ Stefan R. Underhill
Stefan R. Underhill
United States District Judge
CUIPA provides that unfair claim settlement practices include “not attempting in good faith to effectuate prompt,
fair and equitable settlements of claims in which liability has become reasonably clear” “with such frequency as to
indicate a general business practice.” Conn. Gen. Stat. § 38a-816(6)(F).
Compl. at ¶ 4 (citing Roberts v. Liberty Mut. Fire Ins. Co., No., 3:13cv00435 (D. Conn. filed Apr. 1, 2013);
Matthews v. Peerless, No. 3:12cv01506 (D. Conn. dismissed Oct. 4, 2013); Waters v. Liberty Mut. Grp., Inc., No.
06-131 (Mass. Supp.)).
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