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Artie's Auto Body, Inc. v. Hartford Fire Ins. Co.

Supreme Court of Connecticut

July 21, 2015

ARTIE'S AUTO BODY, INC., ET AL.
v.
THE HARTFORD FIRE INSURANCE COMPANY

Argued January 13, 2015

Action to recover damages for, inter alia, the defendant's alleged violation of the Connecticut Unfair Trade Practices Act, and for other relief, brought to the Superior Court in the judicial district of Stamford-Norwalk, and transferred to the Complex Litigation Docket, where the court, Taggart, J., granted the plaintiffs' motion for class action certification; thereafter, the court, Hon. Alfred J. Jennings, Jr., judge trial referee, granted in part the defendant's motion for summary judgment; subsequently, the case was tried to the jury before Hon. Alfred J. Jennings, Jr., judge trial referee; verdict for the plaintiffs; thereafter, the court, Hon. Alfred J. Jennings, Jr., judge trial referee, denied the defendant's motion to set aside the verdict and for judgment notwithstanding the verdict, granted the plaintiffs' motions for a permanent injunction and for punitive damages, and, exercising the powers of the Superior Court, rendered judgment in accordance with the verdict, from which the defendant appealed.

SYLLABUS

The plaintiffs, three Connecticut auto body repair shops and an association of Connecticut auto body repair shops dedicated to the advancement of the auto body repair industry, brought a class action against the defendant insurance company, H Co., claiming, inter alia, that H Co. had violated the Connecticut Unfair Trade Practices Act (CUTPA) (§ 42-110a et seq.) by requiring its appraisers, when estimating the cost of auto body damage sustained by H Co.'s customers, to use artificially low hourly labor rates set by H Co. and agreed to by the plaintiff auto body repair shops, instead of rates that more accurately reflected the value of the services that the repair shops provided. The plaintiffs alleged that H Co.'s conduct offended, inter alia, the public policy found in a state regulation (§ 38a-790-8) promulgated by the Insurance Department that requires auto body repair appraisers to approach the appraisal process without prejudice against, or favoritism toward, any party involved in order to make fair and impartial appraisals. The jury found in favor of the plaintiffs on their CUTPA claim, determining that the plaintiffs had met their burden of proving that H Co.'s labor rate practices offended the public policy embodied in § 38a-790-8. The trial court rendered judgment in accordance with the jury verdict, awarding the plaintiffs compensatory and punitive damages. On appeal, H Co. claimed, inter alia, that the trial court improperly had denied its motion to set aside the verdict and for judgment notwithstanding the verdict, in which H Co. claimed that § 38a-790-8 did not prohibit H Co.'s labor rate practices. Held that the trial court incorrectly concluded that § 38a-790-8 supported the plaintiffs' CUTPA claim alleging unfair labor rate practices; because § 38a-790-8 did not purport to prohibit or regulate the negotiation of hourly labor rates for auto body repair services between auto body repair shops and H Co., or between auto body repair shops and appraisers acting on H Co.'s behalf, H Co.'s labor rate practices did not offend the public policy found in § 38a-790-8 or any other public policy of this state, and, thus, the plaintiffs' CUTPA claim could not stand and H Co. was entitled to judgment as a matter of law.

Jonathan M. Freiman, with whom were Aaron S. Bayer and Benjamin M. Daniels, and, on the brief, Robert M. Langer and Carolina D. Ventura, for the appellant (defendant).

David A. Slossberg, with whom were David L. Belt and, on the brief, Nicole H. Najam, Alan Neigher and Ronald J. Aranoff, pro hac vice, for the appellees (plaintiffs).

George Jepsen, attorney general, Gregory T. D'Auria, solicitor general, and Jane R. Rosenberg, Phillip Rosario, Brendan T. Flynn and Jonathan J. Blake, assistant attorneys general, filed a brief for the state of Connecticut as amicus curiae.

Michael D. Shumsky filed a brief for Timothy J. Muris and J. Howard Beales as amici curiae.

Rogers, C. J., and Palmer, Zarella, Eveleigh, McDonald, Espinosa and Robinson, Js. PALMER, J. In this opinion the other justices concurred.

OPINION

PALMER, J.

Page 1140

[317 Conn. 604] The plaintiffs, Artie's Auto Body, Inc., A & R Body Specialty, Skrip's Auto Body, and the Auto Body Association of Connecticut (association),[1] [317 Conn. 605] brought this class action against the defendant, The Hartford Fire Insurance Company, on behalf of more than 1000 independent automobile (auto) body repair shops in Connecticut. They principally claimed that the defendant had violated the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq., by requiring its staff motor vehicle physical damage appraisers (appraisers), who must be licensed in accordance with General Statutes § 38a-790 (a),[2] to use the hourly labor rates agreed on by the defendant and the plaintiff auto body shops, instead of rates that more accurately reflect the actual value of those services, when appraising auto body damage sustained by the defendant's insureds. According to the plaintiffs, the defendant's conduct constituted an unfair trade practice because it offended the public policy found in § 38a-790-8 of the Regulations of Connecticut State Agencies,[3]

Page 1141

which requires appraisers to " approach the appraisal of damaged property without prejudice against, or favoritism toward, any party involved in order to make fair and impartial appraisals . . . ." Regs., Conn. State Agencies § 38a-790-8 (2). [317 Conn. 606] Following a trial, the jury found in favor of the plaintiffs and awarded them $14,765,556.27 in compensatory damages.[4] Thereafter, the trial court awarded the plaintiffs $20,000,000 in punitive damages and rendered judgment for the plaintiffs in the total amount of $34,765,556.27. On appeal,[5] the defendant claims, inter alia, that the trial court improperly denied its motion for a directed verdict and its motion to set aside the verdict and for judgment notwithstanding the verdict because § 38a-790-8 does not prohibit the insurance practices at issue in this case. We agree and, accordingly, reverse the judgment of the trial court.

The following facts, which the jury reasonably could have found, and procedural history are relevant to our resolution of this appeal. The plaintiffs commenced this action in 2003, claiming, inter alia, that the defendant had engaged in an unfair trade practice by requiring its appraisers to use artificially low labor rates when estimating the cost of auto body repairs. The evidence presented at trial established that the appraisers, when negotiating with independent auto body repair shops on behalf of the defendant, used the hourly labor rate that the defendant paid to shops that were part of the defendant's direct repair program (DRP). Under this program, in return for a steady stream of customer referrals, auto body repair shops contractually agreed [317 Conn. 607] to perform repairs at an hourly labor rate set by the defendant. In 2000, that rate was approximately $41 per hour. In 2009, at the time of trial, the rate had increased to approximately $46 per hour. The DRP hourly labor rate was significantly lower than the hourly labor rates that were posted in the plaintiff auto body shops[6] but were equal to the rates that other insurance companies in Connecticut paid for auto body repair services. At the time of trial, the plaintiffs' posted labor rates were in the range of $65 to $78 per hour. It also is undisputed that, with respect to the auto body repair services purchased in this state, almost all of those services are purchased by insurance companies.[7] Thus, as

Page 1142

the plaintiff auto body shops conceded at trial, because virtually all of their business is insurance related, it is exceedingly rare for them to be paid their posted hourly labor rates. For example, one shop owner testified that he could recall only one customer ever paying him the posted hourly rate. The plaintiff auto body shops adduced testimony that their posted rates nevertheless reflect the true value of their labor, and what they would receive if the defendant and other insurance companies were not, by virtue of their market power, suppressing the hourly labor rate. Testimony presented by the plaintiff auto body shops also established that they agree to work for the DRP rate because they know that, if they do not, their competitors will, and they cannot afford to lose the business. As one shop owner put it, " [i]f I said, I'm not going to do it, that car would just go down the street . . . ." Another owner testified that, if he [317 Conn. 608] started demanding that customers pay him the posted rate, he " [would] have an empty shop."

The evidence at trial further established that the hourly labor rate for auto mechanical service work in Connecticut, the vast majority of which is purchased by consumers rather than by insurance companies, is almost twice that of auto body repair work, even though both types of repairs require comparable training, skills and equipment. Mike O'Mara, a licensed appraiser who worked for the defendant for twenty years, testified that, if the defendant had allowed him to do so, he would have used a higher hourly labor rate when estimating the cost of auto body repairs because he believed the prevailing rate was too low, a state of affairs that he attributed to the ability of the insurance companies to effectively dictate that rate. O'Mara testified that, if he and an auto body repair shop could not agree on a labor rate, he would call his supervisor, who would either authorize an increase or tell the shop that the insured would have the repair done elsewhere.

In 2002, O'Mara and three of his colleagues wrote a letter to the attorney general, expressing concern that they could be exposing themselves to liability by using the prevailing labor rate in their negotiations with independent auto body repair shops because, in their view, § 38a-790-8 required them to write estimates that were fair and reasonable, and they did not believe that the prevailing rate was fair and reasonable.[8] O'Mara subsequently met with representatives of the state Insurance [317 Conn. 609] Department (department), which assured him that he could continue using the prevailing rate when negotiating on behalf of the defendant. At the time of trial, O'Mara, who by then was working as an appraiser for one of the plaintiff auto body shops, testified that, although he no longer worked for the defendant, he still used DRP labor rates when estimating the cost of auto body repairs and did not believe that he was violating § 38a-790-8 in doing so.

Page 1143

At the close of evidence, the trial court instructed the jury that, to prevail on their CUTPA claim, the plaintiffs were required to prove that the defendant's practices violated at least one prong of the so-called " cigarette rule," which is the test that this court has adopted for determining liability under CUTPA.[9] Specifically, the court stated: " Certain guidelines have been established as to what constitutes an unfair trade practice under CUTPA. The plaintiffs must establish that one or more of the defendant's alleged practices [meet] at least one of the three following criteria: (1) it offends public policy, as it has been established by statutes, the common law or other established concept of unfairness; or (2) it is immoral, unethical, oppressive or unscrupulous; [317 Conn. 610] or (3) it causes substantial injury to consumers, competitors or other business persons. . . . All three criteria do not need to be satisfied to support a finding of unfairness. A practice may be unfair because of the degree to which it meets one of the criteria or to a lesser extent it meets all three."

With respect to the first criterion, the court explained that the plaintiffs were relying on three indicia of public policy to support their claim that the defendant's labor rate practices violated CUTPA. The first such policy, the court explained, is found in General Statutes § 38a-816, a provision of the Connecticut Unfair Insurance Practices Act (CUIPA), General Statutes § 38a-815 et seq., that includes within the scope of unfair insurance claim settlement practices, " not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear . . . ." General Statutes § 38a-816 (6) (F). The second policy, the court stated, is found in § 38a-790-8, the code of ethics for motor vehicle physical damage appraisers, which requires an appraiser to " approach the appraisal of damaged property without prejudice against, or favoritism toward, any party involved in order to make fair and impartial appraisals," to " disregard any efforts on the part of others to influence his judgment in the interest of the parties involved," and to " prepare an independent appraisal of damage." Regs., Conn. State Agencies § 38a-790-8 (2) through (4). The third policy, the court stated, is found in certain guidelines that the department has issued to assist insurance companies in determining appropriate hourly labor rates to pay independent ...


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