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Associated Construction / AP Construction, LLC v. The Hanover Insurance Co.

United States District Court, D. Connecticut

August 21, 2018

ASSOCIATED CONSTRUCTION / AP CONSTRUCTION, LLC Plaintiff,
v.
THE HANOVER INSURANCE COMPANY, et al. Defendants.

          Michael P. Shea, U.S.D.J.

         I. Introduction

         This lawsuit arises out of surety bonds issued for a construction project in Stamford, Connecticut. Associated Construction / A.P. Construction, LLC (“Associated Construction”), a construction contractor, alleges that the issuer of the bonds, Hanover Insurance Company (“Hanover” or the “Surety”), and its alleged agents, Scott Adams, Avalon Risk, LLC (“Avalon”), and Lighthouse Management, LLC (“Lighthouse”), failed to perform under the bonds and other related contracts and made misrepresentations in connection with the project. Defendant Hanover filed a cross-complaint against Defendant Adams for negligence and breach of fiduciary duty based upon his alleged role in the events noted above. Now before me is a motion for summary judgment brought by Adams against Hanover on its cross-complaint. (ECF No. 160). For the reasons that follow, the motion is DENIED.

         II. Background

         a. Factual Background[1]

         The following facts, which are taken from the parties' Local Rule 56(a) Statements and the exhibits, are undisputed unless otherwise indicated. “On February 20, 2008, [Hanover], a publicly traded insurance company with a home office in the state of Massachusetts, entered into an Agency Agreement with [Avalon] (hereinafter, the ‘Agency Agreement'), a licensed insurance agency located in the State of New Jersey, wherein Hanover appointed Avalon as one of Hanover's agents.” (ECF No. 161, Adams's Local Rule 56(a)1 Statement (“Def.'s L.R. 56(a)1 Stmt.”) at ¶ 1); ECF No. 175, Hanover's Local Rule 56(a)2 Statement (“Pl.'s L.R. 56(a)2 Stmt.”) at ¶ 1.)[2] “Adams executed the Agency Agreement on behalf of Avalon as the chief executive officer (“CEO”) of Avalon. ((Def.'s L.R. 56(a)1 Stmt. at ¶ 4; Pl.'s L.R. 56(a)2 Stmt. at ¶ 4.) “On January 11, 2010, Hanover and Avalon entered into a Letter of Authority (the ‘Letter of Authority'), ” which “was addressed to Scott Adams as CEO of Avalon and signed by him as CEO of Avalon.” (Def.'s L.R. 56(a)1 Stmt. at ¶¶ 6-7; Pl.'s L.R. 56(a)2 Stmt. at ¶¶ 6-7.)

         b. Hanover's Cross-Complaint Against Adams

         Hanover's cross-complaint asserts claims of negligence and breach of fiduciary duty against Adams. The cross-complaint rests upon the contention that Adams exceeded the scope of his authority in issuing the bonds at the heart of Associated Construction's case and that he engaged in various other breaches of his duty to Hanover in his actions thereafter. In particular, Hanover alleges that the performance bonds Adams issued through Avalon “exceeded the discretionary authority afforded to Avalon under the Letter of Authority to issue surety bonds in the name of Hanover without obtaining Hanover's specific, prior approval.” (ECF No. 119 (“Cross-Complaint”) at 7.) It also contends that Adams breached his duty to Hanover by “issuing the [performance bonds] notwithstanding that the underlying contracts contained liquidated damages clauses in excess of $1, 000 per day and [Associated Construction] had made commitments to advance payments to [the contractor] prior to commencing work and communicating with [Associated Construction] [regarding the contractor's] performance issues without providing timely notice to Hanover.” (Id. at ¶ 23.) Based upon these allegations, Hanover alleges a negligence claim contending that Adams, as an agent for Hanover, “was required to exercise reasonable care and skill in performing his duties, including complying with the limitations upon his authority.” (Id. at 9.) Hanover also alleges that Adams, “[a]s agent and fiduciary for Hanover” violated his fiduciary duties to the Surety. (Id. at 9-10.)

         III. Standard of Review

         Summary judgment is appropriate only when the moving party “shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “In making that determination, a court must view the evidence in the light most favorable to the opposing party.” Tolan v. Cotton, 134 S.Ct. 1861, 1866 (2014) (internal quotation marks omitted). “A fact is material if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 202 (2d Cir. 2007) (internal quotation marks omitted). The moving party bears the burden “of showing that no genuine factual dispute exists . . ., and in assessing the record to determine whether there is a genuine issue as to any material fact, the court is required to resolve all ambiguities and draw all factual inferences” in favor of the non-moving party. Cronin v. Aetna Life Ins. Co., 46 F.3d 196, 203 (2d Cir. 1995).

         IV. Discussion

         a. Whether Adams Acted as an Agent of Hanover

         Adams's main argument is that Hanover cannot establish that Adams was an agent of Hanover for the purposes of its claims. (See ECF No. 162 at 4-10.) Under Connecticut law, “[a]gency is defined as the fiduciary relationship which results from manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act . . . .” Beckenstein v. Potter and Carrier, Inc., 191 Conn. 120, 132 (1983) (internal quotation marks omitted). To establish the existence of an agency relationship, a party must demonstrate: “(1) manifestation by the principal that the agent will act for him; (2) acceptance by the agent of the undertaking; and (3) an understanding between the parties that the principal will be in control of the undertaking.” Id. “The existence of an agency relationship is a question of fact.” Id. And finally, “the labels used by the parties in referring to their relationship are not determinative; rather a court must look to the operative terms of their agreement or understanding.” Id. (internal quotation marks omitted). For the following reasons, I conclude there is a genuine issue of material fact regarding whether Adams was an agent of Hanover.

         First, Hanover designated Adams as its agent for the purposes of Connecticut law governing insurers. Under Conn. Gen. Stat. § 38a-702m(a), “[a]n insurer producer shall not act as an agent of an insurer unless the insurance producer becomes an appointed agent of the insurer.” “To appoint a producer as its agent, the appointing insurer shall file, in a form approved by the commissioner, a notice of appointment not later than fifteen days after the date the agency contract is executed or the first insurance application is submitted.” Conn. Gen. Stat. § 38a-702m(b). Here, Hanover appointed Adams as its agent under § 38a-702(m). (See ECF No. 175-20, Ex. 18 (“Notice of Appointment”) at 2 (noting that Adams was appointed as an agent of Hanover on February 18, 2008).) The statute leaves little doubt that Adams was appointed as an agent of Hanover-it specifies that “[a]n insurance producer who is not acting as an agent of an insurer is not required to become appointed.” Conn. Gen. Stat. § 38a-702m; see also Esposito v. CPM Ins. Servs., Inc., 50 Conn.Supp. 283, 298 (Super. Ct. 2006) ...


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