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Halloran v. Harleysville Preferred Insurance Co.

United States District Court, D. Connecticut

October 19, 2018

MICHAEL HALLORAN, et al., Plaintiffs,



         On January 29, 2016, Plaintiffs, homeowners in Hartford, Tolland, and Windham Counties in Connecticut brought a Class Action Complaint against their homeowners insurance companies (collectively “Defendants”). ECF No. 1. Following the filing of the Fourth Amended Complaint, Defendants filed multiple motions to dismiss, as well as a motion to strike class allegations.

         For the reasons that follow, the Court GRANTS IN PART AND DENIES IN PART Defendants' motions to dismiss, ECF Nos. 497, 499, 502, 505, 508-510, 512, 514, 516, 518, 520, 522, 524, 526, 528, 530, 533, WITHOUT PREJUDICE TO RENEWAL following resolution by the Connecticut Supreme Court of the pending certified questions.

         As explained below, a subset of the counts in the Fourth Amended Complaint contain policy language that, as a matter of law, is unambiguous and does not support a claim for relief. The Court dismisses each Plaintiff whose entire claim for relief rested on a policy that unambiguously excluded coverage for abrupt or sudden collapse: Kathy Noblet, Dawn L. Norris, and Steven and Colleen Swart. Relatedly, the Court dismisses each Defendant whose entire liability rested on a policy that unambiguously excluded coverage for abrupt or sudden collapse: American Commerce Insurance Company and Allstate Insurance Company. The other Plaintiffs and Defendants remain parties to this action for the reasons stated below. The Court DENIES Defendants' motion to strike class allegations. ECF No. 498.

         A revised scheduling order with deadlines for the completion of discovery relating to the class allegations only and for the submission of a motion for class certification shall be submitted by Friday, November 16, 2018, jointly, if possible, but if the various parties cannot agree, separately. The Court then will hold an in-person status conference on Thursday, November 29, 2018 at 2:00pm.

         Consistent with this schedule and the Court's inherent authority to manage cases on its docket, [1] the Court will DENY any further amendments to the Fourth Amended Complaint, absent unforeseen circumstances not now readily apparent.


         Plaintiffs own homes in Hartford, Tolland, and Windham Counties in Connecticut. Fourth Am. Compl. (“FAC”) ¶ 1, ECF No. 488. Defendants are multiple insurance companies who each provided homeowners insurance to some of the Plaintiffs. Id.

         A. Factual Allegations

         Plaintiffs allegedly bought their homes between 1984 and 2015. See e.g. FAC ¶¶ 8-28. They allege that each of these properties has basement walls that are “crumbling and/or exhibiting a pattern of cracking” due to the oxidation of certain minerals contained in the concrete. Id. ¶¶ 2, 53. As a result of the deteriorating concrete, Plaintiffs claim that their “basement walls are in a state of collapse . . . .” FAC ¶ 2.

         The Hallorans' home in Ellington, Connecticut, is representative of the type of damage the Plaintiffs allegedly face. Constructed around 1985, their home is a two-story colonial. FAC, Ex. 1: Fuss & O'Neill Report at 1, 3. In 2015, engineers examining the house noted “light to moderate cracking” in the concrete, “with many cracks located at the corners of the building.” Id. at 3. Several cracks exceeded one eighth of an inch in width; most were between one-sixteenth and one-eighth. Inside the home, “map cracking was observed in the southwest corner.” Id. at 4. The engineers also took core samples from the concrete, which revealed “significant fracturing” as well as “massive sulfide minerals” later identified as pyrrhotite. Id. at 5.

         The engineers concluded that “[t]he oxidation (rusting) of pyrrhotite causes swelling and cracking” ultimately resulting “in decreased durability of concrete by changing the chemical nature of the paste and mechanical properties of the concrete.” Id. at 5. Ultimately, the engineers' “professional engineering judgment” was that the reaction would continue, “resulting in increased deterioration and eventual failure of the foundation to function as originally intended. The structural failure may lead to loss of support of the building structure, loss of support of the soil on the outside of the wall and/or allowance of water intrusion into the basement.” Id. at 6.

         Plaintiffs allege that “after discovering their deteriorating basement walls, Plaintiffs have homes that are practically impossible to sell, practically impossible to refinance and, eventually, will be impossible to safely live in.” FAC ¶ 4. As a result, each Plaintiff has “made a claim for coverage with one of the Defendant Insurance Companies” and either been denied coverage or expected to be denied coverage at the time of filing of the Complaint. See id. ¶ 56. The cost of replacing the basement walls for these homes “is generally between $100, 000.00 and $250, 000.00 and the homeowners allege that “[a]fter paying insurance premiums for years, or even decades, Plaintiffs are left to face this massive expense all alone.” Id. ¶ 83.

         1. The Insurance Services Office

         Plaintiffs allege that “[e]ach of the Defendant Insurance Companies adopted some or all of the language drafted” by a common organization - the Insurance Services Office, Inc. (“ISO”). See FAC ¶ 58. Plaintiffs purport that ISO, an insurance industry association, has “peddled” language in standardized policies. Id. ¶ 3. Plaintiffs contend that the insurance companies, along with ISO, were aware of the concrete issues in Connecticut “[a]t least as early as 1996” when claims began to be filed. Id. ¶ 63. They also allege that ISO and their insurance companies were aware that the Connecticut Supreme Court had defined collapse as a “substantial impairment of the structural integrity of a building.” Id. ¶ 62 (citing Beach v. Middlesex Mutual Assurance Co., 205 Conn. 246, 252 (1987).

         According to Plaintiffs, Defendants and ISO deliberately changed their policies' definitions of ‘collapse' to try to avoid or minimize liability for potential claims brought by Plaintiffs. Id. ¶ 64. The new language excluded losses to a “foundation” or “retaining wall” and “excluded ‘settling, cracking, shrinkage, bulging or expansion” from coverage of collapse. Id. ¶ 65. Plaintiffs allege that ISO was not the only organization that did so; the American Association of Insurance Services (“AAIS”) adopted similar exclusions. Id. ¶ 66.

         Ultimately, “[b]esieged by insureds raising this issue the Defendant Insurance Companies kept denying claims, ” according to Plaintiffs, and they “provid[ed] bogus responses when they knew the claims were good, while at the same time, casting about for a way to try to shore up the language in their policies.” Id. ¶ 72.

         Plaintiffs allege this occurred primarily through “collapse” provisions, which were amended in 1999 and again in 2011. Id. ¶¶ 73-74. These changes ultimately narrowed the coverage for Plaintiffs. Id. ¶ 77.

         2. The “Collapse” Provision

         The standard insurance policy language produced by ISO, and allegedly adopted by the insurance companies, went through several iterations between 1990 and the present. FAC, Ex. 2.

         Originally, the coverage provided for the “direct physical loss to covered property involving collapse of a building or any part of a building” caused by several discrete causes. FAC ¶ 101. These included “hidden decay”, “hidden insect or vermin damage”, the “use of defective materials or methods in construction, remodeling or renovation if the collapse occurs during the course of the construction, remodeling or renovation[.]” Id. The term “collapse” was undefined.[2]

         In 1999, ISO language allegedly changed and defined collapse as “an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its current intended purpose.” Id. The language clarified that a building “in danger of following down or caving in” or that “is standing” is “not considered to be in a state of collapse, ” even if it “shows evidence of cracking, bulging, sagging bending, leaning, settling, shrinkage or expansion.” The policy language changed several more times after 2000, but included an identical collapse provision.

         3. Notice Allegations

         Plaintiffs allege that each Defendant changed the language of their policies over time, and that these unilateral changes “attempted to delete coverage.” FAC ¶ 79. They argue that they are “homeowners without the requisite knowledge and resources to make the many intricate observations needed to determine” if their policies would cover certain events. FAC ¶ 81. Plaintiffs claim they “did not and could not negotiate with the Defendant Insurance Companies at arms' length” but instead trusted the insurance companies. Id. They allege that they “relied to their detriment on the Defendant Insurance Companies' superior knowledge and skill in purchasing their homeowners insurance policies[.]” Id. ¶ 81.

         The homeowners also allege that any changes were “unilateral” and made “without providing adequate notice or adequate disclosure” under Connecticut law. Id. ¶ 78.

         B. Procedural History

         Plaintiffs filed the first complaint in this case on January 29, 2016. See Compl., ECF No.

         1. The initial complaint included seven named plaintiffs and more than one hundred defendants, all insurance companies. Id. ¶¶ 2. Before Defendants had responded, Plaintiffs filed an amended complaint that included additional defendants and claims on March 17, 2016. See First Am. Compl., ECF No. 122. Plaintiffs then moved to certify a class, which they defined as:

All individuals who own a home in the Connecticut towns of Manchester, Andover, Ellington, Stafford Springs or any other Connecticut town located east of the Connecticut River whose homes are insured by any of the Insurance Defendants, and whose homes have sustained ‘pattern cracking' including but not limited to horizontal and vertical cracks on their basement walls, and whose bad foundation claims have been denied or will be denied by the Insurance Defendants, which denials are or will be based on the same standardized language regarding the term ‘collapse', the term ‘basement', the term ‘foundation', the term ‘decay', the term ‘hidden', and the term ‘retaining wall.'

         Pls. Mot. for Class Certification, ECF No. 158.

         The parties then sought different case management orders. See Pls. Proposed Case Management Order, ECF No. 239; Certain Defs. Non-Consented Mot. For Entry of Proposed Case Management Plan, ECF No. 240. The Court, in addressing these motions, provided that any motion for leave to file an amended complaint would be due by May 6, 2016. Order, ECF No. 254. It also denied Plaintiffs' motion for class certification without “prejudice to renewal following the Court's resolution of any motion to amend, and motions to dismiss directed at the amended complaint.” Id.

         Plaintiffs then moved for leave to file a Second Amended Complaint on May 7, 2016. See Pl Mot. for Leave to Amend, ECF No. 290. Plaintiffs sought to add nine additional plaintiffs and four additional defendants, and to remove three defendants. Id. at 4-5. Plaintiffs also sought to add additional causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing. Id. Defendants did not oppose amendment. See Defs. Resp., ECF No. 309. The Court granted the motion, noting the lack of objection. Order, ECF No. 323.

         The parties then moved to amend the scheduling order, and Plaintiffs stated that they intended to file a third amended complaint. ECF No. 325. The Court granted the request and stayed responsive pleadings regarding the Second Amended Complaint. See Order, ECF No. 326.

         On October 31, 2016, Plaintiffs moved to amend the Complaint yet again and join additional parties; they sought to add nineteen new plaintiffs and reduce the overall number of defendants to thirty. See Pls. Mot. for Leave to Amend., ECF No. 332. Defendant State Farm Fire and Casualty Company opposed amendment, but other parties stated they had no opposition. Cf. State Farm Fire and Casualty Co. Mem. of L. in Opp., ECF No. 337 (opposing Plaintiffs' motion for leave) with Defs. Resp., ECF No. 338 at 1 (“In the interest of judicial efficiency and economy for all parties and this Court, the Defendants listed in Exhibit 1 do not oppose Plaintiff's Motion insofar as it seeks leave to file a Third Amended Complaint.”).

         Before the Court addressed the motion, however, Plaintiffs moved for leave to file a substituted third complaint on December 12, 2016. See Pl. Mot., ECF No. 339. Plaintiffs stated that the proposed “Substituted Third Amended Complaint” rectified a number of errors, deleted references to individuals and companies not in the case, corrected a number of errors in dates, damage estimates, and party names, and dropped a number of claims. Id. Defendants, in large part, again did not oppose amendment, although they noted that “the proposed Substituted Third Amended Complaint is Plaintiffs' fifth complaint in this case” and “[e]ach such amendment has not only delayed joinder of issues, but has caused Defendants to incur significant and unnecessary expenses in defending themselves.” Defs. Resp. to Mot. to Amend/Correct, ECF No. 340, at ¶ 1. Defendants requested, however, that further amendment be barred unless Plaintiffs demonstrated good cause under Federal Rule of Civil Procedure 16. Id. ¶ 2.

         The Court granted Plaintiffs' motion and allowed the Substituted Third Amended Complaint to be filed. See Order on Mot. Amend Compl., ECF No. 350. The Court noted Defendants' consent. Id. at 1. The Court denied the Defendants' request to preclude future amendments unless Plaintiffs could show good cause because: “Defendants cite no authority supporting their request that the Court preemptively impose a good cause standard on Plaintiffs' potential future requests to further amend the complaint in this case. The Court will not, therefore, order that Plaintiffs be precluded from any further amendments to the complaint in the absence of good cause.” Id. at 2. Plaintiffs subsequently filed the Substituted Third Amended Complaint, ECF No. 352.

         Defendants then filed numerous motions to dismiss. This included joint motions to dismiss several shared counts, ECF No. 373, and to strike the class allegations, ECF No. 375. Individual defendants also filed separate motions to dismiss. See Travelers Defs. Mot. Dismiss, ECF No. 377; Citizens Ins. Co. Mot. Dismiss., ECF No. 379; Bunker Hill Ins. Co., ECF No. 381; New London Cty. Mutual Ins. Co. Mot. Dismiss, ECF No. 384; Trumbull Ins. Co. Mot. Dismiss, ECF No. 387; Allstate Ins. Co. Mot. Dismiss, ECF No. 391; Metropolitan Group Mot. Dismiss, ECF No. 394; Kemper Independence Ins. Co. Mot. Dismiss, ECF No. 397; Liberty Entities' Mot. Dismiss, ECF No. 399; Homesite Ins. Co. Mot. Dismiss, ECF No. 401; Amica Ins. Co. Mot. Dismiss, ECF No. 403; State Farm Mot. Dismiss, ECF No. 405;[3] Merrimack Mutual Fire Ins. Co. Mot. Dismiss, ECF No. 409; American Commerce Ins. Co. Mot. Dismiss, ECF No. 411; NGM Ins. Co. Mot. Dismiss, ECF No. 413; CSAA Fire and Cas. Ins. Co. Mot. Dismiss, ECF No. 415; Nationwide Property and Cas. Ins. Co. and Harleysville Preferred Ins. Co. Mot. Dismiss, ECF No. 416; Middlesex Mutual Assurance Co. Mot. Dismiss, ECF No. 420. Plaintiffs responded to these motions on September 15, 2017. See Sept. 2017 Pls. Mem. in Opp. re Mot. to Strike, ECF No. 457; Sept. 2017 Pls. Resp. to Mot. to Dismiss and Mot. to Sever, ECF No. 456; Sept. 2017 Pls. Mem. in Opp. Combined, ECF No. 458.

         Plaintiffs then filed another motion to amend on September 25, 2017, seeking leave to file a Fourth Amended Complaint, ECF No. 462. They sought leave to delete parties and claims that are no longer being pursued in light of the issues raised in various motions to dismiss, and to delete references to individuals and companies not in the case, and to add counts between existing parties, and to correct errors, missing, or confusing information. Id. at 1-2.

         Defendants then moved to stay briefing on the pending motions to dismiss until the Court issued its ruling on the motion to amend. See Defs. Mot. to Stay, ECF No. 463. Plaintiffs opposed the Defendants' motion to stay briefing. Mem. in Opp. re Mot. to Stay Certain Defs. Emerg. Mot. to Stay Briefing on Subst. Third Am. Compl., ECF No. 467.

         On September 29, 2017, the Court amended the scheduling order. Order on Amen. Sched. Order, ECF No. 470. The Court ordered Defendants to respond to the motion for leave to file a Fourth Amended Complaint within forty-five days. Id. at 2. Furthermore, the Court ordered that, should the Court deny leave to amend, Defendants would have thirty (30) days to file replies to the pending motions or, if the Court granted the motion, Defendants would have forty-five (45) days to answer, move to dismiss, or otherwise respond to the Fourth Amended Complaint. Id.

         Defendants filed two objections to the leave to amend. First, a group of defendants jointly argued that, while the Court has the discretion to grant leave, it should not do so because granting Plaintiffs' motion would lead to significant delay and increased litigation costs. Certain Defs. Opp. to Pls. Mot. (“Certain Defs. Opp.”), ECF No. 480.[4] Second, Middlesex Mutual Assurance Company (“MMAC”) filed an additional response to the motion for leave. Middlesex Mutual Assurance Co. Response (“MMAC Resp.”), ECF No. 481. MMAC raised individual arguments as to the individual Plaintiffs asserting claims against the company. Id.

         The Court granted leave to amend and mooted the pending motions to dismiss on February 8, 2018. See Order on Pl. Mot. for Leave to Amend (“Leave to Amend Order”), ECF No. 487. The Court determined that it would exercise its discretion because the delay had not yet prejudiced the parties, id. at 12, and no claims were futile, id. at 12-13. Ultimately, the Court determined “This case is a complex action involving Plaintiffs who seek to represent a class in a suit against multiple defendants, including some claims that relate to the class as a whole and some that relate to the interaction between subsets of plaintiffs and defendants. Some delay is inevitable given the posture of the case.” Id. at 11. The Court also declined to ban Plaintiffs from further amendments at that time. Id. at 15. The Court directed Plaintiffs to file the Fourth Amended Complaint and set a briefing schedule for a new round of motions to dismiss. Id. at 16-17.

         Plaintiffs filed the Fourth Amended Complaint on February 14, 2018. FAC. Three-thousand and three paragraphs long, the Fourth Amended Complaint asserts four categories of claims: breach of contract, declaratory judgment, breach of the implied covenant of good faith and fair dealing, and violations of the Connecticut Unfair Trade Practices Act (“CUTPA”), Conn. Gen. Stat. § 42-110(g), and Connecticut Unfair Insurance Practices Act (“CUIPA”), Conn. Gen. Stat. § 38a-815-35. Each Plaintiff asserts multiple counts against the insurer who provided insurance on his or her home, and in some cases an individual Plaintiff alleges unlawful conduct by multiple Defendants.

         Plaintiffs also renewed their class allegations. See Id. ¶ 2994. According to the Fourth Amended Complaint, Plaintiffs seek to bring this case on behalf of:

All persons who purchased any of the Defendants' homeowners insurance policies that insure property located in Connecticut and which contain coverage for “collapse, ” and who sought coverage for “collapse” of their basement walls and did not get it; and all persons who will purchase such homeowners insurance policies from any of the Defendants and who will seek such coverage, and who are unaware of the loss at the time of purchase.

Id. ¶ 2995. They allege that the proposed class would meet the requirements of Rule 23(b)(1), (b)(2) and (b)(3) of the Federal Rules of Civil Procedure. Id. ¶ 2995.

         Defendants then moved, individually and as a group, to dismiss the Fourth Amended Complaint. See, e.g., Certain Defs. Mot. to Dismiss, ECF No. 497. Additionally, Defendants moved to strike the class allegations. See Certain Defs Class Mem., ECF No. 498. Their motion to strike essentially employs each of the sections of Rule 23 of the Federal Rules of Civil Procedure. They argue that Plaintiffs will not be able to show commonality, and that each claim raises numerous individualized inquires that would defeat the class certification motion. Id. at 11. They also argue that the Plaintiffs cannot meet any of the requirements under the subsections of Rule 23(b), and therefore class certification would be inappropriate. Id. at 25-35. Plaintiffs responded to ...

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