United States District Court, D. Connecticut
RULING ON MOTION TO DISMISS
R. UNDERHILL UNITED STATES DISTRICT JUDGE
action, The Metropolitan District Commission
(“MDC”) seeks a declaration that it is entitled
to a defense and indemnity coverage under the public
officials and employment practices liability policy
(“the Policy”) issued by QBE Specialty Insurance
Company (“QBE”) in connection with MDC's
imposition of surcharges on water customers at issue in
Paetzold et al., v. Metro. Dist. Comm'n,
October 17, 2018, QBE filed a motion to dismiss, alleging
that coverage is barred under several policy exclusions.
See Mot. to Dismiss (Doc. No. 13). On May 7, 2019, I
heard oral argument, after which I took the motion under
advisement. See Doc. No. 36. I agree that MDC's
claim is barred under the Policy's (1) prior knowledge
condition and (2) self-dealing or illegal profit exclusion.
Therefore, I grant QBE's motion to
Standard of Review
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 636, 639
(2d Cir. 1980)).
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
plaintiffs, and decide whether it is plausible that
plaintiffs have 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).
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).
of a contract of insurance presents a question of law for the
court.” Moore v. Cont'l Cas. Co., 252
Conn. 405, 409 (2000) (quoting Pacific Indemnity Ins. Co.
v. Aetna Casualty & Surety Co., 240 Conn. 26, 30
(1997)) (modification omitted). “The obligation of the
insurer to defend does not depend on whether the injured
party will successfully maintain a cause of action against
the insured but on whether he has, in his complaint, stated
facts which bring the injury within the coverage. If an
allegation of the complaint falls even possibly within the
coverage, then the insurance company must defend the
insured.” Id. (quoting Flint v. Universal
Machine Co., 238 Conn. 637, 646 (1996), and Schwartz
v. Stevenson, 37 Conn.App. 581, 585 (1995)) (quotation
marks and citations omitted). “The question of whether
an insurer has a duty to defend its insured is purely a
question of law, which is to be determined by comparing the
allegations of [the] complaint with the terms of the
insurance policy.” Cmty. Action for Greater
Middlesex Cty., Inc. v. Am. All. Ins. Co., 254 Conn.
387, 395 (2000). “Because the duty to defend is
significantly broader than the duty to indemnify,
‘where there is no duty to defend, there is no duty to
indemnify . . . .'” DaCruz v. State Farm Fire
& Cas. Co., 268 Conn. 675, 688 (2004) (quoting
QSP, Inc. v. Aetna Casualty & Surety Co., 256
Conn. 343, 382 (2001)).
The Glastonbury Action
February 12, 2014, the Town of Glastonbury
(“Glastonbury”) filed a civil action against MDC
in the Judicial District of Hartford, captioned Town of
Glastonbury v. Metropolitan District Commission, No.
HHD-CV14-6049007-S (“Glastonbury Action”).
See Ex. A to Mot. to Dismiss (Doc. No. 13-1).
Glastonbury sought a declaratory judgment that the surcharge
MDC levied on water recipients in non-member towns was
unlawful. Id. On August 13, 2015,
Glastonbury moved for summary judgment. On May 12, 2016, the
court entered an order granting Glastonbury's motion for
summary judgment and denying MDC's cross-motion.
See Town of Glastonbury v. Metro. Dist.
Comm'n, 2016 WL 3179757 (Conn. Super. Ct. May 12,
2016). The court held that the non-member surcharge was
illegal as a matter of law. Id. at *6.
“Because the General Assembly did not authorize [MDC]
to recover its water utility infrastructure or capital
improvement costs, the surcharge included costs that [MDC]
was not authorized to impose upon [Glastonbury] and
therefore, it was illegal as a matter of law.”
March 6, 2018, the Connecticut Supreme Court affirmed the
trial court's judgment. See Town of Glastonbury v.
Metro. Dist. Comm'n, 328 Conn. 326 (2018).
“Upon review of the grants of authority made to [MDC],
the court is compelled to conclude that the surcharge, which
encompassed general costs that [MDC] was not expressly
empowered to impose upon [Glastonbury], was unlawful.”
Id. at 344. The Connecticut Supreme Court further
[Glastonbury] is seeking a declaration by the court that
certain surcharges imposed by [MDC] were unlawful.
[Glastonbury] is not presently seeking damages and is not
obligated to do so. There is no question that if the
surcharges are unlawful, then [Glastonbury] can demonstrate
damages for those years the surcharges were imposed. It may
be that [Glastonbury] has not articulated the specific legal
theory under which it would recover those damages, and it is
uncertain whether [Glastonbury] will seek to recover those
damages at all.
Id. at 336 (internal citations omitted).
The Underlying Action
March 6, 2018, a lawsuit was filed on behalf of a proposed
class of MDC's water customers in the non-member towns of
Glastonbury, East Granby, Farmington and South Windsor who
paid the surcharge between January 1, 2006 and October 1,
2014. See Paetzold et al., v. Metro. Dist.
Comm'n, HHD-CV18-6090558-S (“Underlying
Action”). Count 1 of the Underlying Action asserts a
breach of contract claim, alleging that MDC breached its
contracts with customers in non-member towns by imposing the
unlawful surcharge on the Plaintiffs. See Underlying
Compl. ¶¶ 24-29. Count 2 alleges that MDC breached
the duty of good faith and fair dealing by imposing the
unlawful surcharge. Id. ¶¶ 30-35. Count 3
alleges an unjust enrichment claim, charging that MDC
benefited from the “payment of the unlawful
Surcharges” and that “[e]quity and the interests
of justice mandate . . . reimbursement of the unlawful
Surcharges imposed from January 1, 2006 to October 1, 2014,
plus interest.” Id. ¶ 42. The Plaintiffs
seek “[c]ompensatory damages exceeding $15, 000,
000” and “[i]nterest for monies wrongfully
withheld.” Id. at Prayer for Relief.
filed this lawsuit against QBE on August 10, 2018, seeking a
declaration that it is owed a duty of indemnification and a
duty of defense under the Policy. See Doc. No. 1-1.
On September 10, 2018, QBE removed the case to this court.
See Doc. No. 1. QBE subsequently moved to dismiss on
October 17, 2018. See Doc. No. 13.
The Underlying Action Alleges a “Wrongful
Act” Under the Policy
the Policy, QBE agrees to cover damages that MDC becomes
legally obligated to pay due to a wrongful act arising out of
a discharge of duties by MDC.
I - COVERAGE
A. Insuring Agreement
1. We will pay those sums that the Insured becomes legally
obligated to pay as damages because of a wrongful
act (regardless of whether or not such allegations
prove to be groundless, false or fraudulent) arising out of
the discharge of duties by or on behalf of the Named Insured
as shown in the Declarations provided always that:
a. the claim, on account of such
wrongful act, is first made against the
Insured and reported to us ...