Monroe v. Discover Property & Casualty Ins. Co. , 169 Conn. App. 644 ( 2016 )

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TOWN OF MONROE v. DISCOVER PROPERTY
AND CASUALTY INSURANCE COMPANY
(AC 38332)
Beach, Sheldon and Lavery, Js.
Argued September 19—officially released December 6, 2016
(Appeal from Superior Court, judicial district of
Fairfield, Kamp, J.)
Jeffrey J. Vita, with whom was Bethany L. Barrese,
for the appellant (plaintiff).
Paul G. Roche, with whom, on the brief, was Joseph
H. Carlisle, for the appellee (defendant).
Opinion
BEACH, J. The plaintiff, the town of Monroe, appeals
from the judgment of the trial court rendering summary
judgment in favor of the defendant insurer, Discover
Property and Casualty Insurance Company. The plain-
tiff claims that the court erred in holding that the allega-
tions brought by a third party against the plaintiff in a
prior action (underlying action) fell within an exclusion
in the applicable policy, and, therefore, that the defen-
dant had no duty to provide a defense to the plaintiff.
We agree with the plaintiff and, accordingly, reverse
the judgment of the trial court.
The record reveals the following facts and procedural
history. In 2005, the plaintiff purchased a ‘‘Public Entity
Errors and Omissions Liability Policy’’ (policy) from
the defendant. In 2006, Bellsite Development, LLC (Bell-
site), instituted an action against the plaintiff. It alleged
that the plaintiff had agreed to assist in the ‘‘develop-
ment and implementation of a wireless telecommunica-
tions tower,’’ and had harmed Bellsite by abandoning
that agreement. The operative complaint in the underly-
ing action alleged (1) breach of contract (count one);
(2) promissory estoppel (count two); and (3) negligent
misrepresentation (count three). The plaintiff requested
defense and indemnity from the defendant, its insurer.
The defendant denied coverage. The plaintiff retained
counsel to defend its interests in the underlying case,
and the case was tried. In the trial court, the case was
decided in favor of Bellsite on counts one and three of
the operative complaint. On appeal, this court reversed
the judgment and directed judgment in favor of the
plaintiff on all three counts. Bellsite Development, LLC
v. Monroe, 155 Conn. App. 131, 154, 122 A.3d 640, cert.
denied, 318 Conn. 901, 12 A.3d 1279 (2015).
The plaintiff then brought the present action seeking
both a declaratory judgment that the defendant had a
duty to defend and damages arising from the defen-
dant’s alleged breach of that duty. The defendant filed a
motion for summary judgment, alleging that the plaintiff
could not prevail as a matter of law because the policy
excluded coverage for the claims as alleged in the
underlying complaint. On August 11, 2015, the court
granted the defendant’s motion. The court determined
that (1) the allegations regarding an agreement, if true,
amounted to a finding of a procurement contract, for
which coverage was excluded; and (2) Bellsite’s negli-
gent misrepresentation claim, as alleged in the third
count, arose out of that contract. Therefore, the allega-
tions, as alleged in the underlying complaint, all fell
within the clause of the policy excluding coverage for
contractual damages. This appeal followed.
As a preliminary matter, we set forth the appropriate
standard of review. ‘‘Our review of the trial court’s
decision to grant [a] motion for summary judgment
is plenary.’’ (Internal quotation marks omitted.) R.T.
Vanderbilt Co. v. Continental Casualty Co., 273 Conn.
448, 456, 870 A.2d 1048 (2005). ‘‘In seeking summary
judgment, it is the movant who has the burden of show-
ing the nonexistence of any issue of fact. The courts are
in entire agreement that the moving party for summary
judgment has the burden of showing the absence of
any genuine issue as to all the material facts, which,
under applicable principles of substantive law, entitle
him to a judgment as a matter of law.’’ (Internal quota-
tion marks omitted.) Id., 455–56.
‘‘Construction of a policy of insurance presents a
question of law, over which our review is de novo. . . .
It is beyond dispute that an insurer’s duty to defend,
being much broader in scope and application than its
duty to indemnify, is determined by reference to the
allegations contained in the complaint . . . . The obli-
gation 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 [that] bring the injury
within the coverage. . . . If an allegation of the com-
plaint falls even possibly within the coverage, then the
[insurer] must defend the insured.’’ (Citations omitted;
emphasis added; internal quotation marks omitted.)
Wentland v. American Equity Ins. Co., 267 Conn. 592,
600, 840 A.2d 1158 (2004); Moore v. Continental Casu-
alty Co., 252 Conn. 405, 409, 746 A.2d 1252 (2000); see
also Schwartz v. Stevenson, 37 Conn. App. 581, 584–85,
657 A.2d 244 (1995).
If the allegations of a complaint necessarily fall within
the terms of a policy exclusion, however, an insurer
does not have a duty to defend. New London County
Mutual Ins. Co. v. Bialobrodec, 137 Conn. App. 474,
479, 48 A.3d 742 (2012). An insurer is ‘‘entitled to prevail
under a policy exclusion [only] if the allegations of
the complaint clearly and unambiguously establish the
applicability of the exclusion to each and every claim
for which there might otherwise be coverage under
the policy.’’ (Emphasis added; internal quotation marks
omitted.) Id.; see also Wentland v. American Equity
Ins. Co., supra, 267 Conn. 592 (applicability of exclusion
for liquor liability not clearly and unambiguously estab-
lished where complaint alleged driver caused accident
while intoxicated); Schwartz v. Stevenson, supra, 37
Conn. App. 586 (applicability of exclusion for vehicles
owned by third parties not clearly and unambiguously
established where complaint did not specify who owned
vehicle at issue).
Section I (2) (d) (1) of the policy excluded coverage
for ‘‘[a]ny claim . . . [b]ased upon, arising out of,
directly or indirectly resulting from, or in consequence
of construction, architectural or engineering contracts
or any other procurement contract; or (2) [f]or which
the insured has assumed the liability in a contract or
agreement.’’ The policy also stated in § I (2) (d) (2) that
‘‘[t]his exclusion does not apply to liability for damages
that the insured would have in the absence of the con-
tract or agreement.’’
The plaintiff argues that the court erred in determin-
ing that the allegations of negligent misrepresentation
in the underlying complaint fell within the policy’s con-
tract exclusion. Specifically, the plaintiff contends that
the allegations of the complaint could not support the
finding of an enforceable contract, or of a procurement
contract of any kind, and, therefore, it could not be
proved that the negligent misrepresentation cause of
action arose out of that contract. The plaintiff also
argues that even if the allegations supported the exis-
tence of a contract, Bellsite’s negligent misrepresenta-
tion claim was a tort claim ‘‘separate and independent
from’’ Bellsite’s contractual claims, and coverage was
not necessarily precluded by the policy’s contract exclu-
sion. Because the claims were not necessarily excluded
by the policy language, the plaintiff argues, the defen-
dant had a duty to defend.
In response, the defendant argues that Bellsite’s negli-
gent misrepresentation claim did arise out of its breach
of contract claim because count three incorporated all
of the facts alleged in count one without including any
additional facts. The defendant also argues that ‘‘[n]egli-
gent misrepresentation arises out of business transac-
tions,’’ and that the ‘‘underlying business transaction
that the negligent misrepresentation allegedly arose out
of was the alleged underlying contract.’’ The defendant
argues that because ‘‘the allegedly breached contract
is the sole basis alleged in the underlying complaint for
the misrepresentation,’’ the negligent misrepresenta-
tion claim did not trigger the defendant’s duty to defend.
We disagree.
The determinative issue is whether coverage for the
negligent misrepresentation claim outlined in count
three is negated by the policy’s contract exclusion. To
determine whether a complaint has triggered the defen-
dant’s duty to defend, we must compare the language
of the complaint with the language of the policy. Com-
munity Action for Greater Middlesex County, Inc. v.
American Alliance Ins. Co., 254 Conn. 387, 398, 757
A.2d 1074 (2000). An insurer does not have a duty to
defend ‘‘if the allegations of the complaint clearly and
unambiguously establish the applicability of [a policy]
exclusion . . . .’’ (Emphasis added; internal quotation
marks omitted.) New London County Mutual Ins. Co.
v. Bialobrodec, supra, 137 Conn. App. 479. The insurer
does have a duty to defend ‘‘[i]f an allegation of the
complaint falls even possibly within the coverage
. . . .’’ (Emphasis added; internal quotation marks
omitted.) R.T. Vanderbilt Co. v. Continental Casualty
Co., supra, 273 Conn. 470. Because in the present case
it is possible that the allegations in Bellsite’s negligent
misrepresentation claim set forth a claim that is outside
the terms of the exclusion, the underlying complaint
triggered the defendant’s duty to defend.
In count three of its operative complaint, which
alleged negligent misrepresentation, Bellsite incorpo-
rated the allegation from count one that ‘‘it was prom-
ised that if Bellsite received the necessary approvals
for construction of a tower, the town would locate its
police communications systems on the tower.’’ Other
allegations refer to this promise as ‘‘an agreement’’ that
Bellsite acted ‘‘in reliance on,’’ but there is no further
description of the alleged contract between the parties.
Bellsite also alleged in count three, however, that the
plaintiff made various ‘‘statements, representations,
promises and assurances’’ that ‘‘constitute[d] negligent
misrepresentation . . . .’’ Depending on the evidence
presented, a finder of fact perhaps could find on these
allegations that a contract existed and that any alleged
negligent misrepresentation ‘‘arose out of’’ that con-
tract, but it could also find that regardless of whether
an enforceable contract had been created, one or more
negligent misrepresentations had been made in the
course of discussions between the parties, and there
was arguably no limiting language as to when such
misrepresentations were made. Bellsite separated its
claims of breach of contract and negligent misrepresen-
tation into separate counts in its complaint, and the
allegations of the third count quite clearly allege negli-
gent misrepresentation.
In fact, when the underlying action reached this court
on appeal, this court treated Bellsite’s claims of breach
of contract and negligent misrepresentation as separate
and distinct. Bellsite Development, LLC v. Monroe,
supra, 155 Conn. App. 131. The defendant argues that
the manner in which the action was ultimately treated
by a court is irrelevant because the duty to defend
is dependent only on the language of the complaint.
Although the defendant’s characterization of the duty
to defend is correct; see Wentland v. American Equity
Ins. Co., supra, 267 Conn. 592; this court’s prior analysis
is useful to consider because it illustrates that the trier
could have found that the plaintiff was liable for negli-
gent misrepresentation even in the absence of a con-
tract between the parties. The policy exclusion
specifically states that the exclusion ‘‘does not apply
to liability for damages that the insured would have in
the absence of the contract or agreement.’’ Because
the complaint left open the possibility that the alleged
negligent misrepresentation did not arise out of a con-
tract, the defendant’s duty to defend was not precluded
by the contract exclusion.
In recognizing the possibility that the negligent mis-
representation claim did not arise out a contract
between the parties, we acknowledge that the phrase
‘‘arose out of’’ is defined broadly in Connecticut. See
Nationwide Mutual Ins. Co. v. Pasiak, 161 Conn. App.
86, 98–99, 127 A.3d 346 (2015), cert. granted on other
grounds, 320 Conn. 913, 130 A.3d 266 (2016). This court
has previously stated that a negligent misrepresentation
may arise out of a business pursuit where the ‘‘tortious
acts and resulting injuries in the underlying action were
connected with, had their origins in, grew out of, flowed
from, or were incident to the [party’s] business pursuits
. . . .’’ Id., 101. The defendant argues that under this
broad definition, the negligent misrepresentation claim
must have arisen out of a contract between the parties
because it ‘‘flowed from’’ the same facts alleged in Bell-
site’s breach of contract claim. The defendant assumes
too much. The facts alleged in the complaint may or
may not have provided the basis on which to prove an
enforceable contract, but the ‘‘statements, representa-
tions, promises and assurances’’ of the plaintiff, as
alleged in count three of the underlying complaint,
could have been made outside of contract negotiations,
or, even if made in the context of contract negotiations,
could perhaps have been severable from contract terms.
It was entirely possible from a reading of the allegations
of the complaint that the negligent misrepresentation
claim, while arising from the ‘‘same facts’’ as the con-
tract claim, did not arise out of a contract. This possibil-
ity triggered the defendant’s duty to defend in the
underlying action.
The defendant argues two alternative grounds for
affirming the trial court’s decision: (1) that the policy’s
‘‘personal profit’’ exclusion barred coverage for the
underlying negligent misrepresentation claim; and (2)
that the underlying action did not seek ‘‘covered dam-
ages’’ under the policy. These claims do not have merit.
The policy’s personal profit exclusion barred cover-
age for ‘‘[a]ny liability based upon or attributable to an
insured gaining any profit, advantage, or remuneration
to which that insured is not legally entitled.’’ The defen-
dant argues that the allegations of the underlying com-
plaint fall within this exclusion because ‘‘the underlying
complaint specifies certain work of [Bellsite] that the
[plaintiff] allegedly received for free because the [plain-
tiff] allegedly failed to pay for the work.’’ The underlying
complaint, however, does not allege that the plaintiff
received any ‘‘profit, advantage, or remuneration’’ to
which it was not entitled. Rather, it alleges that the
plaintiff failed to honor its agreement to place its equip-
ment on a tower contemplated by Bellsite, and Bellsite
was thereby harmed. The allegations of the underlying
complaint do not necessarily fall within the exclusion.
The defendant also argues that ‘‘there is no coverage
under the policy for the underlying complaint’s allega-
tions because the underlying complaint does not seek
covered damages under the policy.’’ The defendant
argues that the underlying complaint sought restitution
and compensation for work done by Bellsite, and that
restitution and compensation do not constitute dam-
ages. The underlying complaint clearly sought money
damages as compensation for its expenditures. The pol-
icy stated that the insurer was to pay ‘‘on behalf of the
insured those sums that the insured becomes legally
obligated to pay as damages because of a ‘wrongful act’
to which this insurance applies.’’ There is no merit to
this claim.
The judgment is reversed and the case is remanded
with direction to deny the defendant’s motion for sum-
mary judgment and for further proceedings according
to law.
In this opinion the other judges concurred.