Subrogation Rights of Judgment Creditors Against Insurers

Recently, in Randolph Carford et al. v. Empire Fire and Marine Ins., the Hon. Barbara Bellis of the Connecticut Superior Court held that a judgment creditor may not recover from an insurer under the Connecticut subrogation statute for breach of duty of good faith owed by the insurer to the insured. This decision stands for the proposition that the subrogation statute assigns to the judgment creditor only the insurer’s duty to pay the judgment.

This action arose out of a partially outstanding judgment from a lawsuit where the underlying claim involved a motor vehicle accident. In the first count of their complaint, the judgment creditor plaintiffs claimed that the defendant was liable for the full amount of their judgment as a result of the defendant’s breaches of its duty to the insured. In the second count, the plaintiffs alleged that they suffered additional economic and noneconomic damages and incurred severe and personal hardship by reason of the insured’s failure to effectuate a prompt settlement. The defendant moved to strike the this count, as well as the companion CUTPA and CUIPA claims.

In their opposition to the defendant’s motion to strike, the plaintiffs argued that their claim was legally sufficient because it alleged common-law damages resulting from the alleged bad faith conduct of the defendant. The Connecticut subrogation statute, C.G.S. § 38a-321, is broadly worded to authorize recovery by judgment creditors “to the extent that the defendant in such action could have enforced his claim against such insurer.” However, it is settled law in Connecticut that the duty of good faith and fair dealing does not extend to third parties, absent a contractual relationship. Such a duty between the insurer and the third party claimant would interfere with the insurer’s ability to act primarily for the benefit of the insured. Therefore, since the claimed breach of duty of good faith and fair dealing did not result in damages suffered by the insured in this claim, the court found that the plaintiffs’ claim was outside the parameters of the subrogation statute. We would like to note, judgment creditors generally have the insured sign over his rights to go after the insurer to avoid this problem.

In the same decision, the court also found that allegations that the insurer had unfairly delayed settlement negotiations as a negotiating ploy, both in respect to the plaintiff’s claim and other insured claims, were sufficient to survive a motion to strike a claim for violations of CUTPA and CUIPA. The plaintiff’s complaint stated that “the defendant has committed the acts…with such frequency as to constitute a business practice in that it repeatedly over several months for various and different reasons refused and delayed the prompt effectuation of settlement of the plaintiff’s claim within the liability policy limits…and that this negotiating technique was commonly carried out in order to effectuate settlements with claimants for sums less than what is fair and reasonable under the factual circumstances.” The court rejected the defendant’s argument that it had not been given sufficient notice of the plaintiffs’ claims because the plaintiffs’ allegations failed to identify the other insureds and allege the circumstances surrounding their claims.

While this seems to be a potentially troubling decision, the court has merely allowed the claim to be presented. The plaintiffs must still present evidence that the alleged conduct was present in other cases in order to recover under this claim. The court has simply allowed the plaintiff’s an opportunity to present evidence and to try to meet their burden of proof.