Conn. court overturns $35M verdict against insurer in auto repair shop class action

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"It would be an anomalous result, to say the least, if we were to endorse the position of the plaintiffs that every time an insurance company exercises its right to negotiate with an auto body repair shop for an hourly labor rate, and then proceeds to have its appraisers estimate the cost of repairing its insureds' vehicles on the basis of that agreed on rate, it is somehow committing an unfair trade practice," Palmer wrote.

A dozen years ago, a group of about 1,000 Connecticut auto body shops brought a class action against The Hartford Fire Insurance Co., part of The Hartford Financial Services Group, claiming the insurer violated the Connecticut Unfair Trade Practices Act (CUTPA) by pressuring its independent appraisers to establish artificially low hourly labor rates for auto body repair work.

The plaintiffs alleged that The Hartford used a group of pre-approved "direct repair providers," repair shops that accept lower rates for a high volume of work. The Hartford, in turn, would not pay any auto body shop higher rates than those paid to the direct repair providers. That put pressure on independent auto repair appraisers to write lower-than-market-value estimates or not get work.

At the trial, an appraiser who worked for The Hartford for 20 years testified that, he would have used a higher hourly labor rate when estimating the cost of auto body repairs because he believed the prevailing rate was too low, a state of affairs he attributed to the ability of the insurance companies to effectively dictate that rate. He further testified that if he and an auto body repair shop could not agree on a labor rate, he would call his supervisor, who would either authorize an increase or tell the shop that the insured motorist would have the repair done elsewhere.

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The case went to trial over 17 days in November 2009 and the jury returned a $14.7 million verdict. Then in June 2013, Stamford Superior Court Judge Alfred Jennings added $20 million for punitive damages. It was believed to be the largest CUTPA verdict in Connecticut history.

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A team of lawyers from Wiggin and Dana in New Haven, led by Jonathan Freiman and Aaron Bayer, represented The Hartford. They appealed the trial court verdict and the state Supreme Court agreed to hear the case. The lawyers for The Hartford argued that the auto repair shops in the class action were using CUTPA to try to drive up repair prices.

"Like any seller of goods or services, plaintiffs wanted to increase profits by charging more," the defense lawyers wrote in court documents. "Unable to convince their customers, including The Hartford, to pay more, the auto body shops aimed to use CUTPA to force them to pay more—at the expense of consumers and competition."

Palmer and the justices apparently agreed.

"Indeed, we are unable to discern why appraisers, when negotiating for the cost of auto repairs on behalf of their employers, would ever owe a duty of impartiality to the auto body repair shops with whom they are negotiating," wrote Palmer. "Under our regulatory provisions, those businesses are deemed to be capable of representing their own interests, and certainly are under no obligation to accept insurance related work that is not sufficiently remunerative."

A spokesman for The Hartford said they were "delighted" by the ruling, but declined to allow the Law Tribune to interview the lawyers who handled the case.

'Cigarette rule'

The plaintiffs' legal team was led by David Slossberg, of Hurwitz, Sagarin, Slossberg & Knuff in Milford. Slossberg was disappointed with the decision.

"I feel most badly for the thousands of small businesses in Connecticut who had a bona fide claim that a jury agreed with us and a trial judge agreed with us," said Slossberg. "There were several big issues before the [Supreme Court justices] that they did not write on and I think the opinion is noteworthy for that."

One of those was the so-called the cigarette rule, which grew out of cases challenging television ads for tobacco products. Under the rule, the following criteria must be considered in determining whether the defendant had engaged in an unfair trade practice: whether the practice, without necessarily having been previously considered unlawful, offends public policy established by statute or common law; whether it is immoral, unethical, oppressive or unscrupulous; and whether it causes substantial injury to consumers, competitors or other businesspersons.

(Photo: Shutterstock.com)

The Hartford argued that the trial judge improperly instructed the jury on the cigarette rule because of the Federal Trade Commission. The insurer argued that the FCC has abandoned the cigarette rule and replaced it with a different test for courts to consider.

Experts had expected the state's high court to address the fate of the cigarette rule in Connecticut. Two amicus briefs were submitted to the Supreme Court about that issue, including from the state Attorney General's Office. Attorney General George Jepsen declined to comment on the issue because the justices declined to address it.

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"In light of our conclusion in the present case that the plaintiffs' CUTPA claim fails even under the more lenient cigarette rule, it is unnecessary for us to decide whether that rule should be abandoned in favor of the federal test," Palmer wrote in a footnote. "Because of the likelihood that this court will be required to address this issue in a future case, however, the legislature may wish to clarify its position with respect to the proper test."

Slossberg said the plaintiffs were still "digesting" the decision and could not yet comment on whether they would pursue any further legal action.

Business lawyer Anthony Minchella, of Minchella & Associates in Middlebury, who was not involved in the case, was also disappointed with the ruling but acknowledged that this case was probably not the best set of circumstances to determine the fate of the cigarette rule.

"I am disappointed because the court appears to substitute its own judgment for the jury's," said Minchella. "Typically a trial court's refusal to set aside a verdict is entitled to great weight and presumed to be correct. I didn't even read that standard anywhere in the court's opinion."

Minchella pointed to the 2013 state Supreme Court decision in State v. Acordia, which he called part of a trend in not holding insurance companies liable for CUTPA violations. In that case, the court reversed the ruling of a trial judge who had decided that one of the country's largest insurance brokerage firms had violated the state statute when taking kickbacks to push clients to certain insurers.

Minchella believes the decisions are showing that small business owners are being held liable under CUTPA while large companies are not.

"If there was any doubt after Acordia whether insurance companies would be subject to CUTPA, this decision is the death knell for that doubt," said Minchella.