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Litigation Privilege Bars Bad Faith Claims Where Carrier Accused of Making Misrepresentations and Withholding Evidence: Says Connecticut Supreme Court

By Lee S. Siegel, Esq.

03/29/2022 Dorfman v. Smith
Supreme Court of Connecticut
Connecticut Finds That Litigation Privilege Bars Bad Faith Claims Where Carrier Deliberately Withheld Evidence From its Insured, Implicitly Rejecting A Continuing Duty of Good Faith.

In a surprising limitation of the common law duty of good faith and fair dealing, the Connecticut Supreme Court, 4-1, found that a carrier that was charged with deliberately withholding relevant evidence and making false representations (through its counsel) to the court, did not act in bad faith. Instead, this alleged conduct was protected by the litigation privilege. The Court held that, “our case law does not support a public policy disfavoring immunity for false pleadings but, to the contrary, manifests, as discussed, a policy in favor of immunizing communications made during and relevant to litigation, even if they are intentionally false and malicious.”

The plaintiff, Tamara Dorfman, was injured in a motor vehicle accident when Joscelyn Smith ran a stop sign. Smith was underinsured and Dorfman made a claim to her UM/UIM carrier, Liberty Mutual. Liberty investigated the claim, concluding that Smith was 100% at fault. Dorfman sued for benefits, but Liberty deliberately withheld from its counsel its file notes concluding that Smith was wholly at fault, and which included the recorded statement and identity of a witness to the collision. The record demonstrated that Liberty knew this information was necessary for its attorneys to prepare accurate pleadings and discovery responses. Liberty, instead, through its counsel denied having sufficient information to admit the plaintiff’s allegations regarding the cause of the collision, asserting the special defense of contributory negligence. Liberty allegedly made these pleadings even though it knew that they were without any basis in fact. Liberty also provided false responses to discovery requests, including that it did not know of the existence of the witness to the collision or whether any recorded statements of witnesses existed. At deposition, Liberty’s corporate designee admitted that Liberty had been aware of the witness to the collision and his recorded statement but failed to disclose that information. Liberty’s witness testified that, ‘‘[t]here was no basis in fact for [the defendant’s] accusation that [the plaintiff] was in any way responsible for causing the accident’’ and that the defendant ‘‘had known that there was nothing [the plaintiff] could have done to avoid the accident....’’

Following the deposition, Dorfman was allowed to amend her complaint to add bad faith causes of action. The Superior Court bifurcated the trial, Liberty withdrew its contributory negligence defense and conceded liability. The jury awarded Dorfman almost $170,000 in underinsurance damages.

Liberty then successfully moved to dismiss the bad faith claims in reliance on the litigation privilege. In dismissing Dorfman’s claims of breach of the implied covenant of good faith and fair dealing and negligent inflection of emotional distress, the trial court concluded that those claims were barred by the litigation privilege because they were predicated on communications and statements made in the course of and related to a judicial proceeding. The court also concluded that the litigation privilege applied to the plaintiff’s allegations regarding Liberty’s purported business practice of responding falsely to discovery requests and dismissed that portion of the CUTPA claim.

The Supreme Court affirmed, recognizing the public policy benefits afforded by the litigation privilege. Citing its own 2021 decision in Scholz v Epstein, 341 Conn. 1, the Court noted: “‘‘[T]he purpose of affording absolute immunity to those who provide information in connection with judicial and quasi-judicial proceedings is that in certain situations the public interest in having people speak freely outweighs the risk that individuals will occasionally abuse the privilege by making false and malicious statements.” The Supreme Court has expanded the immunity to apply to more than just defamation claims. “This expansion is premised on the rationale that, ‘‘because the privilege protects the communication, the nature of the theory [on which the challenge is based] is irrelevant.” Citing MacDermid, Inc. v. Leonetti, 310 Conn. 628. However, the litigation privilege is not without exception, the Court noted. “The litigation privilege does not bar claims for abuse of process, vexatious litigation, and malicious prosecution.”

Connecticut follows an non-exclusive three-part test to determine if an exception to the litigation privilege applies: (1) whether the alleged conduct subverts the underlying purpose of a judicial proceeding in a similar way to how conduct constituting abuse of process and vexatious litigation subverts that underlying purpose; (2) whether the alleged conduct is similar in essential respects to defamatory statements, inasmuch as the privilege bars a defamation action; and (3) whether the alleged conduct may be adequately addressed by other available remedies.

The Court then applied the factors to Dorfman’s allegations. As summarized by the Court, Dorfman asserted that: Liberty falsely responded to the complaint, including by asserting a special defense it knew had no basis in fact, as well as falsely responding to interrogatories and discovery requests. As a result, Liberty ‘‘used intentional misstatements, intentional misrepresentations, intentionally deceptive answers, and violated established rules of conduct in litigation,’’ and ‘‘knowingly and intentionally engaged in dishonest and sinister litigation practices by taking legal positions that were without factual support in order to further frustrate [the plaintiff’s] ability to receive benefits due [to her] under her contract.’’ By this conduct, Liberty, according to Dorfman, engaged in unfair and deceptive practices, acted maliciously, compelling her to sue, filed false and misleading pleadings and discovery responses, and prolonged the litigation all to reduce her insurance benefits.

The Court, finding no express authority on point, determined that these claims were more akin to a vexatious litigation and abuse of process cause of action than a claim for breach of the covenant of good faith and fair dealing. As a result, it held that the claims were barred by the litigation privilege. While recognizing that a common law bad faith claim speaks to acts that impedes a party’s rights to reasonably expected contractual benefits, the Court held that Dorfman’s claim challenges Liberty’s conduct in defending against her underinsured motorist claim. Despite Liberty’s misconduct, the Court reasoned that it did not amount to an improper use of the judicial system.

Additionally, the Court found that the bad faith claims were also similar to a defamation claim, which would also be subject to the litigation privilege. “The plaintiff’s claim for breach of the implied covenant of good faith and fair dealing, like a defamation claim, is premised on the communication of false statements during litigation.” The Supreme Court held that there is even immunity in false statements in pleadings and discovery responses, rejecting Dorfman’s argument that Liberty’s misconduct in withholding the truth from its counsel, withholding the existence of a witness and his recorded statement made the bad faith claim actionable. The Court wrote: “The fact that [Liberty] made these misrepresentations to its own attorneys with the intent that the attorneys would then file false pleadings and discovery responses does not change the outcome.” The Court went on to point out that this conduct does not meet Connecticut’s high standard for bad faith.

[b]ad faith in general implies . . . actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one’s rights or duties, but by some interested or sinister motive.... Bad faith means more than mere negligence; it involves a dishonest purpose…. This more complete definition of bad faith demonstrates that this claim is more akin to a claim of fraud, to which our appellate courts have applied the litigation privilege.

(Internal citations omitted.) For the same reasons, the Court affirmed the dismissal of the insured’s negligent infliction of emotional distress claim. Interestingly, while Dorfman argued that her cause of action was akin to a vexatious litigation claim, the Court noted that she did not actual raise such a claim.

The Supreme Court noted that there are other safeguards in place that provide Dorfman relief from Liberty’s conduct. For example, Conn. Gen. Stat. §52-99 provides in relevant part: ‘‘Any allegation or denial made without reasonable cause and found untrue shall subject the party pleading the same to the payment of such reasonable expenses, to be taxed by the court, as may have been necessarily incurred by the other party by reason of such untrue pleading....’’ The Court also noted that Connecticut courts have the inherent authority to sanction parties for litigation misconduct. And the Court again reminded plaintiff that she could have brought a cause of action for vexatious litigation but did not. “Importantly, in the present case, upon a prior action terminating in her favor, the plaintiff could have brought a lawsuit for vexatious litigation.”

The Court also affirmed dismissal of Dorfman’s CUTPA/CUIPA claim. While Dorfman argued that the record established that Liberty has a business practice of withholding information from its attorneys to ensure false pleadings, as well as a business practice of alleging contributory negligence as a special defense in response to every claim, even if it knows the allegation is false, but as the Court noted her complaint did not make this allegation.

[W]e have scoured the plaintiff’s complaint in search of these allegations about the defendant’s business practices to no avail. Although there are allegations that, in the plaintiff’s particular case, the defendant intentionally concealed information and evidence from its attorneys and alleged the special defense of contributory negligence despite knowing this allegation to be false, there are no allegations in the plaintiff’s complaint that this conduct occurred with such frequency as to constitute a general business practice.

Therefore, the insured failed to plead a general business practice, as required by the statute. Moreover, the Court concluded that the CUTPA/CUIPA statutes do not abrogate the litigation privilege. “[T]he litigation privilege bars CUTPA claims, like the claim at issue, premised solely on general allegations of intentionally false discovery responses because these claims merely challenge the making of false statements.”

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In a spirited and lengthy partial dissent, Justice Ecker called into question the scope of the litigation privilege as applied by the majority. Recognizing the concept of an insurer’s continuing obligation of good faith, the dissent summarized:

The defendant sells automobile liability insurance. It consequently owes its insureds a direct contractual and statutory duty to not act abusively in litigation…. the present context is miles away from that in which the litigation privilege was originally formulated, and lies equally distant from the cases in which we have found the privilege applicable to date. The plaintiff is not simply the defendant's adversary; she is its insured. Her lawsuit alleges that the defendant purposely engaged in bad faith insurance claim settlement practices involving both prelitigation and litigation misconduct, in violation of its statutory and common-law duties. The pleadings do not allege merely that the defendant has violated the rules of fair litigation owed to one another by all parties to litigation. Rather, the pleadings allege that the defendant insurer has violated a direct, independent contractual and statutory duty owed specifically to the plaintiff-insured. (Emphasis added.)

Many jurisdictions have expressly recognized a continuing duty of good faith post-commencement of litigation. As the dissent noted, if an insurance company misuses a litigation procedure with the intent of avoiding or delaying the performance of its contractual obligations to an insured, “I see no reason why the litigation privilege should bar a bad faith claim based on that conduct.” The court cited decisions from Arizona, Indiana, Montana, Pennsylvania, and West Virginia. Although these states are generally considered more favorable to insureds in bad faith cases, the concept was first held by the California Supreme Court in White v. Western Title Ins. Co., 40 Cal.3d 870, 710 P.2d 309 (1985). In White, the court allowed evidence of the carrier’s alleged litigation misconduct as evidence of its bad faith. The court held that an insurer's duty to deal with its insured fairly, and not withhold payment of claims unreasonably and in bad faith, does not terminate with onset of litigation between insurer and insured. The California court distinguished between an allegation of defamation and bad faith. “Defendant's argument ... forces us to draw a careful distinction between a cause of action based squarely on a privileged communication, such as an action for defamation, and one based upon an underlying course of conduct evidenced by the communication;” “plaintiffs do not assert that defendant's communications were defamatory, or done with the intent of causing emotional distress, but instead that they show that defendant was not evaluating and seeking to resolve their claim fairly and in good faith.” Id. at 888.

Justice Ecker went on to state that the majority misread Dorfman’s complaint to only include litigation misconduct. “[C]ontrary to the majority's conclusion, … the operative complaint sufficiently alleges conduct outside of litigation that would support a bad faith claim. Specifically, the operative complaint alleges that the defendant insurer was contractually obligated to pay the plaintiff sums that she was legally entitled to recover from the owner or operator of an uninsured or underinsured motor vehicle for damages resulting from bodily injury, that the defendant knew that it had no valid defense to her claim, and that the defendant nonetheless compelled its insured to resort to litigation and to endure litigation misconduct to obtain payment.”

The dissent, however, agreed that the CUTPA/CUIPA claims failed to adequately plead a general business practice and were properly dismissed.

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