Last month, the Connecticut Appellate Court ruled that where coverage is excluded under a policy of insurance, a plaintiff may not pursue a bad faith claim against the insured in connection with the insured’s denial of coverage.  Heyse v. William Case et al., Docket No. AC 29289 (Conn. App. Ct., June 2, 2009).

In the underlying dispute, the plaintiff, a property holder in a common interest community, sought to prevent other property holders in the community from subdividing their lots.  Accordingly, she submitted a claim to her title insurer seeking the provision of legal counsel and indemnity in connection with a lawsuit against the other property holders, on the basis that the proposed subdivision was adverse to her title.  However, the title insurer denied the claim.  The plaintiff then sued her title insurer, seeking a declaratory judgment with respect to the coverage issue.  She also asserted a claim against the title insurer for bad faith.  The trial court granted summary judgment to the title insurer on both counts, and the plaintiff appealed.

The appellate court found that an exclusion in the title insurance policy barred coverage for the plaintiff’s lawsuit against the other property owners.  The exclusion in question specifically excluded loss or damage arising by reason of the terms and conditions of a certain declaration recorded in the relevant land records, and it was pursuant to the same declaration that the other property owners sought to subdivide their lots. 

Having affirmed summary judgment in the title insurer’s favor on the plaintiff’s claim for declaratory relief, the appellate court turned its attention to the bad faith claim.  The plaintiff claimed that the insurer exercised its discretion to afford broad coverage to the defendant property holders (whom, it is presumed, the insurer was defending in the trial court action); and that by failing to exercise its discretion not to enforce the exclusion against plaintiff, the insurer was showing preferential treatment to the other property holders in bad faith.  However, the appellate court cited to the Connecticut Supreme Court’s decision in Renaissance Management Co. v. Connecticut Housing Finance Authority, 281 Conn. 227, 240 (2007) for the proposition that to constitute bad faith, the acts complained of must impede the plaintiff’s right to receive benefits she expected under the contract.  Because the plaintiff did not have any right to receive coverage under the contract for her dispute with the other property holders, she could not maintain a claim that the denial of coverage was in bad faith.  Therefore, the appellate court upheld the trial court’s grant of summary judgment in the insurer’s favor on the bad faith count.

To read a copy of the court’s decision, please click here.