Conn. Supreme: Litigation Privilege Protects Insurer’s False Statements from Bad Faith Suit

False statements that Liberty Mutual made while preparing for a lawsuit relating to an underinsured motorist claim are protected by the litigation privilege and cannot be used to prove bad faith, the Connecticut Supreme Court ruled in a decision published today.

“The accuracy of a statement is irrelevant to the application of the privilege, even if the defendant knows the statement is false,” the majority opinion says.

Tamara Dorfman sued Liberty Mutual after she was injured in September 2014 when another motorist ran a stop sign in West Hartford and collided with her vehicle. The insurer for the driver who was at fault paid its $50,000 policy limit.

Dorfman says she was permanently disabled by the accident. She asked Liberty to pay an additional $200,000 for underinsured motorist benefits, which was the remaining limit on her auto insurance policy.

Liberty initially refused, claiming in court filings that it was not aware whether Smith was 100% liable for the accident. Later the insurer contended in a court filing that Dorfman’s injuries were caused by her own negligence.

Dorfman amended her complaint in 2017 to accuse Liberty Mutual of bad faith, negligent infliction of emotional distress and violations of the Connecticut Unfair Trade Practices Act and Unfair Insurance Practices Act, an accusation that allows awards of up three times actual damages, according to court documents.

Liberty admitted liability for uninsured motorist benefits when the trail started on Sept. 5, 2018. After the trial court granted Liberty Mutual’s motions to bifurcate the bad faith charges from the complaint, a jury returned a verdict finding Liberty liable for $119,928 in damages because of the accident.

Proceedings on Dorfman’s bad faith allegations continued. Dorfman contended that Liberty had failed to disclose that a witness had told its claims investigator that the other driver was responsible for the accident and repeatedly made false statements in court filings about its “lack of knowledge” of that fact. The complaint charges that the insurer had engaged in vexatious litigation by forcing her to litigate her claim even though it knew it was liable.

“Ms. Dorfman was subjected to misconduct amounting to false pleadings, hidden evidence, contradictory and misleading testimony, and a host of conduct that should never be countenanced by any court of law,” Dorfman’s attorney, Leonard Isaac, said in a filing.

Superior Court Judge Cesar A. Noble in Hartford, however granted a motion by Liberty Mutual to dismiss Dorfman’s complaint. The judge ruled that Liberty Mutual had based its decisions to deny Dorfman’s claim on privileged communications that cannot be used to prove a bad-faith claim.

On appeal, Dorfman argued that absolute immunity does not apply to claims of vexatious litigation, which means using the courts for an improper purpose.

The Supreme Court, however, said it is not enough for Dorfman to allege that Liberty Mutual’s misconduct constituted an improper use of the judicial system. Immunity would apply only if the insurer had made false representations in court.

“Withholding immunity as to the claim at issue has the potential to open the floodgates to retaliatory actions every time a plaintiff prevails in an underlying action in which the defendant raised an unsuccessful special defense or made an allegation in a pleading that was at odds with the verdict,” the majority opinion says.

Justice Steven D. Ecker wrote a separate opinion that dissented in part to the decision.

“The defendant sells automobile liability insurance. It consequently owes its insureds a direct contractual and statutory duty to not act abusively in litigation,” Ecker’s opinion says.

“Allowing a liability insurer like the defendant to invoke the privilege in the present case effectively confers an entire class of commercial enterprises doing business in Connecticut with immunity from suit by consumers seeking damages for wrongful and illegal acts under-taken as part of their day-to-day business practices.”