Connecticut Supreme Court Answers Certified Question in Favor of Insurance Adjuster, Holding That Continuing Course of Conduct Doctrine Did Not Toll Statute of Repose

In a win for Wiley Rein’s client, the Connecticut Supreme Court has held that the continuing course of conduct doctrine could not save the untimely claims of an insurer brought against an insurance adjuster.  See Essex Ins. Co. v. William Kramer & Associates, LLC, Case No. SC 20130 (Conn. Apr. 16, 2019).  On a certified question from the United States Court of Appeals for the Second Circuit, the Supreme Court held that the doctrine did not toll the applicable three-year statute of repose because the adjuster’s duties to the insurer ended when the adjuster closed its file more than six years before the insurer’s lawsuit.

The insurer hired the adjuster to adjust several properties damaged by Hurricane Wilma in 2005.  The adjuster’s alleged duties included identifying mortgages on the properties.  For one particular property, the adjuster allegedly concluded that there was no mortgage on the property and, on that basis, the insurer paid out the insurance coverage on the property.  The adjuster closed its file in March 2007.  Unbeknownst to the adjuster at the time, a letter in its file enclosed a list of mortgages on the damaged properties, including one mortgage by a bank on the particular property at issue.

In 2009, the bank sought to recover its interest in the property.  In response to a subpoena, the adjuster produced documents and the insurer provided the adjuster with legal counsel in responding to the subpoena.  In 2010, the bank filed an amended complaint alleging that the insurer knew there was a mortgage on the property and should have issued the insurance proceeds to the bank.  The adjuster was deposed in connection with the case in 2012.  In preparing for its deposition two years later, the adjuster discovered the letter in its file containing the schedule of mortgages, which the adjuster promptly produced to the insurer and bank.  The insurer, allegedly concerned that the letter would impute knowledge of the mortgage to it, settled the claim with the bank for $1 million.

In October 2013, the insurer sued the adjuster in federal district court, claiming that it acted negligently in failing to advise the insurer of the mortgage in 2007.  The insurer argued that Connecticut’s continuing course of conduct doctrine tolled the claim until the adjuster discovered and produced the schedule of mortgages in 2012.  The jury found in favor of the insurer, concluding that even though the insurer brought its claim after the three-year statute of repose, the continuing course of conduct doctrine tolled the claim.  The district court disagreed, granting a post-trial motion for judgment as a matter of law.  On appeal, the Second Circuit certified to the Connecticut Supreme Court the question of whether there was sufficient evidence to support the jury’s verdict holding that the statute was tolled.

The Supreme Court held that the evidence at trial was not legally sufficient to establish that the adjuster had a continuing duty to the insurer such to toll the three-year statute of repose.  Under Connecticut law, the continuing course of conduct doctrine requires “either a special relationship between the parties giving rise to such a continuing duty or some later wrongful conduct of a defendant related to the prior act.”  The court held that neither prong of the doctrine applied.

The court first rejected the insurer’s argument that a “special relationship” between the adjuster and insurer continued after the insurer’s final check was issued in 2007.  The court held that “[n]one of the [adjuster’s] actions after March, 2007, reasonably could be considered further performance of any of the full adjustment services previously delineated, and thus, a further continuation of that fiduciary relationship.”  In addition, the court disagreed that the adjuster’s acts in responding to the bank’s subpoena extended the special relationship because the adjuster “had no obligation, or right, to withhold evidence that could expose the [insurer] to liability” and was “merely reporting on past events.”

The court also rejected any continuing duty of the adjuster to warn the insurer of the alleged error, holding instead that the adjuster lacked actual knowledge of the error.  The court held that the insurer had “effectively conceded” during trial proceedings that the adjuster allegedly had constructive – not actual – knowledge of the mortgage based on the letter in its file.  And, in any event, the trial evidence established that “a secretary filed the schedule, unseen by any person who might have recognized its significance….”

Finally, the court held that the adjuster committed no later wrongful act related to a prior breach of duty sufficient to toll the statute of repose.  The court recognized that, even assuming the adjuster acted wrongfully in response to the 2009 subpoena, that act occurred more than three years before the insurer filed suit.  And the court rejected the insurer’s argument that the adjuster’s alleged “ongoing failure to disclose the existence of [the] mortgagee interest was later wrongful conduct that continued until the defendant’s 2012 disclosure of the mortgagee schedule.”