In a class action lawsuit brought by various auto body shops and the Auto Body Association of Connecticut, a Connecticut jury recently rendered a $14.7 million verdict against an insurance company for allegedly violating the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. §42-110a et seq. (“CUTPA”). Artie’s Auto Body et al. v. Hartford Fire Ins. Co., FST-CV03-0196141-S (Conn. Super. Nov. 17, 2009). The jury’s verdict was rendered after the trial court charged the jury on all three prongs of the “Cigarette Rule,” despite uncertainty regarding the continued vitality of all three prongs.
The plaintiffs reportedly alleged that the defendant insurer violated CUTPA by steering automobile policyholders to use insurer-approved repair shops, forcing those approved shops to charge below-market labor rates in exchange for a steady volume of work, and pressuring appraisers into accepting monetary limits imposed by the insurer for specific repairs. After a four-week trial, the jury returned a $14.7 million verdict against the insurer on the plaintiffs’ CUTPA claim.
Pursuant to CUTPA, which provides that “[n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce,” it was also “the intent of the legislature that in construing subsection (a) of this section, the commissioner and the courts of this state shall be guided by interpretations given by the Federal Trade Commission and the federal courts to Section 5(a)(1) of the Federal Trade Commission Act (15 USC 45(a)(1)), as from time to time amended.” Accordingly, Connecticut courts previously adopted the federal “Cigarette Rule,” which rule originally provided that a plaintiff prove that (1) the act or practice offends public policy as it has been established by statutes, the common law or other established concept of unfairness; (2) the act or practice is immoral, unethical, oppressive or unscrupulous; or (3) the act or practice causes substantial injury to consumers, competitors or other business persons. In 1984, the FTC narrowed the rule to concentrate on the third (“substantial injury”) prong.
The insurer reportedly requested that the court charge the jury on the third prong only, pursuant to the FTC’s 1984 narrowing of the rule. In a September 2009 ruling, the trial court reportedly explained that “[t]wice in 2005 the Connecticut Supreme Court acknowledged awareness of the 1984 FTC policy statement and the question presented as to the continued vitality of the Cigarette Rule, but . . . until such time as the appellate courts or the legislature speak to the contrary, this court is bound to apply the Cigarette Rule.” Accordingly, the court charged the jury on all three prongs of the Cigarette Rule. The jury reportedly rejected the plaintiff’s third-prong steering claim, finding that there was no substantial injury, and found that CUTPA was violated based on the plaintiffs’ satisfaction of the first prong of the Cigarette Rule on the basis that the insurer’s appraisers were not fair and impartial.
The parties have filed post-trial motions, which are currently pending before the trial court. Reportedly, if the insurer’s post-trial motions are unsuccessful, it will appeal, and the continued vitality of the Cigarette Rule is expected to be at the heart of the appeal.
It has also been reported that the plaintiffs are planning to seek injunctive relief by asking the court to change the insurer’s appraisal practices. Reportedly, any such changes could possibly apply to other insurance companies as well as the defendant insurer.