Potvin v. Lincoln Serv. & Equip. Co.,

298 Conn. 620, 2010 Conn. LEXIS 374 (2010)

In Potvin v. Lincoln Service & Equipment Co., 298 Conn. 620, 2010 Conn. LEXIS 374 (2010), the defendant Guaranty Fund Management Service appealed the decision of the Compensation Review Board (“Board”), which upheld a workers’ compensation commissioner’s imposition of sanctions against the Connecticut Insurance Guaranty Association (“CIGA”), including the order to pay attorneys’ fees, for undue delay in processing a claim by the plaintiff on behalf of an insolvent insurer pursuant to the Workers’ Compensation Act and the Connecticut Insurance Guaranty Association Act, C.G.S. § 38a-836 et seq. (“Guaranty Act”). Id. at *1-*2. The Board concluded that CIGA was not immune from sanctions imposed by a workers’ compensation commissioner and such sanctions were part of a “covered claim” under the Guaranty Act. Id. at *2. The Connecticut Supreme Court, which took this appeal from the Appellate Court, reversed the decision of the Board. Id. at *3-*4.

Specifically, the court held that the following provision of the Guaranty Act was not ambiguous: “There shall be no liability on the part of and no cause of action of any nature shall arise against … [CIGA] or its agents or employees … for any action taken or any failure to act by them in the performance of their powers and duties under [the Guaranty Act].” Id. at *16-*18 (citing C.G.S. § 38a-850). In interpreting the statute, the court held that the term “liability” encompassed sanctions imposed by a workers’ compensation commissioner because such sanctions obligated CIGA to pay an amount of money. Id. at *21-*23. Additionally, the court held that this liability arose out of a “failure to act” by CIGA or its agent “in the performance of [its] powers and duties” under the Guaranty Act. Id. at *25 (citing C.G.S. § 38a-850). The court found that “[b]ecause the duty to process a covered workers’ compensation claim arises under § 38a-841(1), the processing of such a claim is one of [CIGA’s] ‘powers and duties’” under the Guaranty Act. Id. (citing C.G.S. § 38a-850). As a result, the Guaranty Act afforded CIGA immunity from the sanctions imposed by a workers’ compensation commissioner. Id.

The court was not persuaded by the plaintiff’s argument that such a broad reading of the statute would produce an absurd result because CIGA would be immune from insurance regulation, discovery sanctions, sanctions imposed by a court, and/or liabilities for any misconduct including fraud or an intentional tort. Id. at *27. Indeed, the court noted that CIGA owes a statutory obligation to perform its duties, CIGA may be sued by an individual claimant who seeks to enforce an order of a workers’ compensation commissioner, and the Insurance Commissioner has “considerable control” over CIGA. Id. at *27-*29. Further, the court found that the immunity provision of the Guaranty Act was consistent with the limited purpose of CIGA, which is to pay “only covered claims on behalf of insolvent insurers to insureds who otherwise would be left with a limited recovery, if any, following the insolvency of their insurer.” Id. at *34 (internal citation omitted).

Because the court determined that CIGA is immune from the sanctions imposed by a workers’ compensation commissioner, the court found that CIGA could be liable for such sanctions only if they fell within the meaning of the term “covered claim” as defined in § 38a-838(5), which CIGA is required to pay under § 38a-841. Id. at *37-*38. The court held that the Board improperly determined that the sanctions imposed fell within the meaning of “covered claim.” Id. at *38-*39. The Guaranty Act defines “covered claim” as “an unpaid claim, … which arises out of and is within the coverage and subject to the applicable limits of an insurance policy … issued by an insurer, if such insurer becomes insolvent.” Id. at *39 (citing C.G.S. § 38a-838(5)) (emphasis in the original). Thus, the court held that the text of such definition excluded “liabilities beyond those that arise out of and are within the insolvent insurer’s insurance policy,” including liability for sanctions imposed by a workers’ compensation commissioner. Id.