ARTIE'S AUTO BODY, INC., et al. v. THE HARTFORD FIRE INSURANCE COMPANY, SC 19219
Judicial District of Stamford
CUTPA; Whether the Cigarette Rule, the Standard Used to Measure Whether Conduct is Unfair Under CUTPA, Should be Abandoned in Favor of the Substantial Unjustified Injury Test. The plaintiffs brought this class action lawsuit against the defendant insurance company on behalf of over 1000 Connecticut auto body shops, claiming that, in violation of the Connecticut Unfair Trade Practices Act (CUTPA), the defendant pressured its independent appraisers to establish artificially low hourly labor rates for auto body repair work. At the close of the evidence, the trial court instructed the jury that, pursuant to the “cigarette rule,” the following criteria must be considered in determining whether the defendant engaged in an unfair trade practice in violation of CUTPA: (1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law or otherwise; (2) whether it is immoral, unethical, oppressive or unscrupulous; (3) whether it causes substantial injury to consumers, competitors or other businesspersons. The jury returned a $14.7 million verdict in favor of the plaintiffs, finding that the defendant violated the first prong of the cigarette rule in that it offended the public policy contained in § 38a-790-8 of the Regulations of Connecticut State Agencies, which provides that every insurance appraiser must make fair and impartial appraisals. The defendant filed a motion for judgment notwithstanding the verdict, arguing that the court improperly instructed the jury on the cigarette rule because the Federal Trade Commission (FTC) has abandoned the rule and replaced it with the “substantial unjustified injury test,” which focuses on the third prong of the cigarette rule. It further argued that even under the cigarette rule, there was insufficient evidence to support the jury’s finding of a CUTPA violation. The trial court denied the defendant’s motion, concluding that the cigarette rule continues to be the appropriate standard for determining whether a practice violates CUTPA. It reasoned that while CUTPA provides that Connecticut courts must be guided by the decisions of the FTC and the federal courts, they are not always required to follow those decisions in construing CUTPA. The court added that the cigarette rule continues to be the established law of Connecticut because the Supreme Court has recently applied it, and the state legislature has not yet adopted the substantial unjustified injury test. The court further concluded that the evidence was sufficient for the jury to find that the defendant engaged in conduct that interfered with the independence of its appraisers and that such conduct violated the “penumbra” of § 38a-790-8. The defendant appeals, claiming that CUTPA liability could not be based on a finding that its conduct violated the “penumbra” of a regulation and that it could not have violated CUTPA where its practices are not prohibited under the Connecticut Unfair Insurance Practices Act. The defendant also urges that the cigarette rule should be abandoned in favor of the substantial unjustified injury test. Finally, the defendant claims that the trial court abused its discretion in awarding the plaintiffs $20 million in punitive damages in connection with the CUTPA claim.