267 Conn. 279 | Conn. | 2004
Opinion
This appeal concerns the rights of a surety, pursuant to an indemnity agreement, to indemnification for payments made in settling a claim against a surety bond. The sole parties in this appeal are National Fire Insurance Company of Hartford (National) and FYank Mercede and Sons, Inc. (Mercede), the two defendants in the underlying action.
On appeal, National claims that the trial court improperly: (1) disregarded the terms of an indemnity agreement executed by National and Mercede by instructing the jury that National had the burden of proving, as an element of its claim for indemnification, that its payments to the plaintiff, PSE Consulting, Inc. (PSE); see footnote 1 of this opinion; pursuant to a
The juiy reasonably could have found the following facts. In October, 1996, National and Mercede executed a general agreement of indemnity (indemnity agreement), whereby National agreed to issue surety bonds on Mercede’s behalf, and Mercede agreed to indemnify National for any expenses that National might incur as a result of issuing those bonds. In May, 1997, Mercede was hired as a general contractor to construct an assisted living facility in Stamford (project). As security for the contract, Mercede furnished the owner of the project with a labor and materials payment bond (payment bond). The payment bond was issued by National, on behalf of Mercede as the principal and in favor of the owner as obligee, whereby National and Mercede agreed to be jointly and severally responsible for the payment of all labor, materials and equipment furnished for use in the construction of the project.
PSE began work on the project in November, 1997. Soon thereafter, PSE became concerned about the volume of work that it was performing on the project, and sought further assurance that it would be paid for that work. Consequently, PSE, Dominion and Mercede executed a joint check agreement, whereby Mercede agreed to issue checks made payable jointly to Dominion and PSE in satisfaction of their sub-subcontract. The joint check agreement provided that Mercede would pay for amounts “up to the contract amount [of $1.5 million], plus any extra charges determined and agreed upon subsequent to the date hereof.” This joint check agreement also provided for a retainage of 10 percent.
Between January and August, 1998, PSE continued to work on the project and to submit invoices to Dominion. Dominion then forwarded the invoices to Mercede, and Mercede issued joint checks pursuant to the joint check agreement. A representative of PSE signed a release form upon receipt of each joint check, whereby PSE waived any potential claims it may have had against Mercede. At the time of Mercede’s final payment under
Dominion filed for bankruptcy in September, 1998. Shortly thereafter, PSE sent a letter to Mercede, stating that Dominion still owed PSE more than $600,000, and demanding that Mercede immediately pay this “undisputed” amount, “plus interest, and excluding other claims for delays, etc. that will be coming shortly.” Mercede refused to make any further payments without confirmation from Dominion as to the validity of PSE’s claim.
On October 13, 1998, PSE formally notified National of its claim for $1,123,551 against the payment bond. National thereafter assigned the claim to Laurence P. Jortner, surety claims analyst for National’s parent corporation, CNA Surety. On November 2, 1998, Jortner sent a letter to PSE, in response to the claim, communicating National’s position that “a number of bona fide or otherwise unresolved disputes exist between your company and either [Mercede] or Dominion,” and that much of PSE’s claim was “likely to be subject to reasonable defenses by [Mercede] or [National].” Jortner also requested that PSE submit further documentation in support of its claim. PSE complied with this request shortly thereafter.
National took no further action until February, 1999, when Jortner met with several representatives of Mercede to discuss defenses to the claim. At this meeting, Mercede’s representatives told Jortner that they were disputing the claim in its entirety, including PSE’s claims for payment for extra work and for the $150,000 retainage.
Additionally, in February, 1999, Jortner was contacted by Robert Dunn, counsel for PSE. On February 13, Dunn sent a letter to Jortner, and a copy of that letter to the insurance commissioner, claiming that
Soon thereafter, National shifted its position on the PSE claim. In May, 1999, Jortner again met with representatives of Mercede. This time, Jortner suggested that either National or Mercede make a payment to PSE in the amount of $177,000—representing the $150,000 retainage plus a $27,000 balance remaining on the original contract. Mercede agreed to pay the $27,000 remaining balance, but maintained that it would not pay the $150,000 retainage because the project owner had not yet paid that amount to Mercede. Mercede continued to dispute PSE’s claims for payment for extra work.
In August, 1999, PSE filed the original complaint in the underlying action against Mercede and National, seeking damages from Mercede for breach of contract, and claiming that National had acted in bad faith and had committed violations of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-
In September, 2000, almost two years after PSE initially had filed its formal notice of a claim against the payment bond, National conducted its independent investigation of the claim. At that time, Jortner enlisted Raymond Lemming, National’s in-house chief engineer, to evaluate the fair market value of PSE’s work on the project. Lemming concluded that PSE’s work had a fair market value of approximately $927,913. That value was based, however, on PSE’s work under the base contract and did not include PSE’s claimed extra work.
Thereafter, National persistently attempted to settle PSE’s claims. In April, 2001, Jortner attended a settlement meeting with counsel for National and counsel for PSE. No representatives of Mercede were present at this meeting. In October, 2001, National made a payment to PSE in the amount of $200,000. According to Jortner, this payment represented the $150,000 retainage plus an additional $50,000, constituting three years of interest at 10 percent. The payment was made at the time of Jortner’s deposition, and Mercede, who had no prior knowledge of the settlement negotiations, objected to the payment.
On October 31, 2001, Jortner wrote a letter to Mercede, demanding that Mercede reimburse National for the $200,000 payment and either comply with the settlement of the remainder of PSE’s claims, or deposit collateral of $500,000 with National, in accordance with National’s rights under the indemnity agreement. Mercede refused to comply with either of these demands.
On November 30, 2001, National made a payment of $500,000 to PSE. On December 6, 2001, PSE released
I
We first address National’s claim that the trial court improperly instructed the jury that National had the burden of proving the propriety of its payments to PSE. Specifically, National contends that, in so instructing the jury, the trial court disregarded the express terms
National takes issue with the following portion of the trial court’s jury instruction: “The five elements of National’s indemnity claim are: (1) Was the [indemnity agreement] in existence and signed by Mercede and National? (2) Did PSE submit a claim under the payment bond . . . ? (3) Was the . . . payment bond in existence and signed by the proper parties? (4) Did National pay to PSE $700,000? (5) Was the $700,000 payment to PSE as a result of PSE’s claim and lawsuit against the payment bond . . . ?” The trial court further charged the jury “that elements one, two, three and four have been proven either by the evidence or the admissions of the parties. National has the burden by the preponderance of the evidence to prove element five.”
“Our analysis begins with a well established standard of review. When reviewing [a] challenged jury instruction . . . we must adhere to the well settled rule that a charge to the jury is to be considered in its entirety, read as a whole, and judged by its total effect rather than by its individual component parts. . . . [T]he test
National contends that this jury instruction was improper because it disregarded the express terms of the indemnity agreement. Because the indemnity agreement is a written contract, our analysis of this issue must be guided by our well established principles of contract interpretation. Under these principles, “[a] contract must be construed to effectuate the intent of the parties, which is determined from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction. . . . [T]he intent of the parties is to be ascertained by a fair and reasonable construction of the written words and . . . the language used must be accorded its common, natural, and ordinary meaning and usage where it can be sensibly applied to the subject matter of the contract. . . . Where the language of the contract is clear and unambiguous, the contract is to be given effect according to its terms. . . . Although ordinarily the question of contract interpretation, being a question of the parties’ intent, is a question of fact . . . [w]here there is definitive contract language, the determination of what the parties intended by their contractual commitments is a question of law.” (Citations omitted; internal quotation marks omitted.) Poole v. Waterbury, 266 Conn. 68, 87-88, 831 A.2d 211 (2003). Neither National nor Mercede contends that the terms of the indemnity
National, relying on paragraphs two and five of the indemnity agreement, asserts that Mercede had agreed “to waive certain rights and benefits in exchange for National’s issuance of . . . bonds on [Mercede’s] behalf.” Paragraph two of the indemnity agreement provided in relevant part: “[Mercede] will indemnify and save [National] harmless from and against every claim, demand, liability, cost, charge, suit, judgment and expense which [National] may pay or incur in consequence of having executed, or procured the execution of such bonds, or any renewals or continuations thereof or substitutes therefor, including, but not limited, to fees of attorneys, whether on salary, retainer or otherwise, and the expense of procuring, or attempting to procure, release from liability, or in bringing suit to enforce the obligation of . . . [Mercede] under this Agreement.” In addition, paragraph two contained the following “prima facie evidence” provision: “In the event of payments by [National], [Mercede] agree[s] to accept the voucher or other evidence of such payments as prima facie evidence of the propriety thereof, and of [Mercede’s] liability therefor to [National].” (Emphasis added.) Paragraph five of the indemnity agreement is a “right-to-settle” provision: “[National] shall have the exclusive right to determine for itself and [Mercede] whether any claim or suit brought against [National] or [Mercede] upon any such bond shall be settled or defended and its decision shall be binding and conclusive upon [Mercede].”
The terms set forth by paragraphs two and five are typical of indemnity agreements utilized throughout the surety industry, and courts routinely have upheld the validity of similar or identical provisions. See, e.g., Transamerica Ins. Co. v. Bloomfield, 401 F.2d 357, 362 (6th Cir. 1968) (“[provisions in indemnity agreements
Right-to-settle clauses, such as paragraph five of the indemnity agreement in this case, generally are enforced according to their terms. In other words, in the face of such a provision, a surety typically has wide discretion in settling claims made upon a bond, even where the principal is not hable for the underlying claim. See, e.g., United States Fidelity & Guaranty Co. v. Napier Electric & Construction Co., supra, 571 S.W.2d 646; Fidelity & Deposit Co. of Maryland v. Fleischer, 772 S.W.2d 809, 816 (Mo. App. 1989); Hess
The prima facie evidence provision in paragraph two of the indemnity agreement at issue here brings that limitation into focus. Courts interpreting similar or identical provisions routinely have concluded that, upon a finding that a surety has made a payment to a claimant upon a bond, the burden of proof shifts to the indemnitor to prove that the surety had not made the payment in good faith. See, e.g., Transamerica Ins. Co. v. Bloomfield, supra, 401 F.2d 362-63; Engbrock v. Federal Ins. Co., supra, 370 F.2d 786 (where indemnity agreement has prima facie evidence provision, indemnitor may avoid liability “only by pleading and proving fraud or lack of good faith by [s]urety”); United States Fidelity & Guaranty Co. v. Napier Electric & Construction Co., supra, 571 S.W.2d 646 (same). “The purpose of [prima facie evidence] clauses ... is to facilitate the handling of settlements by sureties and obviate unnecessary and costly litigation.” Transamerica Ins. Co. v. Bloomfield, supra, 363.
Although the prima facie evidence provision frequently is invoked to enable a surety to prevail on a motion for summary judgment; see, e.g., United States Fidelity & Guaranty Co. v. Feibus, 15 F. Sup. 2d 579, 582-83 (M.D. Pa. 1998); courts explicitly and implicitly have construed these provisions as shifting the burden of proof at trial. See, e.g., Ideal Electronic Security Co. v. International Fidelity Ins. Co., 129 F.3d 143, 151 (D.C. Cir. 1997) (at trial in which surety sought indemnification for attorney’s fees, prima facie evidence provision shifted burden to indemnitor to prove fees were
We note that there is an apparent disagreement as to whether such provisions shift to the party who is contesting the surety’s claim for indemnification both the burdens of production and persuasion, or merely the burden of production. Compare Engbrock v. Federal Ins. Co., supra, 370 F.2d 786 (stating that indemnitor must plead and prove surety’s bad faith) and United States Fidelity & Guaranty Co. v. Napier Electric & Construction Co., supra, 571 S.W.2d 646 (same) with Associated Indemnity Corp. v. CAT Contracting, Inc., supra, 964 S.W.2d 283 n.5 (prima facie evidence provision shifts burden of production only) and Fidelity & Deposit Co. of Maryland v. Wu, supra, 150 Vt. 229 n.3 (same); see generally Potter v. Chicago Pneumatic Tool Co., 241 Conn. 199, 235-36 n.26, 694 A.2d 1319 (1997). We need not determine, in the present case, the scale of the prima facie evidence provision in paragraph two
“An improper instruction on the burden of proof may so mislead the jury as to be potentially harmful to one of the parties and therefore may amount to reversible error.” (Internal quotation marks omitted.) Potter v. Chicago Pneumatic Tool Co., supra, 241 Conn. 241. Nonetheless, “[i]t is axiomatic . . . that not every error is harmful. . . . [W]e have often stated that before a party is entitled to a new trial ... he or she has the burden of demonstrating that the error was harmful. . . . An instructional impropriety is harmful if it is likely that it affected the verdict.” (Internal quotation marks omitted.) Schoonmaker v. Lawrence Brunoli, Inc., supra, 265 Conn. 243; Scanlon v. Connecticut Light & Power Co., 258 Conn. 436, 448, 782 A.2d 87 (2001); accord Godwin v. Danbury Eye Physicians & Surgeons, P.C., 254 Conn. 131, 145, 757 A.2d 516 (2000); Remington v. Aetna Casualty & Surety Co., 240 Conn. 309, 316, 692 A.2d 399 (1997).
At trial, Mercede asserted, as a special defense, that National had breached the implied covenant of good faith and fair dealing. The trial court properly instructed the jury that Mercede bore the burden of proving this special defense; see part III of this opinion; and the jury subsequently found that Mercede had met that burden. Therefore, because Mercede proved to the jury that National had breached the covenant of good faith and fair dealing, and had therefore performed in bad faith, it is not likely that the jury’s verdict would have been different had the trial court properly instructed the jury that the prima facie evidence clause shifted the burden to Mercede to prove bad faith. Accordingly, we conclude that any error caused by this instruction was harmless.
We turn next to National’s claim that the trial court improperly denied its motion for a directed verdict on its claim for indemnification. Specifically, National contends that the jury improperly concluded that the $200,000 and $500,000 payments to PSE had not been made in satisfaction of PSE’s claim under the payment bond. As we previously have discussed, under the terms of the indemnity agreement in this case, National’s payments to PSE presumptively were proper unless Mercede could prove its special defense—that National had made those payments in bad faith.
At the close of trial, National moved for a directed verdict.
Thereafter, on April 3, 2002, after the jury returned its verdict, National simultaneously filed a motion to set aside the verdict, a motion for a new trial and a renewed motion for a directed verdict.
Specifically, National claims that, under the indemnity agreement, it had the exclusive right to settle and defend claims, and that its determination to settle with PSE was conclusive as to Mercede. National argues that, because it offered evidence at trial that it had determined that some of PSE’s claims on the payment bond were valid, and that it had valued those claims at $500,000, the jury failed to allocate properly by failing to find that any of the money paid to PSE constituted proper payment. Therefore, National contends, the jury reasonably could not have concluded from the evidence presented that it had performed in bad faith when it merely was exercising its contractual rights under the indemnity agreement. National further contends that its business judgment in this matter should not be questioned or second-guessed by a jury.
Mercede, in response, argues that the jury, properly instructed that Mercede had the burden of proof as to its special defense of bad faith, reasonably could have determined from the evidence that National had made the payments to PSE because of National’s failure to
We begin with a brief discussion of the standard by which we review this claim. It is well established that “[o]ur review of a trial court’s refusal to direct a verdict or to render judgment notwithstanding the verdict takes place within carefully defined parameters. We must consider the evidence, including reasonable inferences which may be drawn therefrom, in the light most favorable to the parties who were successful at trial; Bleich v. Ortiz, 196 Conn. 498, 501, 493 A.2d 236 (1985); giving particular weight to the concurrence of the judgments of the judge and the jury, who saw the witnesses and heard the testimony .... The verdict will be set aside and judgment directed only if we find that the jury could not reasonably and legally have reached their conclusion.” (Internal quotation marks omitted.) Cohen v. Yale-New Haven Hospital, 260 Conn. 747, 761, 800 A.2d 499 (2002).
Under paragraph two of the indemnity agreement in this case, Mercede expressly agreed to indemnify National for eveiy “cost . . . and expense which [National] may pay or incur in consequence of having executed . . . bonds . . . .” Moreover, Mercede agreed, pursuant to paragraph five of the indemnity agreement, that “[National] shall have the exclusive right to determine for itself and [Mercede] whether any
Other jurisdictions faced with this issue uniformly have held that the surety is entitled to indemnification only for payments that were made in good faith. See, e.g., Gundle Lining Construction Corp. v. Adams County Asphalt, Inc., 85 F.3d 201, 210-11 (5th Cir. 1996); Fidelity & Deposit Co. of Maryland v. Bristol Steel & Iron Works, Inc., 722 F.2d 1160, 1162-63 (4th Cir. 1983); Transamerica Ins. Co. v. Bloomfield, supra, 401 F.2d 362; Engbrock v. Federal Ins. Co., supra, 370 F.2d 786; Carroll v. National Surety Co., 24 F.2d 268, 270-71 (D.C. Cir. 1928); United States Fidelity & Guaranty Co. v. Feibus, supra, 15 F. Sup. 2d 583-85; National Surety Corp. v. Peoples Milling Co., 57 F. Sup. 281, 282-83 (W.D. Ky. 1944); Martin v. Lyons, 98 Idaho 102, 105-106, 558 P.2d 1063 (1977); United States Fidelity & Guaranty Co. v. Klein Corp., 190 Ill. App. 3d 250, 255, 558 N.E.2d 1047 (1989); The Hartford v. Tanner, 22 Kan. App. 2d 64, 70, 910 P.2d 872, review denied, 259 Kan. 927 (1996); United States Fidelity & Guaranty Co. v. Napier Electric & Construction Co., supra, 571 S.W.2d 646; International Fidelity Ins. Co. v. Spadafina, 192 App. Div. 2d 637, 639, 596 N.Y.S.2d 453 (1993); Portland v. George D. Ward & Associates, Inc., 89 Or. App. 452, 456-57, 750 P.2d 171, review denied, 305 Or. 672, 757 P.2d 422 (1988); Hess v. American States Ins. Co., supra, 589 S.W.2d 550; Fidelity & Deposit Co. of
Although the indemnity agreement at issue in the present case did not require, expressly, that National act in good faith, the parties recognized, both at trial and at oral argument before this court, that the implied covenant of good faith is an overlay that applies to sureties. Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co., 47 Cal. App. 4th 464, 482, 54 Cal. Rptr. 2d 888 (1996) (standard of good faith implied in every
A
We note that the approach taken by our sister states is not uniform. “Though the weight of authority seems to be on the side of recognizing a duty of good faith, there is no consensus about what that duty requires.” T. Harris, “Good Faith, Suretyship, and the Ius Commune,” 53 Mercer L. Rev. 581, 587 (2002). The majority
After full consideration of the issue before us, we join those jurisdictions that define bad faith as requiring an “improper motive” or “dishonest purpose” on the
We are careful to note, however, that we do not interpret this standard as requiring the improper motive to rise to the level of fraud. See footnote 13 of this opinion. To do so would virtually obliterate the prophylactic effect of the covenant of good faith and fair dealing. See The Hartford v. Tanner, supra, 22 Kan. App. 2d 77 (“[a]llowing the surety’s indemnification contract to be enforced, absent fraud, leaves the principal and indemnitor at the mercy of the surety’s unreasonable conduct”). We further note, that, although we are not interpreting good faith to mean reasonableness; see footnote 12 of this opinion; whether a surety’s actions were reasonable properly may be considered when analyzing bad faith. Unreasonable conduct can be evidence of improper motive and is a proper consideration where parties are bound by a contract that gives unmitigated discretion to one party. Applying these principles, we evaluate the evidence from which the jury reasonably could have concluded that Mercede was not bound to indemnify National’s payments to PSE because they had been made in bad faith.
The evidence from which the jury reasonably could have concluded that National had acted in bad faith includes National’s failure to conduct a sufficient investigation. Paragraph 6.1 of the payment bond directed National to send an answer to PSE within forty-five days after receiving formal notice of PSE’s claim against the bond. In its response, National was obligated to identify what part of the claim it had determined to be undisputed, as well as to provide the basis for challenging any disputed amounts. Mercede presented evidence that National improperly had failed to put into writing, as required by the payment bond, its opinion as to whether all or any part of PSE’s claim was disputed. Therefore, the parties involved, including Mercede, were not notified as to what portion of PSE’s claims National considered to be undisputed and what evidence it had in support of that assessment. Moreover, paragraph 6.2 of the payment bond directed National to pay only claims upon the payment bond that were undisputed. From these facts, the jury reasonably could have found that National was obligated to investigate PSE’s claims in a manner sufficient to determine whether the amount claimed by PSE was in dispute.
Additionally, Mercede presented evidence from which the jury could have concluded that Jortner had engaged in only a superficial review of PSE’s claim; in particular, he personally never had reviewed Mercede’s project records. Mercede presented evidence that Jortner was not himself capable of making an adequate assessment of the claim because he lacked the knowledge and experience necessary to do so. Mercede further presented evidence that, in September, 2000, almost two years after National was obligated under the payment bond to respond to PSE’s claims, Jortner requested that Lemming, National’s in-house engineer, evaluate the claims. Lemming advised Jortner that the
First, National argues that there is no legal standard by which it had to investigate PSE’s claim. Next, National claims that, from the evidence presented, the jury should have found that National ultimately had fulfilled its notification obligations under the payment bond, as evidenced by Jortner’s letters of November 2, 1998, and February 15, 1999. National further claims that it presented evidence that Jortner adequately had considered the information regarding the claim, and that it was reasonable for him to have believed that PSE would have a significant recovery against the payment bond at a trial of the case. It argues that Mercede’s attack on Jortner’s competency in evaluating whether the claim under the payment bond should have been paid is disparaging and, ultimately irrelevant, as the proper legal issue is whether Jortner acted with malice toward Mercede. National also points out that Lemming’s estimate, valuing PSE’s work at just below $1 million, did not take into account PSE’s claims for extra work, and other costs. Therefore, National argues, because Mercede did not present evidence to the jury that Lemming actually had considered PSE’s additional claims as part of his estimate, the jury could not have concluded that the value of PSE’s claims did not exceed $1 million.
“Central to the factfinding process is the process of drawing inferences, and central to the process of drawing inferences is the notion that the factfinder is not required to draw only those inferences consistent with one view of the evidence, but may draw whatever inferences from the evidence or facts established by
Whether that finding leads inexorably to the ultimate determination of bad faith is an issue that has been addressed in other jurisdictions. Our reading of this authority informs us that the surety is under an obligation to conduct a proper investigation. See, e.g., Continental Casualty Co. v. American Security Corp., 443 F.2d 649, 650 (D.C. Cir. 1970) (upholding summary judgment for surety where uncontradicted affidavits stated that all claims had been paid by surety “in good faith after investigation”), cert. denied, 402 U.S. 907, 91 S. Ct. 1378, 28 L. Ed. 2d 647 (1971); Banque Nationale de Paris S.A. v. Ins. Co. of North America, 896 F. Sup. 163, 165 (S.D.N.Y. 1995) (summary judgment for surety where it was undisputed that surety “investigated and evaluated [the principal’s] alleged defenses before settling”); United States v. D Bar D Enterprises, Inc., 772 F. Sup. 1167, 1170 (D. Nev. 1991) (parties may expect surety to settle only after investigation of claims, counterclaims, and possible defenses); Portland v. George D. Ward & Associates, Inc., supra, 89 Or. App. 457-58 (parties to indemnity agreement subjecting right to compromise claim against principal to sole discretion of surety must reasonably expect compromise and payment to be made only after investigation of claims, counterclaims and defenses asserted in underlying action). This authority from other jurisdictions further informs us, however, that a deficient investigation is not, by itself, sufficient to support a finding of bad faith.
Therefore, the failure to investigate, standing alone and not accompanied by other evidence of an improper motive, is not enough to constitute bad faith, and because as we previously have stated, our standard of bad faith requires more than mere negligence or unreasonable conduct, we agree that evidence indicating that National had failed to investigate PSE’s claim properly is not, by itself, sufficient evidence of bad faith. Nevertheless, “[although mere negligence or failure to make the inquiries which a reasonably prudent person would make does not of itself amount to bad faith, if a party fails to make an inquiiy for the purpose of remaining ignorant of facts which he believes or fears would disclose a defect in the transaction, he may be
2
The jury also reasonably could have found that National settled the claim upon the payment bond solely to protect its own self-interest. First, Mercede presented evidence from which the jury could have concluded that National had paid PSE because it was fearful of possible action by the insurance commissioner based upon National’s failure to process the claim properly as required by the payment bond. Specifically, Mercede presented two witnesses who testified that Jortner had expressed concern about PSE’s complaint with the insurance commissioner.
Additionally, Mercede presented evidence from which the jury could have concluded that National’s sole motivation to settle PSE’s claim upon the payment bond had been to release itself from PSE’s claims that National had acted in bad faith and had violated CUTPA
Furthermore, Mercede submitted to the jury evidence suggesting that the timing and circumstances surrounding National’s settlement on the eve of trial was suspect. On the day jury selection was to begin, National made a $500,000 payment to PSE in exchange for a release of all claims against National; National, however, did not obtain a release of the claims PSE was asserting against Mercede. Rather, National became the beneficiary of PSE’s claims against Mercede when PSE expressly assigned its claims against Mercede to National. On the basis of this evidence, the jury could have inferred that, if the $700,000 in payments made to PSE truly had been in settlement of PSE’s claims against the payment bond, as opposed to settling PSE’s claims for bad faith and CUTPA violations against National, National would have obtained a release that released both it and Mercede.
National argues that, from the evidence presented, the jury should have found that its settlement with PSE was proper, both as to motivation and execution. National claims that the testimony of Peter Mazza and John Nettis; see footnote 14 of this opinion; regarding
The issue of whether National settled with PSE solely in its self-interest required the jury to evaluate the credibility of several key witnesses, many of whom contradicted one another. Issues of credibility are uniquely within the province of the jury and therefore we will not endorse the testimony of one witness over another. Moreover, as we have stated earlier, “the factfinder is not required to draw only those inferences consistent with one view of the evidence, but may draw whatever inferences from the evidence or facts established by the evidence it deems to be reasonable and logical.” (Internal quotation marks omitted.) In re Keijam T., supra, 221 Conn. 123. Even if we were to assume there
Again, whether a self-interested settlement, like the failure to investigate properly, constitutes bad faith is an issue we have not had to consider, and the case law purporting to answer this question is sparse.
The case that is most often cited in regard to the issue of self-interested settlement is instructive. In Fidelity & Deposit Co. of Maryland v. Bristol Steel & Iron Works, Inc., supra, 722 F.2d 1165-66, the United States Court of Appeals for the Fourth Circuit concluded that sureties were entitled to indemnification, pursuant to an indemnity agreement, for a settlement that the sureties had made for the sole purpose of protecting their own self-interest. The sureties initially had disputed a claim on a performance bond and had asserted the principal’s
The court began its analysis by stating the basic rule: sureties must be indemnified for payments made in good faith. It is clear, however, from the facts noted by the court in Fidelity & Deposit Co. of Maryland, that there was no evidence that could have supported a finding of bad faith other than the self-interested settlement. First, the principal, with full knowledge of the sureties’ payment and the purpose for it, never objected to the payment. Fidelity & Deposit Co. of Maryland v. Bristol Steel & Iron Workers, Inc., supra, 722 F.2d 1164-65. In fact, the principal sent a letter to the sureties stating that the sureties’ actions were reasonable under the circumstances; it was only after receipt of this letter that the sureties made payment to the claimant. Id., 1165. The court also noted how the sureties “sought in making their payment to protect fully the interests of the [principal]. ” Id. We note further that under the applicable law in Pennsylvania, the principal was bound “not simply to indemnify the surety but to keep it unmolested
Those facts are distinguishable from the present case wherein the jury reasonably could have found that the principal, Mercede, at various times, either was unaware of the fact that National was making payments to PSE, or had objected to those payments once it was made aware of them. In fact, Mercede presented evidence showing that, initially, National actually had supported Mercede’s defenses against PSE’s claims against the payment bond. Mercede also presented evidence that, only after PSE had filed a complaint with the insurance commissioner and had threatened litigation against National based upon bad faith and CUTPA claims, did National abandon this approach. Moreover, we observe that Pennsylvania law required the principal in Fidelity & Deposit Co. of Maryland “ ‘not simply to indemnify the surety but to keep it unmolested’ id.; a standard not at play in the present case. Therefore, unlike in Fidelity & Deposit Co. of Maryland, the self-interested settlement in the present case was not cloaked in good faith garb, but, rather, was tainted by a confluence of circumstances from which a jury could properly have inferred improper motive.
We recognize, due to the unique nature of the tripartite relationship among surety, principal and claimant, that a surety may subject itself to bad faith claims from the claimant simply by defending the principal and refusing to settle the claimant’s demand upon the payment bond. Similarly, a surety may face claims, such as in this case, by its principal, when it settles with a claimant. Consequently, sureties, by the nature of their business, may find themselyfes caught between Scylla
Inherent in this determination is our appreciation of the public policy supporting the discretion afforded a surety under an indemnity agreement, in that, such agreements make it possible for a surety to compensate unpaid subcontractors and vendors or to complete a project in response to a performance bond claim without having to await the adjudication of every possible defense by the principal. See, e.g., Transamerica Ins. Co. v. Bloomfield, supra, 401 F.2d 363 (purpose of indemnity agreement is to facilitate handling of settlements and protect sureties from unnecessary litigation); United States Fidelity & Guaranty Co. v. Feibus, supra, 15 F. Sup. 2d 585 (same). Additionally, we are cognizant of how obligees or claimants can hold sureties hostage by merely alleging bad faith against them. See Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co., supra, 47 Cal. App. 4th 485 (“[s]uch allegations are easily made, and may be based on nothing more tha[n] an obligee’s [or claimant’s] interest in frightening a surety into settling”).
Although we acknowledge the policy behind a surety’s discretionary authority, we also question, however,
Obviously, what constitutes good faith or lack thereof depends on the facts of each case. In this instance, we conclude that the jury reasonably could have determined that National had breached the implied covenant of good faith and fair dealing based upon all the evidence supporting Mercede’s claims that National, inconsistent with justified expectations and unfaithful to its duty under the implied covenant, both failed to investigate adequately and improperly settled PSE’s claims solely out of self-interest.
B
Lastly, National argues that the jury’s conclusion that National was not entitled to recover its attorney’s fees and costs associated with its investigation and defense of PSE’s payment bond claims contradicted the express language of the indemnity agreement. Therefore, according to National, the verdict should be set aside and the issue tried to the court to determine the amounts of recoverable fees and costs.
The jury found that Mercede had proven by a preponderance of the evidence that National had breached its implied covenant of good faith and fair dealing. Subsumed in this finding is the jury’s implicit finding that National’s payments to PSE were not the result of PSE’s claims under the payment bond. Therefore, the evidence in support of the jury’s finding that National was not entitled to receive attorney’s fees and costs is entangled with the other issues we have resolved in this opinion.
Ill
We next address National’s broad contention that the trial court improperly instructed the jury concerning the implied covenant of good faith and fair dealing. National’s arguments can be divided into three separate categories. First, National claims that the jury instruction was improper and harmful because it disregarded the express terms of the indemnity agreement. Second, National argues that when the trial court read a list of fourteen factors that the jury might consider in determining whether National had acted in bad faith, the effect of the overall charge was that any one of the items on the list would constitute a per se violation of the implied covenant of good faith and fair dealing. Third, National contends that the trial court improperly excluded particular language from the instruction. We disagree and address each contention in turn.
We reiterate the appropriate standard of review. “When reviewing [a] challenged jury instruction . . . we must adhere to the well settled rule that a charge to the jury is to be considered in its entirety, read as a whole, and judged by its total effect rather than by its individual component parts. . . . [T]he test of a
National’s first claim, namely, that the jury instruction was improper because it disregarded the express terms of the indemnity agreement, is inextricably intertwined with National’s incorrect belief that, as a matter of law, it did not owe Mercede an implied duty of good faith. Accordingly, in resolving this issue, we simply refer to part II of this opinion. To the extent that National argues that the implied covenant of good faith cannot be applied, in and of itself, to achieve a result contrary to the express terms of the indemnity agreement, we agree. See Verrastro v. Middlesex Ins. Co., supra, 207 Conn. 190. We conclude, however, that the trial court’s instruction to the jury on good faith, when “considered in its entirety . . . and judged by its total effect rather than by its individual component parts,” was consistent with this proposition. Schoonmaker v. Lawrence Brunoli, Inc., supra, 265 Conn. 238-39. In fact, on two separate occasions, the court reminded the jury that “National [had] the exclusive right to settle any and all construction bond claims, including those arising under the payment bond in this case.”
We similarly reject National’s second claim, that the jury instructions were improper because a list of four
Our review of the record reveals that, although National objected at the charging conference to six of the fourteen items on the list,
Finally, National argues that the trial court improperly excluded particular language from the jury instructions. According to National, the court improperly failed to recite the entire instruction on the covenant of good faith and fair dealing set forth in Buckman v. People Express, Inc., supra, 205 Conn. 171. Specifically, the court omitted the following language from its instructions: “[Bad faith] contemplates a state of mind affirmatively operating with furtive design or ill will.” (Internal quotation marks omitted.) Id. National’s proposed jury instruction regarding the good faith issue included the “furtive design or ill will” language, and when the trial court decided not to include it during the charging conference, National objected; therefore, its claim concerning this instruction is preserved.
After the trial court enumerated the fourteen factors that the jury could consider in determining whether National had performed in good faith; see footnote 21
National argues that the trial court’s failure to include the “furtive design or ill will” language from Buckman was improper because that phrase is a required element in a good faith jury instruction under Connecticut law. Specifically, National argues that such language is necessary because bad faith requires “proof that goes beyond the potential ill feelings between parties when one exercises a contractual right to the detriment of the other” and that the court’s omission kept the jury from understanding that “unhappiness” was “not the equivalent of bad faith.” We conclude, however, after reading the jury charge as a whole, that the charge adequately conveyed to the juiy the law regarding good faith, and therefore was proper.
A
We next turn to National’s claim that the trial court abused its discretion
The following additional facts are relevant to our resolution of this issue. In August, 1999, shortly before PSE had filed its original complaint in this action, Wolfe met with David Rosengren, counsel for PSE, to discuss the possibility of a settlement of PSE’s claims against National. On August 6, 1999, Wolfe sent an e-mail message to Jortner, reporting on his meeting with PSE’s counsel. The message provided in relevant part: “I again asked what it would take to avoid the bad faith counts, in exchange for payment of totally uncontested funds. Rosengren again had no number in mind, but understood the concept of the question and will be getting
During discovery, National inadvertently disclosed the contents of this e-mail message, along with the contents of two other e-mail messages sent between National and its counsel. National thereafter filed a motion in limine seeking to preclude Mercede from using the contents of the messages at trial. At the beginning of trial, the trial court issued a preliminary ruling that the August 6, 1999 e-mail message was admissible. Specifically, the trial court ruled that this e-mail was not protected by the attorney-client privilege because it merely transmitted information concerning a meeting between counsel for National and counsel for PSE.
National renewed its objection to the admissibility of the August 6, 1999 e-mail message at trial, during Mercede’s cross-examination of Jortner. National argued that the message was inadmissible because it was: (1) protected by the attorney-client privilege; (2) irrelevant; and (3) prejudicial. The trial court overruled National’s objection and admitted the e-mail into evidence as a full exhibit. Mercede used the e-mail in its cross-examination of Jortner and relied on it during closing arguments as circumstantial evidence that National had made its payments to PSE in bad faith because National was trying to avoid liability on PSE’s claims of bad faith and CUTPA violations.
Before addressing the merits of National’s claims, we set forth the standard by which we review them. “The trial court’s ruling on the admissibility of evidence is entitled to great deference. . . . [T]he trial court has broad discretion in ruling on the admissibility ... of evidence. . . . The trial court’s ruling on evidentiary matters will be overturned only upon a showing of a clear abuse of the court’s discretion. . . . We will make every reasonable presumption in favor of upholding the trial court’s ruling, and only upset it for a manifest abuse of discretion. . . . Moreover, evidentiary rulings will be overturned on appeal only where there was an abuse of discretion and a showing by the defendant of substantial prejudice or injustice.” (Internal quotation marks omitted.) State v. Dehaney, 261 Conn. 336, 354-55, 803 A.2d 267 (2002), cert. denied, 537 U.S. 1217, 123 S. Ct. 1318, 154 L. Ed. 2d 1070 (2003). “When reviewing claims under an abuse of discretion standard, the
In the present case, however, the specific issue before us is whether the attorney-client privilege protected this e-mail from disclosure. “Therefore, [t]he scope of our appellate review depends upon the proper characterization of the rulings made by the trial court. To the extent that the trial court has made findings of fact, our review is limited to deciding whether such findings were clearly erroneous. When, however, the trial court draws conclusions of law, our review is plenary and we must decide whether its conclusions are legally and logically correct and find support in the facts that appear in the record.” (Internal quotation marks omitted.) Blumenthal v. Kimber Mfg., Inc., 265 Conn. 1, 7, 826 A.2d 1088 (2003). Our limited task is to decide whether, based on the facts, the trial court’s conclusions of law are legally and logically correct.
“On numerous occasions we have reaffirmed the importance of the attorney-client privilege and have recognized the long-standing, strong public policy of protecting attorney-client communications. ... In Connecticut, the attorney-client privilege protects both the confidential giving of professional advice by an attorney acting in the capacity of a legal advisor to those who can act on it, as well as the giving of information to the lawyer to enable counsel to give sound and informed advice. . . . The privilege fosters full and frank com
Not every communication between client and attorney, however, is protected by the attorney-client privilege. “As a general rule, [c]ommunications between client and attorney are privileged when made in confidence for the purpose of seeking legal advice.” (Internal quotation marks omitted.) Blumenthal v. Kimber Mfg., Inc., supra, 265 Conn. 10. “A communication from attorney to client solely regarding a matter of fact would not ordinarily be privileged, unless it were shown to be inextricably linked to the giving of legal advice.” (Internal quotation marks omitted.) Olson v. Accessory Controls & Equipment Corp., 254 Conn. 145, 157, 757 A.2d 14 (2000). The burden of proving each element of the privilege, by a fair preponderance of the evidence, rests with National, as it is the party seeking to assert the privilege. State v. Hanna, 150 Conn. 457, 466, 191 A.2d 124 (1963).
The August 6,1999 e-mail resembles a progress report from Wolfe to his client, and it merely paraphrases the discussion that had transpired between Wolfe and counsel for PSE. “One of the essential elements of the claim of privilege between attorney and client is that the communication be confidential.” Rienzo v. Santangelo, 160 Conn. 391, 395, 279 A.2d 565 (1971). “Statements
Finally, National claims that the trial court should have excluded this e-mail because it was evidence of an offer of settlement, which is inadmissible under § 4-8 of the Connecticut Code of Evidence. The purpose of § 4-8, however, is to preclude the admission of settlement offers between parties who are opposing parties at the trial in which the evidence of the settlement is sought to be introduced. See generally Tomasso Bros., Inc. v. October Twenty-Four, Inc., 221 Conn. 194, 198, 602 A.2d 1011 (1992) (explaining that policy behind exclusion of such evidence is to promote settlement of disputes between parties). Section 4-8 does not apply here because the e-mail pertains solely to settlement discussions between National and PSE, and not to the
B
We next address National’s claim that the trial court abused its discretion by overruling National’s objections to testimony concerning an unrelated settlement agreement between an affiliate of National and the principal of one of its bonds, a company that had been represented in the unrelated matter by Mercede’s present counsel. National claims that, although the trial court gave a curative charge instructing the jury to disregard this testimony, the testimony itself was so prejudicial as to necessitate a new trial. We disagree.
The following additional facts are relevant to our resolution of this issue. In October, 1999, Jortner received an e-mail message from Robert Campbell, an underwriter for one of National’s affiliates. In the e-mail, Campbell referred to his prior dealings with Raymond Garcia, Mercede’s present counsel. The e-mail provided in relevant part: “Having some experience with Garcia, I’m particularly interested in your reaction to whatever defenses he put forward. Some of them have got to be beauties.”
At trial, Garcia conducted a direct examination of Campbell, in which he asked Campbell to explain the meaning of the e-mail message. Campbell testified that he had dealt with Garcia’s office in an earlier bond dispute, which had proceeded to trial and resulted in a jury verdict against Campbell’s company. One of the issues in that dispute involved a bad faith claim. Campbell further testified that he had “been in this business for thirty-two years and found a lot of outrageous claims from a lot of attorneys. . . . You’re part of that.” In addition to admitting that he was predisposed to believe
On appeal, National claims that the testimony concerning the settlement and the testimony revealing how that event had engendered negative feelings between National’s employees and counsel for Mercede imputed bad faith to National by implying that National’s motives to settle PSE’s claims were improper. National contends that, despite the curative instruction, the testimony was so prejudicial as to require a new trial. We disagree. Even if we were to assume, arguendo, that the testimony was admitted improperly, we nevertheless conclude that the curative instruction sufficiently negated any potential prejudice.
National requested a curative charge regarding Campbell’s testimony, and the trial court obliged in this request. The trial court’s instructions to the jury, in relevant part, provided: “You are instructed to disregard any of the questions, comments or answers relating to [the settlement agreement] and you are further
V
National next claims that the trial court improperly denied its motion to set aside the verdict because the jury’s finding that National had breached the implied covenant of good faith and fair dealing was inconsistent with its finding that National had not breached the indemnity agreement. Our review of the record reveals, however, that National did not raise this issue before the trial court either in its motion to set aside the verdict or at oral argument on that motion. Because our review is limited to matters in the record, we will not address issues not decided by the trial court. Practice Book § 60-5 (court on appeal shall not be bound to consider claim unless distinctly raised at trial); Celentano v. Oaks Condominium Assn., 265 Conn. 579, 589-90 n.9, 830 A.2d 164 (2003) (claims neither addressed nor decided
VI
Finally, National claims that the trial court improperly submitted to the jury the special defenses of estoppel and waiver, and failed to direct a verdict in National’s favor on those defenses, when according to National, Mercede could not prove the necessary elements of each defense. In light of our decision that the jury properly found that Mercede had proven its special defense that National had breached its implied covenant of good faith and fair dealing, thereby affirming the judgment in favor of Mercede on National’s cross claim for indemnity, we need not address National’s remaining claim.
The judgment is affirmed.
In this opinion the other justices concurred.
The plaintiff in the underlying action, PSE Consulting, Inc., settled with both National and Mercede before trial, and is not a party to this appeal.
National appealed from the judgment of the trial court to the Appellate Court, and we transferred the appeal to this court pursuant to General Statutes § 51-199 (c) and Practice Book § 65-1.
In construction parlance, the term “retainage” ordinarily refers to the percentage of the contract price that a project owner may withhold from a contractor pending completion and acceptance of the contractor’s performance under the terms of a construction contract. See F & W Welding Service, Inc. v. ADL Contracting Corp., 217 Conn. 507, 508, 587 A.2d 92 (1991). The joint check agreement in this case provided for retainage of 10 percent of the $1.5 million contract price, or $150,000.
The payment bond sets forth the procedures by which a claimant may make a claim against the bond. Once a claimant has complied with those procedures, paragraph six of the payment bond provides that “the Surety shall promptly and at the Surety’s expense take the following actions:
“6.1 Send an answer to the Claimant, with a copy to the Owner, within 45 days after receipt of the claim, stating the amounts that are undisputed and the basis for challenging any amounts that are disputed.
“6.2 Pay or arrange for payment of any undisputed amounts.”
The jury also found that Mercede had not proven its special defenses that National had breached the indemnity agreement and had failed to mitigate its damages.
The indemnity agreement refers to Mercede and its individual indemnitors, respectively, as “the Principal” and “the Indemnitors.” For simplicity’s sake, in our quoting of the indemnity agreement, we shall refer collectively to Mercede and its indemnitors as “Mercede.”
This court has tended to use the terms “bad faith,” “lack of good faith” and “breach of the covenant of good faith and fair dealing” interchangeably. See, e.g., Gaudio v. Griffin Health Services Corp., 249 Conn. 523, 564, 733 A.2d 197 (1999); Multi-Service Contractors, Inc. v. Vernon, 193 Conn. 446, 452, 477 A.2d 653 (1984). We maintain that practice in this opinion.
At the close of National’s case, Mercede had moved for a directed verdict, and the trial court reserved its decision on that motion.
Concurrently, Mercede filed a motion to set aside part of the verdict and a motion for additional relief to enforce the settlement agreement. The trial court’s resolution of these matters is not at issue in this appeal.
Although National presents this issue as one concerning allocation, that is, that the jury failed to allocate properly how much of the $700,000 in payments to PSE had been made in response to a proper claim on the payment bond and how much had been to settle PSE’s bad faith and CUTPA claims, we view this claim in a broader context. The dispositive issue on appeal is whether the jury reasonably could have found that National had made the payments in bad faith. This approach is not inconsistent with the interrogatories that presented the issue to the jury, and we note that, during argument before the trial court concerning the motions, the parties recognized that this issue potentially involved an “all or nothing” approach. The jury could have found that the payments were proper in their entirety, or that neither of the payments was proper, or they could have chosen to allocate the payments and find that some of the payments were proper. As
On appeal, National also argues that, “as a matter of justice and equity,” the verdict must be set aside because Mercede has kept the $150,000 retainage paid by the owner. In addition to being inadequately briefed; see Commissioner of Social Services v. Smith, 265 Conn. 723, 732-33 n.11, 830 A.2d 228 (2003) (court not required to review issues inadequately briefed); our review of the record indicates that this argument was not raised in either National’s motion for a directed verdict, motion to set aside the verdict, motion for a new trial, or renewed motion for a directed verdict. “Proper preservation of claims for appellate review requires that the trial court [be] effectively . . . alerted to a claim of potential error while there [is] still time for the court to act.” (Internal quotation marks omitted.) United Technologies Corp. v. East Windsor, 262 Conn. 11, 31, 807 A.2d 955 (2002). Because the plaintiff failed properly to preserve this claim, we decline to review it.
We note that a minority of jurisdictions have appraised surety conduct under a less forgiving standard, namely, one that defines bad faith as conduct that was unreasonable or negligent. See, e.g., Rush Presbyterian St. Luke’s Medical Center v. Safeco Ins. Co. of America, 712 F. Sup. 1344, 1346 (N.D. Ill. 1989) (“negligence and bad faith axe synonymous” in context of determining good faith); Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co., supra, 47 Cal. App. 4th 483 (surety’s bad faith can be demonstrated by proof of “objectively unreasonable conduct, regardless of the actor’s motive” [internal quotation marks omitted]); Hawaiian Ins. & Guaranty Co., Ltd. v. Higashi, supra, 67 Haw. 14 (“burden of establishing that the amount paid in the settlement . . . was reasonable and in good faith [is] upon the indemnitee”); The Hartford v. Tanner, supra, 22 Kan. App. 2d 76 (“good faith requires a surety seeking indemnification to show that its conduct was reasonable”); Portland v. George D. Ward & Associates, Inc., supra, 89 Or. App. 458 (to prove bad faith in settling claim, indemnitors “needed only to prove that [the surety] failed to make a reasonable investigation of the validity of the claims against them or to consider reasonably the viability of their counterclaims and defenses, not that [the surety] acted for dishonest purposes or improper motives”); see also E. Gallagher, The Law of Suretyship (2d Ed. 2000) pp. 492-95 (discussing cases).
Some courts appear to go so far as to require actual fraud in order for the surety’s actions to rise to the level of bad faith. See, e.g., Fireman’s
John Nettis, an insurance agent who had negotiated the surety relationship between National and Mercede, testified that Jortner had told him that “[h]e was concerned that . . . due to the fact that the attorney for PSE had gone to the insurance department that this would put CNA [Surety] in a bad light with the insurance department. And in the event they were called upon to pay, the insurance department could assess them treble damages.” In addition, Mercede presented the testimony of Peter Mazza, a claims consultant who had assisted Mercede with the PSE claim. Mazza testified that “Jortner was extremely nervous and upset” that a complaint had been sent to the insurance commissioner. Mazza further testified that, at the May, 1999 meeting in which Jortner had urged Mercede to pay $177,000 to PSE, Jortner had indicated that “he was crazed about the insurance commissioner.
We recognize the authority holding that a surety is not acting in bad faith in seeking indemnification from aprincipal simply because the principal objected to and raised colorable defenses to payments made by the surety to the claimant. See, e.g., Trainsamerica Ins. Co. v. Avenell, 66 F.3d 715, 718, 721 (5th Cir. 1995) (surety’s settlement of litigation over principal’s objections not bad faith); General Accident Ins. Co. of America v. Merritt-Meridian Construction Corp., 975 F. Sup. 511, 518 (S.D.N.Y. 1997) (no bad faith wherein surety settled claims despite possible defenses by principal). This is true because, under an indemnity agreement, it is not essential that a principal be liable for the claims upon which the surety seeks to be indemnified. See, e.g., Frontier Ins. Co. v. International, Inc., supra, 124 F. Sup. 2d 1215 (liability of principal not prerequisite to surety’s right to reimbursement); United States Fidelity & Guaranty Co. v. Feibus, supra, 15 F. Sup. 2d 583 (same); Employers Ins. of Wausau v. Able Green, Inc., supra, 749 F. Sup. 1103 (“courts have consistently held that the surety is entitled to reimbursement pursuant to an indemnity contract for any payments made by it in a good faith belief that it was required to pay, regardless of whether any liability actually existed” [emphasis in original]); Fireman’s Fund. Ins. Co. v. Nizdil, 709 F. Sup. 975, 976-77 (D. Or. 1989) (“[a]ny claim asserted against the surety, regardless if it is valid or outside the scope of the bond triggers the obligation to indemnify the surety”); Fidelity & Deposit Co. of Maryland v. Fleischer, supra, 772 S.W.2d 816 (surety “had the right to settle any claim in good faith whether or not liability, necessity or expediency existed”); International Fidelity Ins. Co. v. Spadafina, supra, 192 App. Div. 2d 639 (surety entitled to indemnification, regardless of whether principal liable on underlying debt); Hess v. American States Ins. Co., supra, 589 S.W.2d 551 (liability of principal not condition precedent to surety’s right of recovery on indemnity agreement). We note that Mercede raised defenses to National against recovery under the bond by PSE. This case, however, does not turn on that mere assertion, but involves additional specific claims of bad faith and evidence in support thereof.
This situation has also been dubbed the surety’s “ ‘classic dilemma.’ ” Associated Indemnity Corp. v. CAT Contracting, Inc., supra, 964 S.W.2d 282, citing J. Hinchey, supra, 22 Tort & Ins. L.J. 133.
This is particularly problematic when the indemnity agreement, as in the present case, did not give the principal the option of posting collateral and determining for itself whether suspect claims should be litigated. See Fidelity & Deposit Co. of Maryland v. Fleischer, supra, 772 S.W.2d 816 (noting significance of indemnitor’s failure to take advantage of such option).
We note that the overwhelming majority of cases deciding in favor of sureties in their claims for indemnification were decided by summary judgment, without the development of the factual record present in the this case. See, e.g., Transamerica Ins. Co. v. Avenell, 66 F.3d 715, 721 (5th Cir. 1995) (affirming summary judgment where there was no factual support for allegations of surety’s bad faith); Continental Casualty Co. v. American Security Corp., supra, 443 F.2d 652 (affirming summary judgment for surety
Paragraph two of the indemnity agreement provided in relevant part: “[Mercede] will indemnify and save [National] harmless from and against
The trial court referenced this stipulation in its instructions to the jury on this issue: “The parties have stipulated that the amount of any award of fees of attorneys, costs and expenses claimed by National pursuant to the [indemnity agreement] will be handled by [the trial court] at a later date. So, you are only to determine if such fees should be awarded. . . . National is claiming it is entitled to [an] award of attorney’s fees by . . . reason of paragraph two of the [indemnity agreement].” (Emphasis added.)
The trial court charged the jury concerning these factors as follows: “In determining whether National performed in good faith, you should consider the following: Whether National considered and paid amounts that Mercede was disputing that were due under the payment bond. Whether National conducted a reasonable investigation. Whether National acted in its own self-interest. Whether [National] was settling claims PSE asserted against it for which Mercede was not responsible for the amounts claimed under bad faith and CUTPA. Whether [National] responded promptly to PSE under the terms of the payment bond. Whether it responded within forty-five days as required by the payment bond. Whether National considered colorable defenses asserted by Mercede. Whether National acted as a volunteer in making the payments to PSE for which it had no legal responsibility under the payment bond. Whether National acted as a volunteer in making the payments to PSE to settle National’s exposure for bad faith and/or CUTPA damages to PSE. Whether PSE had asserted sufficient claim as state[d] in PSE’s October 10,2000 revised and amended complaint. Whether National made an unreasonable demand for collateral. Whether National settled due to fear of actions by the Connecticut insurance commissioner. Whether conduct of National in refusing to issue consent of surety include[d] sending a letter to Turner [Construction] Company. And whether the amount paid in settlement to PSE was reasonable. You need not find all of these allegations have been proven by the evidence for you to find a violation of the implied covenant of good faith and fair dealing. You must decide whether National fulfilled, its obligation to exercise good faith." (Emphasis added.)
Briefly stated, National specifically objected to the following: (1) the absence of the clause “furtive design or ill will,” from the definition of bad faith; (2) the failure to use the language “whether National had an obligation to conduct an investigation” instead of “whether National conducted a reasonable investigation”; (3) the omission of the word “solely” from the phrase “whether [National] acted in its own self-interest”; (4) the omission of the word “solely” from “whether [National] was settling claims PSE asserted against it for which [Mercede] was not responsible”; (5) the instruction regarding “whether [National] acted as a volunteer in making payments” to PSE “for which it had no legal responsibility” under the payment bond;
We note that, when we adopted the “improper motive” standard of bad faith in part II of this opinion, we based that decision, in part, on the fact that the standard was consistent with our definition of bad faith in Buckman, including the “furtive design or ill will” language. See Buckman v. People Express, Inc., supra, 205 Conn. 171. Although that express language is helpful in relaying the definition of bad faith to a jury, as we conclude herein, the jury instructions here adequately expressed the law.
In its brief to this court concerning this issue, National sets forth the proper abuse of discretion standard for review, but invokes plain error review on this issue as well. The plain error doctrine, however, is inapplicable to this situation, as it provides appellate review of claims unpreserved at trial. Practice Book § 60-5 provides in relevant part: “The court may in the interests of justice notice plain error not brought to the attention of the trial court. . . .” (Emphasis added.) See State v. Ramos, 261 Conn. 156, 171, 801 A.2d 788 (2002). Moreover, “[pjlain error review is reserved for truly extraordinary situations where the existence of the error is so obvious that it affects the fairness and integrity of and public confidence in the judicial proceedings.” (Internal quotation marks omitted.) State v. Andresen, 256 Conn. 313, 336, 773 A.2d 328 (2001). At trial, National properly objected to the disclosure of this e-mail. Accordingly, we will not engage in a plain error analysis regarding this issue.
The e-mail also revealed that, as a result of his meeting with PSE’s counsel, Wolfe would be able to give Jortner “a pretty good idea of the exposure [National would] have,” and also that PSE planned to file suit in the near future to avoid any statute of limitations issue.
Concurrently, the trial court ruled that the two other e-mails that were disclosed, dated August 5 and August 18,1999, were protected by the attorney-client privilege and that National’s inadvertent disclosure of them did not waive the privilege. The trial court’s ruling regarding these other two e-mails is not at issue in this appeal.
Section 4-8 of the Connecticut Code of Evidence provides: “(a) General rule. Evidence of an offer to compromise or settle a disputed claim is inadmissible on the issues of liability and the amount of the claim.
“(b) Exceptions. This rule does not require the exclusion of:
“(I) Evidence that is offered for another purpose, such as proving bias or prejudice of a witness, refuting a contention of undue delay or proving an effort to obstruct a criminal investigation or prosecution, or
“(2) statements of fact or admissions of liability made by a party.”
We have recognized, however, that “[t]he presence of certain third parties . . . who are agents or employees of an attorney or client, and who are necessary to the consultation, will not destroy the confidential nature of the communications.” (Emphasis added; internal quotation marks omitted.) Olson v. Accessory Controls & Equipment Corp., supra, 254 Conn. 157 (citing supporting cases). National does not claim that, PSE’s counsel should be considered a member of this unique class of persons whose communications are also protected by the attorney-client privilege, nor would the facts support such an argument.
National also claims that this e-mail is privileged because it is “related to” an e-mail sent one day prior that the trial judge determined to be protected by the privilege and thus inadmissible. This court is unaware of any doctrine that transfers the privilege from one confidential document to another document that, while it may be related to the initial document in time or general subject matter, is not confidential, nor does National cite to any case law in support of such a “relatedness” doctrine. The e-mail in question failed to qualify as a confidential communication, and therefore, was not protected from disclosure or admissibility by the attorney-client privilege.
The trial court’s curative charge instructed the jury as follows: “Now, in connection with the examination of [Campbell], attorney . . . Garcia, counsel of record for Mercede, made reference to another lawsuit in which' [Garcia] and [Campbell] both participated. [Garcia] was obligated by a confidentiality clause and a written agreement in that other lawsuit not to disclose any of the details relating to the settlement of that litigation. The settlement agreement that is executed by both parties and counsel further states that nothing therein shall be construed to be a concession or admission of fault by either party. You are instructed to disregard any of the questions, comments or answers relating to this line of inquiry and you are further instructed not to draw any negative inferences or conclusion[s] as to CNA [Surety] or National as a result of that litigation or [Garcia’s] line of inquiry as to his examination of [Campbell].”
