In Colt's Mfg. Co., LLC v. Am. Int'l Spec. Lines Ins. Co., No. 3:23-CV-01156 (JCH), 2025 WL 1753691 (D. Conn. June 25, 2025), the U.S. District Court for the District of Connecticut disarmed Colt's Manufacturing and denied its motion for summary judgment on breach of contract and bad faith claims. (The Court also went into the carrier's motion for summary judgment issues, but we will not address them in this space today.)
The first thing the Court decided was to follow established Connecticut law to the effect that a later agreement can supersede the terms of an earlier insurance contract between the parties: "Under Connecticut law, '[a] recognized test for whether a later agreement between the same parties to an earlier contract constitutes a substitute contract looks to the terms of the second contract. If it contains terms inconsistent with the former contract, so that the two cannot stand together it exhibits characteristics ... indicating a substitute contract.'" Colt's Manufacturing, 2025 WL 1753691, at *8 (quoting a Connecticut Supreme Court opinion).
In this case, the District Court held that an Interim Defense Funding Agreement (IDFA) superseded the original insurance contract between the parties under Connecticut law.
With respect to Colt's Bad Faith Claim, the Court held that there were triable issues of material fact not as to Colt's claim under the insurance contract, but as to Colt's bad faith claim under the IDFA with its insurance carrier:
"For the reasons the court has already explained, Colt's cannot bring its bad faith claim pursuant to the Insurers' supposed failure to abide by language in an insurance policy that does not govern the parties' obligations to pay defense expenses. See, supra, part IV.A.4. Regarding Colt's bad faith claim under the Fourth IDFA, Colt's has failed to adduce sufficient evidence to foreclose the possibility that a jury could find in the Insurers' favor as to this claim. It is, therefore, a triable issue of fact as to whether the Insurers acted in bad faith under to [sic] the Fourth IDFA. Accordingly, the court denies Colt's Motion to the extent it seeks summary judgment as to its claim of bad faith."
Colt's Manufacturing, 2025 WL 1753691, at *18.
The issues addressed in Colt's Manufacturing are also addressed in a collection of case law in the context of Informing the Insured: Insurer Assertion of Rights to Reimbursement From the Insured of Clearly Noncovered Indemnity and Defense Expense, § 3:6 in Volume 1 of DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH (Thomson Reuters West Publishing Co. 3d Edition, with 2025 Supplements).
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