C.A. Upholds $2.65 Million Bad Faith Award Against Insurer
Award Not Excessive Where Mishandling of Claim Drove Insured to Seek Therapy, Court Says
By KENNETH OFGANG, Staff Writer/Appellate Courts
A Sacramento couple whose insurer’s mishandling of their claim drove the husband to drink, sent the wife to a therapist, and injured their marriage and their business are entitled to keep the more than $2 million awarded by a jury for bad faith, the Third District Court of Appeal ruled yesterday.
The justices affirmed an award of $638,000 in compensatory damages and $2.015 million in punitive damages to Charles and Terese Polisso. A Sacramento Superior Court jury concluded the Polissos were entitled to that sum because Century Surety Co. wrongly refused to defend a claim against their business, Kinzel Glass Co.
The claim had its origins in a 1996 contract in which Kinzel and S.W. Allen Construction, Inc. agreed that Kinzel would install seven glass panels in an underground viewing chamber being built by the U.S. Forest Service near Lake Tahoe. Before the project was completed, however, a heavy rain caused the creek to overflow and submerge the viewing chamber, triggering a series of events that resulted in damage to the glass.
Allen sued, naming Kinzel Glass and “CHARLES A. POLISSO...an individual doing business as KINZEL” as defendants, claiming that faulty workmanship was responsible for the damage and that the Forest Service was dissatisfied with the glass as a result. Kinzel tendered its defense to Century Surety Co., from which it had purchased a commercial lines policy covering liability, as well as damage to its glass.
Century brought a declaratory action against Kinzel, Charles Polisso, and Allen to determine what coverage obligations, if any, it had. The Polissos counterclaimed against Century for refusing to defend them in Allen’s suit and to pay for damage to the glass.
Century attorney Callie O’Hara opined that there was no obligation to defend or provide coverage. The company then advised the Polissos that it was denying their claim, but had obtained an extension of time to file and had instructed its lawyers to prepare and file an answer as a courtesy.
Reservation of Rights
Evidence later presented in the bad faith suit showed that at one point, O’Hara advised Century that there was enough evidence to show a “potential” for coverage, triggering a duty to defend in the Allen suit. The company then retained new counsel and notified Charles Polisso that it would provide a defense under a full reservation of rights, but would not provide independent counsel or cover the property damage.
While the litigation was pending, O’Hara recommended that Century file a declaratory action against the Polissos and seek reimbursement of defense costs. The Polissos subsequently retained their own counsel, whom Century originally agreed to pay at its usual rates, but who was owed nearly $70,000 by the end of trial, which resulted in a net zero between the Polissos and Allen.
In the bad faith suit, the Polissos contended that after five years of litigation, with reigning uncertainty as to the outcome and as to whether their defense costs would be paid, they were under tremendous personal stress and had lost their business lease. Because the company had occupied its former premises since 1949 and had to move to a less desirable location, they lost a good deal of business, they said.
Jurors agreed that Century had acted in bad faith, holding the company liable for business and personal injury damages and legal fees sustained in the underlying suit.
Justice Coleman Blease, writing for the Court of Appeal, rejected the company’s contention that it could not be held liable for bad faith because there was a good faith dispute over coverage. While Century could have disputed coverage in good faith, Blease explained, it could not reasonably dispute that it had a duty to defend.
The justice went on to conclude that the punitive damage award was not excessive. It was within the range of reasonableness according to recent U.S. Supreme Court decisions, the justice said, and reflected the reprehensibility of the insurer’s five-year pattern of mishandling the claim.
The case is Century Surety Company v. Polisso, 06 S.O.S. 2550.
Copyright 2006, Metropolitan News Company