Monday, June 13, 2016
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Supreme Court Clarifies Rule on Punitive Damages Calculation
Brandt Fees Must Be Added in Before Compensatory/Punitive Ratio Is Figured, Justices Say
By KENNETH OFGANG, Staff Writer
Attorney fees that an insured expended in order to obtain benefits that the insurer denied in bad faith are an item of compensatory damages for the purpose of calculating the ratio of compensatory to punitive damages, even if they were added to the award after the jury verdict, the state Supreme Court has ruled.
The justices Thursday unanimously reversed lower court rulings remitting a $19 million punitive damage award against Stonebridge Insurance Company to $350,000. The high court said the trial judge erred in failing to add $12,500 in attorney fees to the $35,000 awarded by the jury for Thomas Nickerson’s emotional distress, and thus erroneously concluded that 10 times the compensatory damages equaled $350,000, rather than $475,000.
The litigation between Nickerson and Stonebridge grew out of the paralyzed plaintiff’s 2008 fall from the wheelchair lift on his van. He was treated at the VA hospital in Long Beach and placed in a unit equipped to treat paraplegics and quadriplegics, and was ultimately released after 109 days.
Following discharge, he applied to Stonebridge for benefits under a policy that promised to pay him $350 for each day of hospitalization. Months later, the company informed him that most of his hospital stay was not “medically necessary” and that he would receive only $6,300 for 18 days of hospitalization.
Stipulation of Counsel
Nickerson sued, and the case went to trial before Los Angeles Superior Court Judge Mary Ann Murphy after the parties stipulated that if the plaintiff were to prevail, the judge would determine, at the end of the trial, the amount of attorney fees he would be entitled to under Brandt v. Superior Court (1985) 37 Cal.3d 813. Brandt holds that the plaintiff in a bad faith case is entitled to recover reasonable compensation for having to retain an attorney to obtain insurance benefits.
Murphy granted the plaintiff a directed verdict for $31,500 in unpaid policy benefits, after which the tort claim went to the jury, which found the failure to pay benefits to be unreasonable and awarded $35,000 for emotional distress and $19 million in punitive damages based on its finding of fraud.
The parties subsequently stipulated that $12,500 represented a reasonable amount of attorney fees under Brandt.
On Stonebridge’s motion, Murphy gave the plaintiff a choice of a new trial on punitive damages only or a reduction in the amount to $350,000. The judge cited State Farm Mut. Automobile Ins. Co. v. Campbell (2003) 538 U.S. 408.
State Farm holds that excessive punitive damage awards violate the Excessive Fines Clause of the Constitution, and sets forth guidelines for measuring what constitutes an excessive award. Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159 applied State Farm in holding that, absent special justification, ratios of punitive damages to compensatory damages that greatly exceed 9 or 10 to 1 are presumed to be excessive.
Court of Appeal Ruling
A divided Court of Appeal affirmed Murphy’s order, distinguishing Major v. Western Home Ins. Co. (2009) 169 Cal.App.4th 1197. Major held that Brandt fees had to be treated as an element of compensatory damages in the calculation, but the Court of Appeal said Nickerson’s case was different because the fees were awarded by the judge and not as part of the jury verdict.
The high court rejected the distinction, however.
Justice Leondra Kruger rejected the argument that it would be unfair to Stonebridge to treat the Brandt fees as part of the calculation when the jury was unaware that such fees were awarded. She said the insurer “invited this state of affairs when it stipulated to a postverdict determination of Brandt fees and raised no objection to the jury returning a punitive damages verdict in the absence of evidence about the fees.”
She continued:
“Having thus consented to, or at least acquiesced in, this procedure, Stonebridge has forfeited any argument that the procedure itself was legally impermissible. Stonebridge is now left in the position of arguing that the procedure nevertheless caused the jury to act irrationally, and that it is the duty of the reviewing courts to suss out that irrationality….”
Effect on Jury
Kruger reasoned that it is impossible to know what effect evidence of the Brandt fees would have had on the jury.
“Of course, had the jury heard evidence that Nickerson suffered even more harm than it had previously thought, the jury might well have decided to punish Stonebridge even more harshly,” she wrote. “On the other hand, as Stonebridge says, presentation of evidence concerning the Brandt fees could have enabled counsel to argue that the Brandt fees, too, would have a deterrent effect on future misconduct, and to make a pitch to reduce the punitive damages award accordingly. In the end, this is the bargain Stonebridge made when it stipulated to posttrial determination of the Brandt fees, then raised no objection to submitting the punitive damages issue to the jury in the absence of evidence relating to the fees.”
The case was argued on appeal by Jeffrey I. Ehrlich for the plaintiff and Margaret M. Grignon of Reed Smith for the defendant.
The case is Nickerson v. Stonebridge Life Insurance Company, 16 S.O.S. 2821.
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