Friday, November 4, 2016
C.A. Increases Bad Faith Award on Remand From S.C.
By KENNETH OFGANG, Staff Writer
The Court of Appeal for this district yesterday increased its award of punitive damages in an insurance bad faith case, following a clarification by the Supreme Court on how such damages are to be calculated.
Div. Three ruled that Stonebridge Insurance Company is entitled to a new trial on Thomas Nickerson’s punitive damage award unless the plaintiff accepts a reduced award of $475,000. A Los Angeles Superior Court jury had awarded $19 million, but Div. Five previously granted a remittitur to $350,000.
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.
Superior Court Trial
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.
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 state Supreme Court rejected the distinction, however, saying it would not be unfair to Stonebridge to treat the Brandt fees as part of the calculation, solely because 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.”
The case was sent back to the Court of Appeal for further proceedings. Stonebridge argued on remand that a $475,000 punitive damage award—10 times the compensatory damages, including the Brandt fees—was excessive under State Farm. The Supreme Court held in that case that a punitive damage award may not exceed a multiple of the compensatory damage award, and that various factors must be considered in determining what multiple is appropriate.
Justice Richard Aldrich concluded that an award of 10 times the compensatory damages is at the high end of the State Farm scale, but justified by the facts of Nickerson’s case.
State Farm, he noted, requires the court to consider the reprehensibility of the defendant conduct, the extent of the actual and potential harm to plaintiff, and the civil penalties that could have been levied for the conduct. In judging reprehensibility, he added, the court must consider whether the harm was physical as opposed to economic, whether the defendant demonstrated an indifference to or reckless disregard of health or safety, whether the target of the misconduct was financially vulnerable, whether the conduct was repeated or isolated, and whether the defendant engaged in intentional misconduct.
Four of those five factors, Aldrich noted, applied to Stonebridge’s treatment of Nickerson.
Attorneys on appeal in Nickerson v. Stonebridge Life Insurance Company, B234271, were Shernoff Bidart Echeverria Bentley’s William M. Shernoff, Howard S. Shernoff, and Travis M. Corby, along with Jeffrey Isaac Ehrlich of The Ehrlich Law Firm for the plaintiff; David P. Crochetiere and Henry C. Wang of Baute Crochetiere & Wang and Margaret A. Grignon of Reed Smith for the defendant; and Amy Bach and David L. Abney for United Policyholders as defendant’s amicus.
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