The critical question thus left pregnant but unresolved by Murphy, supra, 17 Cal.3d 937, 132 Cal.Rptr. 424, 553 P.2d 584, is whether an unreasonable, bad faith refusal to pay a judgment creditor claimant the entire amount of the judgment, after it becomes final, implicates some recognizable duty of good faith by the insurer under its policy, which was intended to benefit such a third party beneficiary. We believe so.
Although the policy in this case does not appear in the record, it may safely be inferred that it included “the usual promise to pay ‘on behalf of the insured … all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage….’ ” (Zahn v. Canadian Indem. Co. (1976) 57 Cal.App.3d 509, 511, 129 Cal.Rptr. 286.) There can be no doubt that, pursuant to this express policy **266 undertaking, the implied covenant of good faith and fair dealing imposes a duty not to withhold in bad faith payment of damages which the insured has become obligated by judgment to pay. Certainly with respect to the insured, “The duty to so act is immanent in the contract whether the company is attending to the claims of third persons against the insured or the claims of the insured itself. Accordingly, when the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.” (Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at p. 575, 108 Cal.Rptr. 480, 510 P.2d 1032.)
Moreover, unlike the duty to settle that was at issue in Murphy, supra, 17 Cal.3d 937, 132 Cal.Rptr. 424, 553 P.2d 584, the duty not to withhold in bad faith payment of adjudicated claims runs not only in favor of the insured but also in favor of a judgment creditor such as plaintiff here. Section 11580 operates as part of a larger body of California law that seeks to assure that accident victims will be securely compensated through automobile policies. (See Barrera, supra, 71 Cal.2d at p. 672, 79 Cal.Rptr. 106, 456 P.2d 674.) “The public policy expressed in the Financial Responsibility and related laws requires that we construe statutes applicable to automobile liability insurance policies, as well as contractual provisions in those policies, in light of its purpose to protect those who may be injured by the use of automobiles.” (Ibid.) Accordingly, the insurer’s policy duty to pay adjudicated liabilities is in place as much to protect adjudicated injured parties from uncompensated loss as to protect the insured from personal financial disaster.
To this end, once having secured a final judgment for damages, the plaintiff becomes a third party beneficiary of the policy, entitled to recover on the judgment on the policy. At that point the insurer’s duty to pay runs contractually to the plaintiff as well as the insured. And the plaintiff having also become a beneficiary of the covenant of good faith (Murphy, supra, 17 Cal.3d at pp. 943–944, 132 Cal.Rptr. 424, 553 P.2d 584), the duty to exercise good faith in not withholding adjudicated damages necessarily is owing to the plaintiff also.
Farmers argues that this conclusion ignores and conflicts with section 11580, in that the statute in terms provides the judgment creditor only a right of action against the insurer, not a right to payment without suit. In support, Farmers cites Billington v. Interinsurance Exchange (1969) 71 Cal.2d 728, 79 Cal.Rptr. 326, 456 P.2d 982 (Billington), in which the Supreme Court noted that “under our existing direct action statute [§ 11580] an injured party is compelled to bring two lawsuits if he seeks to collect a judgment from the insurer which issued a liability policy.” (Id. at pp. 744–745, 79 Cal.Rptr. 326, 456 P.2d 982.)
The quoted, descriptive statement was made in response to an argument that allowing insurers to assert the defense of the insured’s noncooperation would unfairly require a creditor to bring two suits. Farmers’s broader argument that the rights of the class enabled by section 11580 extend no further than its bare terms is fallacious, for several reasons.
13 First, section 11580 cannot be read to create merely a judicial remedy, without an underlying right; and it is clear from the history of the *1859 statute that its purpose and effect was to create a right in the insurance contract. (See Malmgren v. Southwestern A. Ins. Co. (1927) 201 Cal. 29, 33, 255 P. 512 [Malmgren].) Indeed, as a matter of public policy, duties beyond those specifically set forth in section 11580 have been imposed on insurers for the benefit of statutory creditors. (Barrera, supra, 71 Cal.2d at pp. 668–678, 79 Cal.Rptr. 106, 456 P.2d 674.)
Second, judgment creditors granted a right of action by the statute have been repeatedly and definitively held to be third party beneficiaries of the policy. (Murphy, supra, 17 Cal.3d at p. 943, 132 Cal.Rptr. 424, 553 P.2d 584.) And, as explained in Murphy, these beneficiaries are entitled to performance, without suit, of implied covenants and duties imposed to secure their benefits, just as they are not entitled to invoke duties unnecessary, or in addition, to their receiving “all intended benefit.” (Id. at p. 944, 132 Cal.Rptr. 424, 553 P.2d 584.)
Finally, contrary to Farmers’s insinuation, a right of action for breach of the implied covenant of good faith need not be sought or found in the statute, because the actionable duty has always been implied by law from and into the contract itself. Although particular legislation might possibly supersede or “repeal” the implied covenant, it is nowise the necessary source of it. Presently, section 11580 has been authoritatively construed as recognizing, not excluding, the covenant of good faith as part of the parties’ relationship. (Murphy, supra, 17 Cal.3d at p. 943, 132 Cal.Rptr. 424, 553 P.2d 584; see fn. 7, ante.)
Hand v. Farmers Ins. Exchange (1994) 23 Cal.App.4th 1847, 1857-59 [29 Cal.Rptr.2d 258, 265-67]
Avoiding Insurance Disaster.
It seems like whenever catastrophe strikes, insurance problems rear their ugly head. It might be your home isn’t sufficiently covered to pay for repairing the damage. Or, you might be the victim of unfair adjusting practices, such as a carrier that would rather fight than pay its fair share.
In a disaster such fire, flood or earthquake, you might not even know who your insurance company is, since your policies and other important documents may well be cold ash or soggy trash.
If you suffer a disaster and have to make a claim on your insurance, keep these three principles in mind:
1. Get a Copy of Your Policy and read It.
Insurance always begins with a written contract. So, the first thing that needs to be done when getting ready to make a claim is to get a copy of every policy that might possibly provide coverage for your damaged property and read them all from front to back.
If you don’t have the policy forms because they were lost, destroyed or are otherwise unavailable, you’ll have to get policy reconstructions from the insurance company. Requests can be made to your agent or directly to the insurance company’s policy services department. If you don’t remember who your insurance company is, you’ll need to do a little detective work. Start with your checking account. A review of your banking records may well lead you to every insurer that might provide coverage for the damaged property.
2. Check your coverages.
Your insurance policy provides coverage for certain types of loss, and excludes coverage for others. That’s why it’s important to get a copy of the contract right at the beginning.
One issue that frequently arises following a catastrophic loss is the damaged property was not adequately insured in the first place. Where an agent or broker provided you with professional advice on the appropriate coverage or bound coverage based upon their own professional expertise, there may be a claim for professional negligence where the property isn’t properly protected.
3. Watch out for Time Limits
Property insurance contracts generally have their own time limits, called “statute of limitations,” built in, and the period in which to file suit to enforce the contract is generally less than the period that applies to a plain vanilla written contract.
When in doubt, consult a legal professional about what time limits will apply to your claim. Be proactive. Once you have loss, there is a clock ticking somewhere that might limit your ability to recover policy benefits.
Breach of the implied covenant of good faith and fair dealing in an insurance contract, or “bad faith” in the vernacular, is a tricky critter.
Ten years ago, bad faith was a staple for consumer lawyers; today, some will tell you it’s a dying area of the law. Don’t believe the doomsayers. While there is no question that bad faith litigation is not a practice area for the faint of heart, bad faith law remains a powerful tool to obtain justice for consumers.
With all that in mind, this is not an area for the unprepared. Here are five fatal mistakes you should take care to avoid:
1. Not looking for the “mean” in your case.
“The mark of a good bad faith case is meanness,” one of my mentors once told me. He believed that for a bad faith case to fly, there had to be conduct beyond something irritating or just maddening.
What you need to look for is conduct that is mean, insensitive or unfeeling. If you’re just uneasy or have some vague notion the world should be different, be sympathetic, but take a careful look at the law before diving in.
2. Forgetting to make sure there’s coverage.
No policy, no bad faith is the simple rule. Though there are areas where the simple rule won’t apply, that doesn’t mean you shouldn’t pay coverage close heed right from the get go.
The lesson here is, never take coverage for granted. Make sure you understand the carrier’s reasoning for doing what it did in every intimate detail. Study the correspondence, collect the key cases, gather whatever articles you can find on point. Also, bone up on the genuine dispute doctrine whenever coverage is in dispute. See, e.g., Chateau Chamberay Homeowners Ass’n v. Associated Intern. Ins. Co. (2001) 90 Cal.App.4th 335.
3. Not gathering all the facts during your investigation.
There’s a temptation to seize on one or two key documents or bits of evidence that seem to show outrageous conduct and try to ride those through to the end, ignoring everything else. Resist that temptation.
The insurance regulations require carriers to keep records on everything material that takes place during a claim. Get copies of all that stuff and make sure the defense brings the originals to deposition so you can do your own inspection. If there’s an underwriting issue, get all those files as well.
Make sure your client gives you every scrap of paper connected with the claim, whether they think it is relevant or not. If the client is a poor record keeper, worry about that. It is amazing how a small, stray piece of documentation can rise up and bite you in a bad faith case.
A little paranoia is probably a good thing here. Remember, the law right now is probably as favorable for carriers as it’s been in several generations. Conduct yourself accordingly.
4. Not preparing for trial.
Don’t work up the case for settlement or to win on summary judgment. Prepare the darned thing for trial. Anticipate the worst and then if something better happens, celebrate. Only, do not ever under-prepare a bad faith case.
Remember what insurance companies do for a living. They sell promises on paper, pay some claims, deny the rest and defend their decision-making process to the death. You may have a great bad faith case in your file cabinet, but if you aren’t experienced in the area, beware, because the folks defending will be.
So, put in the time and gather the knowledge. Then put everything together as if you will go to trial.
5. Not facing reality.
There’s a difference between being a believer and being a fool. Believers understand their cases, warts and all, but know in their hearts they can steer the client through the system and get justice. Fools don’t understand what they have in their file cabinet, but bull ahead anyway.
As you litigate, make sure you constantly study, analyze and evaluate.
When you choose to litigate against a carrier, go in smart. Consult an experienced practitioner where you have questions. Remember to avoid the five common mistakes and, good hunting!
Insurance bad faith cases are usually hard fought and can be bitter.
Generally speaking, when we take on a carrier for acting contrary to its insured’s interests and allege those actions are malicious justifying punitive damages, the folks on the defense side tend to take it personally.
So, the first rule of discovery in the bad faith case is, assume you are in for a tough fight. Which, in turn, leads to the second and third rules: know your adversary and be prepared.
The bad news that the general practitioner faces in prosecuting a bad faith case is that the defense team will usually be much better schooled in the fine points of insurance than an attorney who does not work with insurance matters on a daily basis.
The good news that the general practitioner can take heart from is B the purpose of bad faith law is to act as an equalizer between the powerful carriers who adjust claims for a living and the ordinary insured who probably never wanted to have a claim and, with luck, will never have another. Insurance regulations require that insurance companies keep a record of all material claims decisions. So, where there is wrongdoing, there is almost always a record of the bad acts waiting to be uncovered.
The key discovery strategy in defending bad faith cases is to deny the plaintiff information. However, if you know where and how to dig, it’s not that difficult to get the evidence you need to put on your successful case.
II. Know your adversary.
People spend their lives learning about the insurance business, which itself represents a huge, multifaceted, globally diverse industry devoted to making money by spreading risk. Generally, you do not have a lifetime to learn each and every nuance of the insurance world. So, don’t try. But do make sure you know everything you can about the facts and circumstances of the insurance business as it applies to your case.
Understand that the defendant or defendants in your prospective case may not be obvious from the face of the insurance materials your clients hand you. For example, it is not unusual to have a client provide letters on letterhead from the “Farmers Insurance Group of Companies.” Some practitioners will put this name in their complaint. Only, there is no such creature that can be sued. “Farmers Insurance Group of Companies” is simply the trade name for a collective of entities organized as inter-insurance exchanges. Usually, the proper defendants in a Farmers claims case are Farmers Group, Inc. (the management company), Farmers Insurance Exchange (the claims handling entity) and the insuring exchange (ie., Fire Insurance Exchange, Truck Insurance Exchange, etc.). See, Tran v. Farmers Group, Inc. (2002) 104 Cal.App.4th 1202 (rev. den. Mar. 26, 2003).
So, when laying out your case, always make sure you closely review the original insurance policy and declarations pages prior to determining who to name in your complaint. When in doubt, consult with experienced practitioners about who the proper parties are and why. Getting the defendants right at the beginning can save tremendous amounts of time during the case.
Also, make sure you understand who has standing to sue under the insurance policy. A business owner may not be able to sue for bad faith if the named insured is a corporation or limited liability company. On the other hand, the owner may have standing as an additional insured. The question is important where there is a potential for emotional distress and other general damage to the owner. Again, look to the policy and declarations pages for the answer.
III. Getting to the Heart of Your Case in 60 days or less.
Once you have the parties clear in your mind and have filed suit, you can prepare your initial round of discovery for service once the defendants answer or, as is more typical, demur.
I seldom use interrogatories during my initial bad faith discovery. I find it is much more productive to immediately demand the claim file(s) and, if warranted, the underwriting file(s), since these are the basic documents necessary for preparing any bad faith case for trial.
Because these files are key evidence in the case, and in order to discourage potential mischief in discovery, I ask for the documents in multiple requests, simultaneously, using a formal request for production of documents, along with a custodian of records deposition notice and notice of deposition of the person most qualified. By utilizing this process, I find I am able to exert maximum pressure on the defense to produce the entire record all at once. This process also insures that I will be able to either establish foundation for the insurance files either by direct testimony or stipulation, so that they are admissible later in the case. Do not assume that a claim file or any other document will be admitted at trial under the business records exception to the hearsay rule. Nail down the foundation as you go, it will save much grief later on.
It is also important to make sure that the original files are available during any depositions. Copies of files don’t do the originals justice B often information about file handling can be gleaned from handwriting on the file folders themselves or how the files are organized. It is much easier for insurance adjusters and other key witnesses to evade answering key questions if the original files are not in front of them. Copies of file materials are okay as part of a document production and, in fact, are easier to handle as you organize your case. But make sure you request to see the originals and insist they be produced.
Person most qualified depositions under Code of Civil Procedure section 2025.220 are the fastest way to gain general information about the basic handling of the claim or other insurance matter that lies at the heart of your case. I typically notice the person most qualified to testify regarding the identities of each and every individual who performed work or made a decision in the matter. Generally, the witness will be the primary claims adjuster, which is fine. However, the PMQ deposition helps avoid wasting time meeting and conferring over boilerplate objections and incomplete responses typical when interrogatories are served.
Also, try to determine whether or not the defense will be allowing on advice of counsel as a defense by serving a simple Request for Admission that is on point. Carriers generally do not like using the defense since it opens up areas that would otherwise be privileged. But don’t assume it won’t be used. Ask up front.
I have number of sample deposition notices, discovery requests and requests for admissions that are regularly requested from me. If you’re interested, click here for the set. Please note, the forms I provide use the old Code of Civil Procedure sections, so you should update them before using them in your case.
IV. Focusing Depositions.
Once I know who was involved with the claim or other insurance matter I am concerned with, I typically depose everyone who touched the file in any way. Even if the deposition lasts only fifteen minutes, absent a stipulation, getting the testimony is the only way to insure that all the potential holes in your cases are filled.
I prefer to videotape all key depositions, particularly the adjusters and claims personnel. The best insurance bad faith cases are generally morality plays where the attitude and demeanor of the witnesses are just as important as their precise testimony. A picture, as the saying goes, is often worth a thousand words.
When deposing insurance professionals, I almost always begin by getting them to agree with me as to basic principles such as an insurance carrier must give its insured’s interests equal weight with its own,” an insurer is obligated to conduct a thorough, fair and objective investigation into the facts of a claim,” etc. Once I establish the common framework of duty, I use those basic principles to tie down the witness while going through the claim.
Lists of duties and obligations can be gleaned from the case law, jury instructions and your experts. Make one up that works for your case and use it from day one.
In deposing witnesses, utilize the insurance files you obtained at the beginning of the case as both a guide to questioning and evidentiary support for your case. Adjusters will have diary notes, these should be analyzed and authenticated by the witness. If it is unclear just what notes or materials were created by the witness, don’t be afraid to ask. Unraveling how a claim was handled is often like piecing together an intricate puzzle. Be thorough with each witness and you will not need to fear missing pieces when your discovery is concluded.
Also, just as in any case, don’t be afraid to lead adverse witnesses as allowed by Evidence Code section 776. Leading questions are the best way to focus an adverse witness, especially one that might be inclined to waste your time with irrelevant insurance technicalities and side issues.
There’s no magic to conducting bad faith discovery. Just preparation, study and hard work.
While the basics outlined in this article should help you get going, don’t forget that there is a strong community of insurance bad faith practitioners available who can help answer particular questions or give guidance on technical issues.
In my mind, there is no nobler endeavor than fighting for deserving individuals who have been legitimately wronged by powerful institutions. Hopefully, you are of the same mind. So, go get ‘em!
A. Why won’t they just “do the right thing?”
People make mistakes. It’s part of being human.
Even so, over and over we see cases where an insurance carrier or its designated agent makes an error and then stubbornly denies responsibility. The carriers/agents just won’t “do the right thing” in industry parlance.
The result is always the same. Innocent insureds are left to fend for themselves. The carrier and agents defend based on the notion that they owe “no duty” to have prevented or to right the particular wrong. A struggle ensues.
Bad faith law may be insufficient to address the situation, especially if the mistake has to do with a faulty insurance application or a failure to provide adequate limits or coverages. Breach of the implied covenant of good faith and fair dealing generally requires a breach of the insurance contract and the policy declarations or coverages are often exactly what the agents/carrier mistakenly put into place.
Catch 22, anyone?
The solution is to think outside of the box just a little bit and examine what is really going on in the insured/agent/insurer relationship, because the nature and extent of the relationship will ultimately define where the duty truly lies. Fortunately, this area is one of the few in insurance law that has grown more sympathetic to insureds during the past decade.
B. Defining Different Levels of Duty.
The typical agent/carrier mistake problem requires analyzing duty at multiple levels. The duties can involve a fiduciary duty under certain circumstances, a duty to perform reasonably or a duty created by an oral or written contract.
The duties themselves will define the remedies available to the insured in the event of a breach so the level of duty involved becomes critical in prosecuting a claim.
Breach of fiduciary duty is the most interesting, both because it has recently been affirmed as available under certain circumstances (Tran v. Farmers Group, Inc. (2002) 104 Cal.App.4th 1202, 128 Cal.Rptr.2d 728) and because it presents a potential for obtaining punitive damages.
Negligent breach of a duty to perform resulting in damages is also important, but will generally only become available where the agent or insurer have acted in such a fashion where they can be seen to have adopted a special duty towards the insured. See e.g., Paper Savers, Inc. v. Nacsa (1996) 51 Cal.App.4th 1090, 59 Cal.Rptr.2d 547; Desai v. Farmers Ins. Exchange (1996) 47 Cal.App.4th 1110, 55 Cal.Rptr.2d 276; Free v. Republic Ins. Co. (1992) 8 Cal.App.4th 1726, 11 Cal.Rptr.2d 296. Under this theory, both agent and insurer may be liable for the agent’s negligence in misrepresenting policy terms or the extent of coverage provided. In addition, the measure of available damages may, in the right case, include attorneys fees and costs. Saunders v. Cariss (1990) 224 Cal.App.3d 905, 274 Cal.Rptr. 186.
Finally, where there is an oral or written agreement to provide a certain level of insurance protection, there is the potential for a breach of contract to provide insurance. The damages available would be the same as for any contractual breach.
Read more on this topic on my website, including:
C. The Fiduciary Duty as applied to a Carrier. A significant duty in the proper case.
D. Finding a Duty of Care.
E. Finding a Contractual Duty.
Insureds sometimes need to rely on the expertise of agents and carriers to obtain the correct coverages and limits that will best protect them. When agents and carriers act as insurance experts but drop the ball, they should do the right thing. When they won’t, it’s up to the consumer lawyer to set things right.
Trying a bad faith case is just like trying any other case and then again, it isn’t.
As in any trial, the plaintiff’s case of bad faith against an offending carrier must be presented in terms of right and wrong, social responsibility and doing justice by restoring balance between insurer and insured.
Yet, in a larger sense, the bad faith trial is in its essence a retelling of the Biblical tale of how David took on Goliath. In an insurance transaction, the carrier is the party with the power. The carrier has the power of the pen when the insurance contract is made, it has the power of knowledge when the claim is presented, it has the power of the purse when it decides to deprive its insured of benefits rightfully owed.
This tale of the use and abuse of power is set on a stage that is at both familiar, since we all have insurance, and strange, as insurance law can seem arcane and confusing.
When your tale of how the defendant abused its power position to the detriment of its trusting insured comes through, you will obtain a great result for your client.
Some tips continued on my website.
C. Why Campbell isn’t a Product Liability Decision.
Campbell involved an insurance bad faith action in which a Utah jury awarded $145 million in punitive damages based upon a failure to settle by State Farm.
While the Supreme Court agreed that “State Farm’s handling of the claims against the Campbells merits no praise,” it took issue with an 145-to-1 compensatory/punitive ratio in what it viewed as essentially a pure emotional distress matter.
The compensatory award in this case was substantial; the Campbells were awarded $1 million for a year and a half of emotional distress. This was complete compensation. The harm arose from a transaction in the economic realm, not from some physical assault or trauma; there were no physical injuries; and State Farm paid the excess verdict before the [bad faith] complaint was filed, so the Campbells suffered only minor economic injuries for the 18-month period in which State Farm refused to resolve the claim against them.
Slip Op. at 15-16.
True, the majority, in their haste to justify their arbitrary limit, came to some questionable conclusions. For example, Justice Kennedy wrote:
The compensatory damages for the injury suffered here, moreover, likely were based on a component which was duplicated in the punitive award. Much of the distress was caused by the outrage and humiliation the Campbells suffered at the actions of their insurer; and it is a major role of punitive damages to condemn such conduct. Compensatory damages, however, already contain this punitive element.
Slip Op. at 16.
This language leaves it open to speculation as to whether the high court was implying in its decision that juries uniformly ignore instructions specifically deleting punitive damages from a compensatory damage verdict.
Of course, in California, “Jurors ordinarily are presumed to have followed the court’s instructions.” Romo v. Ford Motor Co., 99 Cal. App. 4th 1115, 1131, 122 Cal. Rptr. 2d 139, 150 (2002). During the usual trial bifurcated on compensatory and punitive damages, BAJI 14.61 instructs: “Do not include as damages any amount that you might add for the purpose of punishing or making an example of the defendant for the public good or to prevent other accidents. Those damages would be punitive and they are not authorized in this action.” So, the comment about compensatory damages having a punitive component must apply to Utah only, or at least, cannot apply to California.
Even so, in discussing the Campbell rationale, it is critical to observe that the decision is distinguishable where personal injuries or death are the subject of a punitive award.
D. Following Campbell, Personal Injury Justifies a High Compensatory/Punitive Ratio.
The majority appeared to carve out personal injury claims from its discussion, perhaps in order to save them for another day. Even so, Campbell is consistent with prior U.S. Supreme Court and California authority standing for the proposition that injury to persons cannot be fairly compared with economic injury.
The notion that wrongful conduct causing injury to another person is always of greater consequence than economic injury was a substantial basis for the result in Gore, where a 500-to-1 ratio between the damage suffered (cost of repair to a defectively painted BMW automobile) and punitive award ($2 million, reduced from $4 million by the Alabama Supreme Court) was held as exceeding constitutional limits. Campbell sticks with that notion, acknowledging that unlawful conduct that injures or kills is more reprehensible than economic injury as a matter of law.
“[T]he most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant’s conduct.” We have instructed courts to determine the reprehensibility of a defendant by considering whether: the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident. [Citations omitted.]
Slip Op. at 8 (quoting Gore, supra, 517 U.S., at 575-577).
By way of contrast, it was Ford’s “institutional mentality . . . shown to be one of callous indifference to public safety” that formed the basis for supporting a punitive damage award in the seminal Ford Pinto burn case, Grimshaw v. Ford Motor Co., 119 Cal. App. 3d 757, 174 Cal. Rptr. 348 (1981). The notion that injuring a person or taking human life justifies an enhanced punitive award has carried forward in California decisional law, most recently in Romo.
As noted . . . the ultimate question is whether the award is grossly excessive in relation to the interests the state seeks to protect through the award. As we have already discussed, defendant’s conduct was grossly reprehensible. While defendant did not intend the death to the victims, the award here cannot be compared to cases “involving a business fraud resulting only in economic harm.” [Citations omitted.]
Romo, supra, 99 Cal. App. 4th at 1150, 122 Cal. Rptr. 2d at 165.
The Court of Appeal in Romo noted that Ford’s conduct in marketing an unstable, inherently dangerous vehicle like the Bronco II, while failing to warn of its dangerous propensities, constituted conduct likely to cause human injury and death wherever Ford marketed the vehicle. “[Unlike Gore], where the defendant’s conduct was not even unlawful in all states and involved only economic consequences, the conduct here placed tens of thousand of lives at risk and actually claimed three lives in the present case.”
Since the Campbell punitive award substantially rested on State Farm’s national claims handling practices, some of which was not illegal in states other than Utah, this becomes an important basis for distinguishing Campbell in product actions.
Just as important, where punitive damages are justified in product liability actions, there is often substantial evidence of a long history of repeated, knowing, wrongdoing. The high court in Campbell noted that a higher compensatory/punitive ratio is generally justified by evidence of repeated wrongful conduct by a corporate defendant.
Although “[o]ur holdings that a recidivist may be punished more severely than a first offender recognize that repeated misconduct is more reprehensible than an individual instance of malfeasance,” in the context of civil actions courts must ensure the conduct in question replicates the prior transgressions. [Citations omitted.]
Slip Op. at 13 (quoting Gore, supra, at 577).
Again, this provides a significant basis to distinguish Campbell in product actions.
At the end of the day, so far as punitive damages and product liability is concerned, it really doesn’t appear that much has changed.
After all, in the 1981 seminal Pinto exploding gas tank case, Grimshaw, the trial court reduced a jury’s $125 million punitive award, reasoning that a 44-to-1 compensatory/punitive ratio was excessive as a matter of law. The reduction was to $3.5 million, a 1.4-to-1 ratio. Since under Campbell, it takes a 10-to-1 ratio or better before a punitive award is “suspect,” had Grimshaw been decided today, the trial court might well have felt more free to increase the number it allowed.
The U.S. Supreme Court, of course, will have the opportunity to weigh in on this discussion should it hear Romo. Even so, take heart. Just because we now have Campbell, doesn’t mean we’re in the soup.
On April 7, 2003, the U.S. Supreme Court published State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. ___ (2003), its latest pronouncement on punitive damages as viewed through the lens of the Due Process Clause of the Fourteenth Amendment of the United States Constitution.
Campbell reversed a jury’s $145 million punitive damage award that had previously been upheld by the Utah Supreme Court. The punitive award was based in large part upon evidence of State Farm’s misconduct in not just Utah, but also across the entire United States.
Observing that the $1 million compensatory component of the jury verdict (reduced from $2.6 million by Utah’s intermediate appellate court) resulted in a compensatory/punitive damage ratio of 145-to-1, the high court applied a three-pronged analysis first announced in BMW of North America v. Gore, 517 U.S. 559 (1996).
The test required examining: (1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases. Slip Op. at 7.
Writing for the 5-3 majority, Justice Kennedy found infirmities under all three Gore “guideposts.” What’s more, in reaching its holding, the majority announced, “We decline again to impose a bright-line ratio which a punitive damage award cannot exceed. Our jurisprudence and the principles it has now established demonstrate, however, that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” Slip Op. at 14.
So the question presents itself. What practical effect does Campbell present for a California product liability practitioner?
To learn the answer, we probably need delve no further than Romo v. Ford Motor Co., 99 Cal. App. 4th 1115, 122 Cal. Rptr. 2d 139 (2002).
The Romo opinion upholds a $290 million punitive damage award against Ford in a Bronco II rollover case, where the compensatory damages were $4,935,709.10 (reduced from just over $6.2 million by the trial court), a roughly 58-to-1 ratio. Finding that the punitive award squared with federal due process under Gore, the Fifth District of the California Court of Appeal engaged in an analysis similar to that in Campbell, excepting of course, the result.
After failing in efforts for hearing by the California Supreme Court or for de-publication of Romo, Ford filed a petition for certiorari to the U.S. Supreme Court, which is currently pending. 71 U.S.L.W. 3519 (Jan. 21, 2003).
Since Campbell discusses punitive damages in an insurance bad faith context involving essentially pure emotional distress damages, while Romo involved both death and serious personal injuries, we may well see the high court weighing in yet again on punitive damages in the near term, only this time in the product liability arena. Even so, using the Campbell rationale as our guide, practitioners should not lose heart. At least from an initial vantage point, it may well be safe to say that all in all, not that much has changed.
B. Fourteen Years of Punitive Damage Jurisprudence.
During the past fourteen years or so, the U.S. Supreme Court has busied itself in reexamining punitive damages and how they apply in civil cases. The high court’s interest was fueled by a conservative concern that juries acting out of “arbitrariness, caprice, passion, bias, and even malice” were responsible for punitive damage verdicts that had “run wild.” See, TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443, 474-476 (1993) (J.O’Connor, dissenting).
The critical journey began with Browning-Ferris Industries of Vt., Inc. v. Kelco Disposal, Inc., 492 U.S. 257 (1989), which held that neither the Excessive Fines Clause of the Eighth Amendment nor federal common law circumscribe punitive damage awards in civil cases between private parties.
Following were Pacific Mutual Life Ins. Co. v. Haslip, 499 U.S. 1 (1991), TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443 (1993), Honda Motor Co., Ltd. v. Oberg, 512 U.S. 415 (1994), BMW of North America., Inc. v. Gore, 517 U.S. 559 (1996) and Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424 (2001).
In each, the high court has continually reexamined how punitive damages apply in civil actions and what, if any limits, the U.S. Constitution places on punitive awards.
While the detailed parameters of each decision leading up to Campbell are beyond the scope of this article, in each opinion, the majority declined to announce any specific formula for what constituted an upper limit of a punitive award under the Federal Constitution. Indeed, one important constraint over the years was the healthy conservative notion that, so far as punitive damages represent legitimate exercise of state police power, any potential limitations on such awards are properly reserved to the several states.
Then came Campbell.
The decision caused something of a stir upon publication, largely because it seemed as if the high court was applying some sort of fixed arithmetic formula for the first time to impose due process limits on punitive awards. As Justice Kennedy wrote:
We decline again to impose a bright-line ratio which a punitive damages award cannot exceed. Our jurisprudence and the principles it has now established demonstrate, however, that in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.
Slip Op. at 14.
So, where does Campbell leave the practitioner evaluating an action involving dangerous products?
More on this tomorrow….
I was building a pump shed with my judge friend, Margie (aka, the Honorable Margaret Oldendorf), when she told me she intended to re-read Walden by Henry David Thoreau. She said her life was getting complicated and she wanted to focus on getting back to basics, especially when it comes to staying better connected with family and friends.
Now, Thoreau, you may recall, is one of our treasured American philosophers. Walden, of course, was his account of living by a pond for two years in Massachusetts under fairly primitive conditions, even for the 1840’s. Most of us know about Thoreau only because we were forced to read him in high school. Depending on how well we followed the assignment, we may or may not remember his admonition:
Simplicity, simplicity, simplicity! I say, let your affairs be as two or three, and not a hundred or a thousand; instead of a million count half a dozen, and keep your accounts on your thumb nail. In the midst of this chopping sea of civilized life, such are the clouds and storms and quick-sands and thousand and-one items to be allowed for, that a man has to live, if he would not founder and go to the bottom and not make his port at all, by dead reckoning, and he must be a great calculator indeed who succeeds. Simplify, simplify. Instead of three meals a day, if it be necessary eat but one; instead of a hundred dishes, five; and reduce other things in proportion.
I think that was the passage Margie wanted to revisit.
To which, I would guess most of us would say, “Yeah, right!” and smirk, because we know that being a plaintiff lawyer in the first part of the 21st Century is anything but simple. It’s one thing to be simple while hanging out by the pond back before the Civil War. It’s another to try the same feat in an era of Blackberries, fast track and malpractice liability exposure.
Then, I ran into a prominent sole practitioner, John Torgeson, at the Loyola Civil Justice Program fundraiser. I asked him how he’s been doing. He smiled at me and it didn’t even looked strained. “There’s a new word in my vocabulary,” he told me enthusiastically. “It’s called, balance.” I was a little taken aback. Simplicity? Balance? Just what is going on here, anyway?
In truth, Judge Oldendorf’s simplicity and John Torgeson’s balance have always been with us, but in our rush to service clients, find new work, get the money in and everything else that goes with a busy law practice, we tend to forget these basics unless something pops up to force them into our awareness.
We all probably know people who are caught up in complexity in their practices. They rush about. They struggle endlessly to find time to attend to everything on their plate. We probably have all been that person from time to time.
As for unbalanced lives, we’ve all seen that defect destroy friends and their families, be it through over-work, drug addiction, alcohol abuse or love lost through neglect.
I once asked a lawyer of humble beginnings who had banked a large fortune if wealth was everything he’d dreamed it would be. “It’s more of a curse, actually,” he told me. He was struggling at the time with one of his children in a rehab program populated exclusively by other children from wealthy families. I felt great compassion for him, but also a certain helplessness. Balance comes from within, I think.
Ralph Waldo Emerson, another great American philosopher who was friends with Thoreau, had an interesting theory about how all this works. He published his notions in an essay called “Compensation.”
Basically, Emerson believed that in life, just as in physics, for every action there is something akin to an equal and opposite reaction. “Polarity, or action and reaction, we meet in every part of nature,” he wrote. “The same dualism underlies the nature and condition of man. Every excess causes a defect; every defect an excess. Every sweet has its sour, every evil its good.”
Emerson had an apt warning for those of us who might envy colleagues that seem more successful, or more prominent, or more powerful than we: “The farmer imagines power and place are fine things. But the President has paid dear for his White House. It has commonly cost him all his peace, and the best of his manly attributes.”
Was Emerson on to something? Or is it all nonsense and are the only things of true value in this world material goods, large mansions and political clout?
I suppose you have to decide the answer to that question for yourself. In truth, it is one of the questions that, when answered honestly, will define you as an individual. I don’t suppose there is any single correct answer to the question. Not that we’ll learn in this life, anyway.
As for me, two years ago, I turned 50 and realized that while my professional and family life seemed in sync, my physical fitness left a lot to be desired. So I rebalanced a little, cut out some volunteering that didn’t seem productive, competed in my first triathlon at 51 and will run my first marathon in February. What I’ve found is, now that I’m no longer neglecting my fitness, my focus at work has improved and I’m having more fun with the family. I think that, for now, my life is simpler and better balanced. It’s a constant struggle, though.
I was discussing all this with my friend, Ed Wallace, as we were cycling over the Sepulveda pass to Santa Monica from the Valley. As I recall, our conversation went something like this . . .
I told Ed I was writing a column and asked him if he thought balance was important in his life and practice. I already knew where he stood on simplicity; he’s told me many times that in his practice, the simpler the better.
Ed was quiet for a long time, at first I wasn’t sure if he had heard me. Then he started talking thoughtfully. I had to strain to hear him over the wind.
“I know there’s been times when I spent too much time on my practice,” he said slowly. I knew he was thinking about his two boys. “But then,” he added, “sometimes, when there could be more business coming in, I think that I’m not spending enough time.”
“So, balance is a moving target?” I asked.
“I suppose so,” he said, as we downshifted to spin up the hill.
“Probably different for everyone,” I mused.
“I suppose,” he answered.
Then we both fell silent as we peddled simply up through the pass. I imagined Thoreau and Emerson looking down at us. I thought I saw them smile.
Some Simple Rules in Making an Insurance Claim
Insureds who have a claim should keep ten simple rules in mind as they pursue benefits due them under their insurance contract:
1. Report your loss as soon as possible. Don’t procrastinate with an insurance claim. On the other hand, you should not be making needless claims, because the carriers keep track of what you claim and too many claims can affect your ability to obtain insurance in the future. Use your best judgment, but make your decision as quickly as possible.
2. Document your loss as thoroughly as possible in writing. The insurance company keeps an extensive claim file. You should have one too. Get a manila folder or a binder and collect receipts, notes, photographs – everything having to do with the claim – in one place. Try to keep it organized, but it’s more important to keep it than anything else
3. Keep a written diary of all communications and contacts during your claim. The insurance company adjuster is supposed to keep a diary of every communication he or she has with you but very often will only record the communications that are helpful to them.
You need to keep your own diary of every contact you have with the company. You should also confirm all important oral communications in writing. It is amazing how this one simple practice can solve so many problems during the course of a claim.
4. Take photographs of your loss where possible. Don’t be cheap with the film, either. This is especially important with property losses such as fire, earthquake or automobile accident. Make sure you document visible evidence of your loss. Your adjuster may not get around to taking photographs until a significant amount of time has passed, and if the visible evidence of your damage has disappeared (such as when a flood scene is cleaned) the carrier will use that lack of evidence against you.
5. Be truthful and accurate about your loss. Don’t overstate your claim, but don’t understate it either. Insurance adjusters are much like investigators and they are trained to be suspicious. You need to be candid with your carrier. At the same time, you need to take care that you can support your claim with accurate information.
Don’t assume that a carrier will accept your estimates of value, quantity or whatever without question. That seldom happens in all but the smallest claims. Be ready to defend your estimate.
6. Be polite but firm with claims personnel. Claims adjusters are people too. They have a job to do and you should attempt to treat them with all due courtesy. Now, it is true, there may come a time when the adjuster will be difficult if not rude, especially when pressed for additional payment. Avoid being drawn into a battle with the adjuster. Keep your head, commit important communications to writing and be polite but firm. If the dispute erupts into litigation, everything you say or do is subject to scrutiny and criticism and you want a clear record that the insurance company is the wrongdoer, not you.
7. Do not misstate facts. Once again, adjusters are trained to be suspicious. You should report your loss like a news reporter reports a story. Just the facts, ma’am.
8. Do not intentionally overstate the value of your loss. We call this “overreaching” in the legal profession and it is an excellent way to get into trouble on your claim. Remember, claims professions adjust claims day in and day out. They have probably seen claims similar to yours dozens if not hundreds of times and have a notion about the value of your loss is likely to be.
9. Do not engage in any act that might be considered fraudulent. Fraud is a intentional act calculated to mislead. Don’t do that during your claim. A carrier’s favorite defense is to yell “fraud!” even where there is none. So don’t give the insurance company any ammunition. Also, insurance fraud is not only grounds to deny a claim, but it is a criminal offense as well. During your claim, honesty is always the best policy.
10. Do not be intimidated into settling your claim for less than its reasonable value. Insurance adjusters are trained negotiators. They are trained to attempt to settle a claim within a range of value.
The first offer you hear is most often the number at the low end of the adjuster’s range and you will only find out what the top offer is by negotiating. Don’t be intimidated. Present your evidence. Insist on a thorough, fair, objective investigation and evaluation of your claim, which is the standard the law requires.
If you believe that you don’t have the skill to negotiate successfully, consider getting some help in settling.
Download a copy of these 10 points and share them with your friends and family.