Legislation to Cap Punitive Damages in California Defeated; Plaintiff's Lawyers Rejoice

by James C. Castle

Efforts in Sacramento to put a cap on the recovery of punitive damages were stomped out on May 4, 2010, as a party-line vote killed pending tort reform legislation in the Assembly’s Judiciary Committee.

As reported previously, Assembly Bill 2740, authored by Assemblyman Roger Niello (R-Fair Oaks) sought to limit punitive damages to three times the amount of compensatory damages. Because plaintiff’s attorneys routinely work on a contingency basis, this legislation was strongly opposed by plaintiff’s attorneys – arguing it was unnecessary. The bill would have also capped “pain and suffering” awards to $250,000.

Kim Stone, Vice President of the Civil Justice Association of California, testified that these “common-sense reforms would go a really long way towards making California more friendly to business while at the same time protecting the truly injured to make sure they receive their just compensation.”

Niello, a strong-backer of business interests in California, argued that tort reform is necessary to reinvigorate the state as a place for businesses to make their home.

“It's been stated by (the trial lawyers) that there’s no need, there isn’t a problem. There is a need, there is a problem. The problem is the reputation of California as a place to do business in is in the tank, and part of the reason for that is our civil justice system,” Niello told the committee.

Unfortunately, these justifications were not persuasive – or perhaps more pessimistically, not considered – as the bill was defeated on a party-line vote. Democrats unanimously voted against the reform, Republicans unanimously voted for reform. Given the toxicity and divisiveness of California state politics, perhaps little less should have been expected.

Originally posted at Barger & Wolen's Insurance Litigation & Regulatory Law blog.

Court Finds Triable Issue of Fact as to Rescission of Health Insurance, but Upholds Dismissal of Bad Faith and Punitive Damage Claims

Following the Hailey and Nieto decisions, issues exist whether a Health Care Service Plan completed sufficient medical underwriting prior to rescission

In Nazaretyan v. California Physicians’ Service, the California Court of Appeal reversed the trial court’s grant of summary judgment in favor of California Physicians’ Service dba Blue Shield of California (“Blue Shield”), a health care service plan, following its rescission of Gevork Nazaretyan and Narine Ghazaryan’s (the “Plaintiffs”) health care coverage. In a fact-driven decision, the Court of Appeal held that Blue Shield failed to establish, as matter of law, that its investigation prior to issuing Plaintiffs’ coverage was sufficient to demonstrate that it completed medical underwriting, as required under Health & Safety Code § 1389.3, to rescind for non-willful, material misrepresentations in the application for coverage.

The Court of Appeal also concluded that, as a matter of law, it could not hold that the Plaintiffs, who are husband and wife, willfully misrepresented material information in their application to Blue Shield. However, the Court of Appeal affirmed summary adjudication in Blue Shield’s favor on the Plaintiffs’ bad faith and punitive damage claims.

In August 2004, the Plaintiffs applied for health care coverage with Blue Shield with the assistance of their long-time insurance broker Ahman Yusop. On September 10, 2004, Blue Shield sent Yusop a form requesting information that was missing from the initial application. On September 21, 2004, the missing-information form was returned to Blue Shield with the questions answered, and on October 12, 2004, the Plaintiffs resubmitted their application to Blue Shield. Based on the information in the applications, Blue Shield approved coverage at its most favorable rate on November 1, 2004.

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Court of Appeal Complicates the Analysis of Mental and Nervous Disability Claims

In Bosetti v. The United States Life Ins. Co., 175 Cal.App. 4th 1208 (2009), the California Court of Appeal addressed whether a standard, two-year benefits limitation on disabilities due to “mental, nervous or emotional disorder[s]” could serve to limit benefits payable to an insured disabled from depression and anxiety who also complained of interrelated physical impairments. The Bosetti court held that the limitation was ambiguous and was not applicable if the claimant’s physical problems contributed to her disabling depression or were a cause or symptom of that depression. The Bosetti court further concluded that the insurer’s denial of benefits based upon that two-year limitation was not in bad faith under the genuine issue doctrine.

Bosetti worked as an assistant director of adult education for a school district and first sought treatment after learning that her position would be terminated. Based upon the report of her treating physician and her complaints of depression and anxiety, she was put on temporary disability under her group policy. She thereafter applied for permanent disability benefits complaining of depression and fibromyalgia pain in her muscles, though her treating physician reported that her disabling impairment was solely mental or nervous in nature. After paying Bosetti’s benefits for two years, United States Life determined that she did not qualify for any additional benefits and could work in “any occupation”, which was the governing disability standard after two years. That determination was based primarily upon the two-year benefits limitation for mental or nervous disorders, the results of a functional capacity examination, and an independent physician consultation.

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U.S. Supreme Court Ends Long-Running Standoff With Oregon Supreme Court Over Punitive Damages

On March 31, the U.S. Supreme Court ended a long-running standoff with the Oregon Supreme Court over the handling of a punitive damages suit against Philip Morris brought by the widow of a smoker who died from lung cancer in 1997.  In a rare procedural move, despite conducting oral argument months ago, the Supreme Court, in a one-sentence opinion, dismissed the case of Philip Morris USA Inc. v. Williams as "improvidently granted."

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When Compensatory Damages Are "Substantial," Third Circuit Adopts a 1:1 Punitive Damages Ratio

Jurinko v. The Medical Protective Company, 2008 U.S. App. Lexis 26263 (3d Cir. December 24, 2008)

The Third Circuit, in a non-precedential (but citable under FRAP 32-1) opinion, recently reduced a punitive damages award in an insurance bad faith case from a compensatory damages to punitive damages ratio of 3:1 to a 1:1 ratio. 

 

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Has The Age Of Billion-Dollar Verdicts Passed?

After studying the largest jury verdicts awarded in 2008, a Bloomberg.com article declared that “[t]he billion-dollar verdict has disappeared from U.S. courtrooms.”  While the fourteen years between 1991 and 2005 yielded about two billion-dollar verdicts a year, between 2006 and 2008, only one such award was issued, a 2007 verdict for $1.5 billion.

The article offered a variety of possible explanations for this trend, including State and Federal limits on damages and claims, the campaign financing of some conservative judges by business interests and United States Supreme Court decisions limiting the amount of money that can be awarded in certain instances.  Additionally, there is anecdotal evidence that plaintiffs’ counsel, wary of having excess awards eventually overturned, are not asking that juries award their clients huge punitive damages awards.  One corporate-defense attorney speculated that juries are now so cynical towards plaintiffs that even “insurance companies want juries.” 

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