The California Supreme Court Finds That In Determining Whether A Punitive Damage Award Is Unconstitutionally Excessive, The Court Could Take Into Consideration As The Compensatory Damage Component In An Insurance Bad Faith Case The Award Of Attorney’s Fee

On Behalf of | Aug 26, 2016 | Bad Faith, Insurance Law

In a well-reasoned decision, the California Supreme Court held in Nickerson v. Stonebridge Life Ins. Co., 63 Cal.4th 363, 203 Cal.Rptr.3d 23, 371 P.3d 242, (2016), that a trial court could give consideration to an award of attorney’s fees in favor of the insured, in a bad faith action, in calculating the constitutionally permissible ratio of compensatory damages to punitive damages in insurance bad faith cases. In question was the award of attorney’s fees in favor of the insured under Brandt v. Superior Court, 37 Cal.3d 813, 210 Cal.Rptr. 211, 693 P.2d 796 (1985).

Speaking for a unanimous Court, Justice Kruger found that Brandt fees could be taken into consideration in calculating the ratio of compensatory damages to punitive damages. In making this ruling, the Court emphasized that the issue was not whether Brandt fees qualified as compensatory damages but, rather, whether the fact they were awarded by the court, rather than the jury, rendered them irrelevant to the constitutional analysis under Campbell and Gore. The Court rejected the insurance company’s argument that the purpose of the three part Campbell/Gore test was to permit courts to identify punitive damage awards that were tainted by irrational or arbitrary jury decision making. The Campbell/Gore guidepost were not designed to regulate jury decision making but instead to assist Appellate Courts in determining whether punitive damage awards exceeded constitutional boundaries. The Supreme Court did acknowledge, however, that the jury’s ignorance of Brandt fees could have affected the amount of the punitive damages that were awarded. The Court rejected the insurance company’s suggestion that allowing the jury to assess Brandt fees would have lowered the amount of the award. While acknowledging that giving the jury evidence of plaintiff’s Brandt fees would have allowed the insurance company’s attorney to argue that the deterrent effect of the Brandt fees obviated the need for a significant punitive damages, the Court countered this by pointing out after hearing evidence that plaintiff suffered even more harm than the plaintiff had previously thought, might have caused the jury to decide to punish the insurance company even more harshly.

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