California -- Punitive Damages Award Against Carrier Attracts Insurers'
Attention: Top [07/23/08]
A federal district
court's decision to grant an employer $140,000 in compensatory damages
and $1.4 million in punitive damages against a carrier for allegedly
failing to investigate a workers' compensation claim caught the
attention of California's insurers, who have filed amicus curiae briefs
as the case moves before the 9th Circuit Court of Appeals.
State Compensation Insurance Fund, the California Workers' Compensation
Institute and the Association of California Insurance Companies filed
briefs urging the appellate court to overturn the Oakland U.S. District
Court's ruling in American Color
Graphics v. Travelers Property Casualty Insurance Co., No.
07-15326. The district court's case number is CV-04-03518-SBA.
The case originated after American Color Graphics filed an action in
federal court alleging that Travelers never investigated Aiza Custodio's
workers' compensation claim before paying $42,506 in workers'
compensation benefits. The district court found Travelers liable for bad
faith and awarded the employer the damages. Despite the jury's attempt
to award $4 million in punitive damages, the court reduced the
punitive-damages award to $1.4 million.
Paul Glad, the attorney representing Travelers, said the parties are
currently waiting for the case to be assigned to an appellate panel and
for oral arguments to be scheduled.
Glad said he plans to challenge the district court's ruling with several
arguments, including:
Tort remedies are not appropriate, and
only breach of contract remedies would be an appropriate award in
this case.
Travelers' conduct did not justify
punitive damages, which require conduct that is "quasi-criminal in
nature."
Tort damages are not available in the
workers' compensation context.
Travelers contends that American Color
Graphics did not suffer $140,000 in compensatory damages, as
American Color never reimbursed Travelers for any of the $42,506 in
benefits it paid to Custodio.
The district court's award violated
the one-to-one compensatory-to-punitive damages ratio recommended by
the U.S. Supreme Court in a bad faith case named State Farm v. Campbell.
The
Association of California Insurance Companies (ACIC) argues in its
amicus brief that "Given that the insurer accepted the claim, and had a
direct stake in the claim's outcome, punitive damages seem wholly
unwarranted."
The ACIC pointed out that a carrier's failure to communicate with its
client could be "negligent" or "callous," but that conduct "is not
malicious or oppressive and does not support the imposition of punitive
damages."
At the end of its brief, the ACIC also cites the Supreme Court's
endorsement of a one-to-one ratio.
The State Fund also challenged the award of punitive damages in its
amicus brief, arguing that "ACG's legal claim at best is a claim for
breach of contract based upon the implied covenant of good faith and
fair dealing. Contract remedies do not include consequential damages,
emotional distress damages, Brandt fees or punitive damages. While the
California Supreme Court has created a limited exception allowing
insurance bad faith that sounds in tort, the insurance exception was
created specifically to safeguard those unique policy benefits for which
insurance is purchased: defense and indemnification."
WorkCompCentral left several messages for the counsel representing
American Color Graphics, but did not receive a response before deadline.
