In Nickerson v. Stonebridge Life Ins. Co. (No. S213873, filed 6/9/16), the California Supreme Court ruled that in an insurance bad faith case an award of attorney’s fees under Brandt v. Superior Court (1985) 37 Cal.3d 813, may be included in the calculation of the ratio of punitive to compensatory damages, regardless of whether the fees are awarded by the trier of fact as part of its verdict or are determined by the trial court after the verdict has been rendered.
In Nickerson, the insured was a paralyzed veteran who spent 109 days in a Veteran’s Administration hospital after breaking his leg in a fall. Following his discharge, Nickerson sought benefits from Stonebridge Life Insurance Company under an indemnity benefit policy that promised to pay him $350 per day for each day he was confined in a hospital for the necessary care and treatment of a covered injury. However, invoking the policy’s definition of “necessary treatment,” Stonebridge determined, without consulting the treating physicians, that the hospitalization was “medically necessary” for only 18 days and paid him on that basis.
Following trial, Nickerson obtain an award of $31,500 in unpaid policy benefits and $35,000 in damages for emotional distress. Plus, the jury awarded him $19 million in punitive damages for fraud. After the jury rendered its verdict, the parties stipulated that the amount of attorney fees to which Nickerson was entitled under Brandt was $12,500, and the court awarded that amount.
Stonebridge moved for a new trial seeking a reduction in the punitive damages award, which it argued was constitutionally excessive. The trial court agreed and granted Stonebridge a new trial unless Nickerson consented to a reduction of the punitive damages award to $350,000, citing State Farm Mut. Automobile Ins. Co. v. Campbell (2003) 538 U.S. 408, for the proposition that a punitive-compensatory ratio exceeding single digits (i.e., 9 or 10-1) will ordinarily exceed constitutional bounds.
Nickerson argued that the amount awarded was in error, and that the proper calculation of the punitive-compensatory ratio when the parties have agreed to allow the trial court determine a component of the plaintiff’s compensatory damages — the attorney fees plaintiff was compelled to expend to obtain the insurance benefits under Brandt v. Superior Court — includes rather than excludes those fees in the calculation of determining whether, and to what extent, the jury’s punitive damages award exceeds constitutional limits.
The Supreme Court agreed, saying that under the Brandt decision, attorney’s fees incurred to compel payment of the benefits are recoverable as an element of the plaintiff’s economic damages, and are thus properly determined by the trier of fact – the jury – unless the parties stipulate otherwise. But in Brandt, the Court had noted that “[a] stipulation for a postjudgment allocation and award by the trial court would normally be preferable since the determination then would be made after completion of the legal services [citation], and proof that otherwise would have been presented to the jury could be simplified because of the court’s expertise in evaluating legal services,” a suggestion and process that Nickerson and Stonebridge had opted to follow. But the Nickerson Court held that making such an election to submit the Brandt fee issue to the judge rather than the jury should not then limit the punitive damage award.
The Supreme Court cited Major v. Western Home Ins. Co. (2009) 169 Cal.App.4th 1197, 1224, where the court held that “the amount of the jury’s award of Brandt fees . . . may be properly considered . . . in determining if the ratio of punitive damages to the tort damages award is excessive,” and agreed with Nickerson that because Brandt fees ordinarily qualify as compensatory damages, the fees should properly be considered in determining the ratio, regardless of whether the fees were awarded by the judge or the jury.
The Nickerson Court rejected Stonebridge’s argument that the unless awarded by a jury the Brandt fees are not part of the tort damages, and disapproved Amerigraphics, Inc. v. Mercury Casualty Co. (2010) 182 Cal.App.4th 1538, 1565, which stated, without elaboration or citation, that the trial court in that case had “properly excluded the amount of Brandt fees in determining the compensatory damages award, since the Brandt fees were awarded by the court after the jury had already returned its verdict on the punitive damages.”
The Nickerson Court summed up: “[W]e find no reason to exclude the amount of Brandt fees from the constitutional calculus merely because they were determined, pursuant to the parties’ stipulation, by the trial court after the jury rendered its punitive damages verdict. On the contrary, to exclude the fees from consideration would mean overlooking a substantial and mutually acknowledged component of the insured’s harm. The effect would be to skew the proper calculation of the punitive-compensatory ratio, and thus to impair reviewing courts’ full consideration of whether, and to what extent, the punitive damages award exceeds constitutional bounds.”
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