In Mazik v. GEICO General Ins. Co. (No. B281372, filed 5/17/19), a California appeals court upheld a judgment and award of punitive damages for bad faith delay of an underinsured motorist claim, on the ground that a claim supervisor was a “managing agent” within the meaning of the punitive damages statute, Civil Code section 3294.
In Mazik, the insured suffered a fractured heel bone in a head-on collision. Although he ultimately had no surgery, the insured had problems walking and working due to pain. He was left with a permanently restricted range of motion and arthritis. The insured settled with the other driver’s insurer for its $50,000 limit and made a claim to GEICO for the $50,000 in underinsured motorist benefits available from his $100,000 UM/UIM limits.
The demand included the insured’s medical records to date and the GEICO adjuster valued the claim at no more than $52,597, including the prior settlement. He received authorization from his supervisor to reject the demand and offer $1,000. A new adjuster took over and with no further information offered $13,800. The claim supervisor then authorized increasing the offer to $18,000. GEICO obtained an independent medical examination which concluded that the insured was “doing well,” did not need surgery, and the injury did not restrict his occupation. GEICO made a statutory settlement offer of $18,887, which was rejected. The claim supervisor testified that GEICO did not negotiate further because the insured did not reduce his demand from the policy limit.
Despite receiving additional medical records showing ongoing treatment, GEICO proceeded with arbitration. The insured’s medical expert testified that he reviewed the insured’s x-rays and CAT scan, which showed a severe and devastating injury that was apparent from his diagnoses “right from the beginning.” He testified that there were limited options and that the insured would “have a lifetime of chronic pain and issues related to” his heel injury. The arbitrator awarded the full $50,000 limit and GEICO paid.
In the ensuring bad faith trial, a jury found bad faith delay in payment of policy benefits and awarded compensatory damages of $313,508, consisting of $300,000 for “[m]ental suffering, anxiety, and emotional distress” and $13,508 for “attorney’s fees and costs to recover the insured policy benefits.” The jury also awarded punitive damages of $4 million, which the court reduced to $1 million. GEICO appealed, arguing that the evidence was insufficient to show that any “officer, director, or managing agent” acted with malice, oppression or fraud, or ratified such conduct, as required under Civil Code section 3294, which authorizes punitive damages.
The appeals court rejected GEICO’s arguments, citing White v. Ultramar, Inc. (1999) 21 Cal.4th 563, where the Supreme Court explained that managing agents are employees who “exercise substantial independent authority and judgment in their corporate decision-making so that their decisions ultimately determine corporate policy,” further meaning “substantial discretionary authority over significant aspects of a corporation’s business.” And the Mazik court noted that GEICO had failed to request a special jury instruction based on Roby v. McKesson Corp. (2009) 47 Cal.4th 686, which might have narrowed that from “ad hoc policies” to discretionary authority over “formal policies that affect a substantial portion of the company and that are the type likely to come to the attention of corporate leadership.”
Given the broader standard, the Mazik court found “ample evidence in the record that [the claims supervisor] met the definition of managing agent that the jury was given.” The claim supervisor “had wide regional authority over the settlement of claims. He … was a regional liability administrator for Orange County, Los Angeles, San Bernardino, and Alaska. Over 100 claims adjusters [were] ‘funneled up’ to him for approval of settlements within the range of his authority, which included claims up to at least $50,000…. [He] typically [had] 18 to 20 meetings per day with claims adjusters seeking his approval or direction for handling particular claims.”
Further, the supervisor testified that an important part of his job was “to establish settlement standards within his region.” He testified that it is “an extremely important part of [his] role” to “maintain consistency in settlement valuations.” He further explained that “consistency is also important so we can be profitable.” All leading the Mazik court to find that “the jury reasonably could have concluded that this type of broad decision-making responsibility for establishing GEICO’s settlement standards ‘ultimately determine[d] corporate policy.’”
The Mazik court then found sufficient evidence of ratification. The insured had argued that GEICO “deliberately ‘cherry-picked’ medical information and disregarded unfavorable findings.” And the evidence showed that “GEICO’s claims adjusters … prepared summaries in advance of the arbitration that were misleading and omitted significant information.” The Mazik court rejected an argument that the claim supervisor was not personally involved or aware of these things: “There was sufficient evidence for the jury to conclude that [the supervisor] engaged in oppressive conduct by ignoring information … for the purpose of saving the company money…. [The] jury reasonably could have concluded that [the supervisor] was aware the claims adjusters had reported only selected information…. [He had] access to the entire claims file and spot checks the information…. [He] had sufficient contact with Mazik’s file for the jury to find that he knew the adjusters’ summaries were misleading. GEICO maintains an electronic claims diary that records all the pertinent events concerning its handling of claims. That diary reflects that [the supervisor] provided direction and/or approval for claims decisions on numerous occasions.”
Without citing any legal authority, the Mazik court also stated that the jury could have reasonably concluded that the supervisor adopted an “improper adversary approach” to resolving the claim. The court said that the supervisor’s approval of “unreasonably low offers to Mazik that ignored medical records showing the serious and permanent nature of his injuries,” which the plaintiff’s bad faith expert qualified as “insulting,” “supports the jury’s conclusion that GEICO’s conduct amounted to oppression or malice warranting punitive damages.”
Having found substantial evidence supporting the jury’s verdict, the Mazik court concluded by finding the amount, as reduced by the trial court, within the range of allowable awards.
This document is intended to provide you with information about insurance law related developments.The contents of this document are not intended to provide specific legal advice. If you have questions about the contents of this alert, please contact the authors. This communication may be considered advertising in some jurisdictions.