United States: Nickerson v. Stonebridge Life Insurance Company

(Brandt Fees May Be Included In Calculation Of Punitive-Compensatory Damages Ratio In Determining Constitutionality Of Punitive Damages Awarded Against An Insurer, Notwithstanding Fees Award Made By Trial Court After Jury Verdict)

In Nickerson v. Stonebridge Life Insurance Company, ___ Cal.4th ___ (June 9, 2016), the California Supreme Court reversed the Court of Appeal's decision affirming the trial court's judgment that attorneys' fees awarded by the trial court pursuant to Brandt v. Superior Court, 37 Cal.3d 813 (1985) after a jury verdict awarding compensatory and punitive damages had been rendered cannot be included in determining the amount of compensatory damages to be considered for purposes of calculating whether an award of punitive damages is constitutional. The parties' dispute arose out of Stonebridge Life Insurance Company's ("Stonebridge") determination that plaintiff's entitlement to reimbursement of costs for a hospital stay was limited to 18 days pursuant to an indemnity benefit provision in the Stonebridge policy, notwithstanding that plaintiff had been hospitalized for a total of 109 days. Stonebridge failed to consult with plaintiff's physicians and arbitrarily determined the limitation for purposes of indemnifying plaintiff for his hospital stay to be 18 days at $350 per day.

As a result of Stonebridge's conduct, Nickerson filed a lawsuit for breach of contract and bad faith. Prior to the trial, the parties stipulated that if Nickerson succeeded on his complaint, the trial court would determine the amount of attorneys' fees for which Nickerson was entitled under the Brandt decision as compensation for having to retain counsel to obtain the subject benefits. At trial, neither party presented evidence to the jury concerning the claim for, or amount of, Brandt fees. Thereafter, the trial court granted Nickerson's motion for a directed verdict on the breach of contract cause of action and awarded him $31,500.00 in unpaid policy benefits. With respect to the bad faith cause of action, the jury returned a special verdict finding that Stonebridge's failure to pay policy benefits was unreasonable and awarded Nickerson $35,000.00 in damages for emotional distress. Thereafter, the jury found Stonebridge had engaged in conduct with fraud and awarded $19 million dollars in punitive damages. Subsequently, the parties stipulated that the amount of attorneys' 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. The trial court relied on the United States Supreme Court's decision in State Farm Mut. Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408, 426 for the proposition that a punitive – compensatory ratio exceeding single digits will ordinarily exceed constitutional bounds. Hence, the trial court determined it was bound to reduce the punitive damages award to a ratio of punitive to compensatory damages of 10 to 1. In calculating the permissible amount of punitive damages, the court considered only the $35,000 the jury had awarded in compensatory damages for emotional distress for Stonebridge's tortious breach of the implied covenant of good faith and fair dealings; it did not include the $12,500 in Brandt fees.

Nickerson rejected the reduction of punitive damages and appealed the order granting a new trial. The Court of Appeal affirmed the trial court's decision limiting the amount of the punitive damages to a 10:1 ratio of punitive damages to compensatory damages. Further, the Court of Appeal held that the trial court had correctly calculated the amount of compensatory damages without consideration of the $12,500 in Brandt fees.

In reversing the Court of Appeal's decision regarding whether to include the award of Brandt fees in determining the amount of compensatory damages to be considered for applying the constitutional award of 10:1 ratio for punitive damages to compensatory damages, the Supreme Court noted that Brandt fees are considered compensatory damages. Hence, they should have been included as an element of compensatory damages in determining the constitutionality of the amount of punitive damages that should have been awarded to plaintiff for Stonebridge's wrongful conduct.

The Supreme Court commented on the factors applied in evaluating punitive damages as follows:

In a series of cases culminating in Gore, supra, 517 U.S. 559, the court developed a set of substantive guideposts that reviewing courts must consider in evaluating the size of punitive damages awards: "(1) the degree of reprehensibility of the defendant's misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases." (State Farm, supra, 538 U.S. at p. 418, citing Gore, at p. 575.) A trial court conducts this inquiry in the first instance; its application of the factors is subject to de novo review on appeal.

The Supreme Court then noted the focus of Nickerson's appeal as follows:

Primarily at issue in this case is the second of the Gore guideposts, the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award. As the United States Supreme Court has explained, "[t]he principle that exemplary damages must bear a 'reasonable relationship' to compensatory damages has a long pedigree." (Gore, supra, 517 U.S. at p. 580.) The court cited "a long legislative history, dating back over 700 years and going forward to today, providing for sanctions of double, treble, or quadruple damages to deter and punish." (State Farm, supra, 538 U.S. at p. 425, citing Gore, supra, 517 U.S. at p. 581.) Although it has declined to "impose a bright-line ratio which a punitive damages award cannot exceed," the court, guided by this history, has concluded that "in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process." (Id. at p. 425.) Following the high court's guidance, we have explained that "ratios between the punitive damages award and the plaintiff's actual or potential compensatory damages significantly greater than 9 or 10 to 1 are suspect and, absent special justification ... , cannot survive appellate scrutiny under the due process clause." (Simon, supra, 35 Cal.4th at p. 1182.)

. . .

The controversy between the parties in this case stems from a trial court's postverdict award of Brandt fees to the prevailing plaintiff. In Brandt, we held that when an insurance company withholds policy benefits in bad faith, attorney fees reasonably incurred to compel payment of the benefits are recoverable as an element of the plaintiff's damages. (Brandt, supra, 37 Cal.3d at p. 815.) We explained that when an insurer breaches the implied covenant of good faith and fair dealing by failing to compensate the insured for a loss covered by the policy, "'the insurer is "liable for any damages which are the proximate result of that breach." [Citation.]' [Citation.]" (Id. at p. 817.) "When an insurer's tortious conduct reasonably compels the insured to retain an attorney to obtain the benefits due under a policy, it follows that the insurer should be liable in a tort action for that expense. The attorney's fees are an economic loss—damages — proximately caused by the tort." (Ibid.) We distinguished the recovery of these fees "from recovery of attorney's fees qua attorney's fees, such as those attributable to the bringing of the bad faith action itself," explaining that such fees "are recoverable as damages resulting from a tort in the same way that medical fees would be part of the damages in a personal injury action." (Ibid.)

Because "the attorney's fees are recoverable as damages, the determination of the recoverable fees must be made by the trier of fact unless the parties stipulate otherwise." (Brandt, supra, 37 Cal.3d at p. 819, citing Dinkins v. American National Ins. Co. (1979) 92 Cal. App. 3d 222, 234 [154 Cal. Rptr. 775].) But we 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." (Brandt, supra, 37 Cal.3d at pp. 819–820.) Consistent with that suggestion, the trial court in this case accepted the parties' pretrial stipulation that if Nickerson were to succeed on his bad faith claim against Stonebridge, the court would determine the amount of attorney fees to which Nickerson was entitled under Brandt. After trial, the parties stipulated that the amount of attorney fees to which Nickerson was entitled was $ 12,500, and the court awarded that amount. The question is whether this amount may be included in the calculation of the ratio of punitive damages to compensatory damages for the purpose of determining whether, and by what amount, the jury's $ 19 million punitive damages award exceeds constitutional limits.

Based on the above reasoning, the Supreme Court held that the trial court's post-verdict award of attorneys' fees should have been included in the compensatory damages for purposes of determining the proper award of punitive damages in favor of Nickerson based on the 10:1 ratio of punitive damages to compensatory damages. The Supreme Court concluded as follows:

In sum, we 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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.