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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.

To read Glad's opening brief of appellant on behalf of Travelers, go to the following address:
http://www.workcompcentral.com/pdf/2008/misc/openingdefensebrief.pdf

To read Glad's response and reply brief on behalf of Travelers, go to the following address:
http://www.workcompcentral.com/pdf/2008/misc/responsedefensebrief.pdf

To read SCIF's amicus brief, go to the following address:
http://www.workcompcentral.com/pdf/2008/misc/SCIFamicus.pdf

To read ACIC's amicus brief, go to the following address:
http://www.workcompcentral.com/pdf/2008/misc/ACICamicus.pdf

By John P. Kamin, Legal Editor
johnkamin@workcompcentral.com

 

P.O. Box 1264
Gridley, CA 95948

Mail to: jwpi@aol.com

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