Recent verdicts from across the nation in disability, life and health insurance policy cases must be alarming for big corporate insurance companies. The trend is for jurors to award individual plaintiffs astronomical punitive damage verdicts, showing their general disdain for insurance companies and tendency to empathize with policyholders, particularly where a person’s health is at issue.
California Court of Appeal Finds That a 10:1 Ratio Between Punitive Damages and Compensatory Damages Awards Satisfies Due ProcessSeptember 06, 2013 Robert McKennon
A 10-to-1 ratio of punitive damages to compensatory damages awards in an insurance bad faith case passes Constitutional muster. So says the California Court of Appeal in its decision in Nickerson v. Stonebridge Life Insurance Company, __ Cal. App. 4th ___, 2013 Cal. App. LEXIS 583 (2013). The decision is significant in that it affirms that punitive damages are not limited to a single-digit ratio and that a ratio of punitive to compensatory damages of 10-to-1, and perhaps higher, falls within the maximum permitted under due process. Additionally, the decision clarifies what damages may be included in fixing the ratio of compensatory to punitive damages.
In a victory for health insurance policy holders over health insurers/health care service plans, in Kaiser Foundation Health Plan, Inc, v. Superior Court (Rahm, et al, Real Parties), 2012 Cal. App. LEXIS 138 (Cal. App. 2d Dist. Feb. 15, 2012), the Court of Appeals ruled that a plaintiff does not need to obtain approval from the trial court before asserting a claim for punitive damages against a health care service plan. Specifically, the Court ruled that California Civil Procedure section 425.13 applies only to health care providers (such as doctors), but does not apply to health care service plans such as Kaiser Foundation Health Plan or Anthem/Blue Cross.
The Rahm family filed a lawsuit against Kaiser Foundation Health Plan and two Kaiser health care providers. The Rahms claimed that Kaiser improperly delayed before ordering an MRI for their daughter Anna, resulting in the eventual loss of Anna’s right leg and portions of her pelvis and spine. Specifically, despite numerous requests by Anna’s parents that Kaiser authorize an MRI for Anna, Kaiser refused. As a result, there was a considerable delay in discovering that Anna was suffering from a “high grade” osteosarcoma, one of the fastest growing types of osteosarcoma. The delay significantly contributed to Anna’s poor prognosis and the need for the amputations.
In a somewhat surprising recent decision, the California Court of Appeal upheld a punitive damages award that carried a ratio of more than 16 to 1 based on the compensatory damages awarded by the jury. The ruling was surprising considering the United States Supreme Courts’ recent holding that “grossly excessive” punitive damages awards offend due process under the Fourteenth Amendment, and stating that “in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” State Farm Mut. Automobile Ins. Co. v. Campbell, 538 U.S. 408, 425 (2003). California courts have once again sent a clear message of willingness to uphold just punitive damages awards under appropriate circumstances, applying a balancing test as opposed to a bright line ratio approach.
Insurers Cannot Escape Bad Faith Liability By Relying On In-House Experts And The "Genuine Dispute Doctrine"August 23, 2011 Robert McKennon
Insurers often wrongfully deny policy benefits to their insureds in situations where there may be some uncertainty as to coverage. Despite an overarching duty to act reasonably and find in favor of coverage in such situations, insurers often will deny coverage and rely on their in-house medical experts’ (i.e., nurses, doctors) analysis and opinions as a basis for denial. In such situations, the insurer denies coverage at its peril.
This article will be the second in a series of articles by McKennon Law Group PC addressing and answering basic questions concerning insurance law. This one addresses: What are the available remedies against an insurance company that has acted unreasonably in handling an insurance claim?
The most common causes of action against insurers in the non-ERISA context are breach of contract and bad faith.
The breach of contract claim allows an insured to recover policy benefits owed under the insurance policy plus applicable interest from the date the benefits were due (or at the rate of 10% on delayed disability payments in California). The benefits due will depend on the type of policy at issue. They may be a specific amount (e.g., death benefits) or may depend upon a proof of loss (e.g., value of property damaged or destroyed).
In 1996, Plaintiff Laura Kieffer developed carpal tunnel syndrome and severe cervical pain which forced her to stop working as a dental hygienist. Thereafter, Kieffer started receiving disability payments under an individual disability insurance policy she purchased from Paul Revere Life Insurance Company and its parent company the Unum Group Corporation. Even though she had been receiving disability payments for nearly ten years, Unum terminated her benefits in March of 2008. As a result, Laura sued in Los Angeles Superior Court alleging that Unum had unreasonably terminated her benefits. She sued for breach of contract, insurance bad faith and for punitive damages. This week, a jury awarded her $4.2 million in compensatory and punitive damages. Unum intends to appeal the verdict.
The U.S. Ninth Circuit Court of Appeals has upheld an arbitration award requiring U.S. Life Insurance Co. to pay reinsurance of more than $500 million to Superior National Insurance Companies, workers’ compensation insurer in liquidation, the California Department of Insurance reported.
In a press release, California Insurance Commissioner Steve Poizner said that “upholding this award means that that hundreds of millions of dollars will be available to pay the claims of workers injured on the job through the California Insurance Guarantee Association (CIGA) and other guarantee associations.” “This is huge and welcome news,” Poizner said.
U.S. Life is a subsidiary of American International Group (AIG) and was a reinsurer for five California workers’ compensation insurance companies that were liquidated in 2000. U.S. Life argued that Superior National and its affiliates failed to disclose to U.S. Life all pertinent information regarding the adequacy of its outstanding reserves for payment of claims, and exposing U.S. Life to substantial losses, CDI said.
On June 25, 2007 the U.S. District Central District in Los Angeles entered an original judgment against U.S. Life for $443.5 million. U.S. Life subsequently appealed to the Ninth Circuit. Fourteen months after arguments were heard and the case submitted, the original judgment was unanimously upheld by a three-judge panel. U.S. District Court Judge Edward F. Shea wrote the opinion confirming the original judgment against U.S. Life.
Posner explained that including post-judgment interest, the judgment is now more than $517 million. Interest will continue to accrue until payment is received from U.S. Life.
Although the court upheld the judgment, U.S. Life still may seek to file a motion to reconsider or request a hearing en banc, which may be filed within 14 days, or within 90 days of the judgment being affirmed it may seek review by the United States Supreme Court. Given that this appeal relates to the affirmation of an arbitration award, it is not expected the Court will grant further review.
The press release stated “[a]t no time were people in the workers’ compensation system at risk of not being paid. CIGA The California Insurance Guarantee Association has been paying the claims of injured workers whose policies were reinsured by U.S. Life. Once the money is collected from U.S. Life or from the $600 million bond AIG posted as security, it will be distributed to CIGA and other guaranty associations. CIGA will receive about 90 percent of the final amount.”
The California Supreme Court has embraced the principle suggested by the U.S. Supreme Court that a ratio of punitive damages to compensatory damages of one-to-one is the federal constitutional maximum where there is relatively low reprehensibility and the compensatory damages award is substantial.
In Roby v. McKesson Corporation, plaintiff Charlene Roby filed alleged a wrongful termination and harassment action against McKesson and her supervisor Schoener claiming she was fired because of a medical condition and a related disability. The jury found in favor of Roby on all causes of action and awarded compensatory damages of $3,511,000 against McKesson and $500,000 against the supervisor, Schoener. The jury also awarded punitive damages: $15,000,000 against McKesson and $3,000 against Schoener. The trial court reduced the compensatory damages against McKesson to $2,805,000 because some of the damage awards overlapped.
The California Court of Appeal reduced the compensatory damages award to $1.4 million, finding there was insufficient evidence for a harassment verdict against McKesson and that the $15 million punitive damages award was excessive under the federal due process clause. The Court of Appeal determined that the maximum permissible punitive damages award, based on the facts of the case and size of the compensatory damages award, was $2 million, or 1.4 times the amount of the compensatory damages award.
The California Supreme Court decided two important issues: whether personnel actions undertaken by a supervisor can be used as evidence of harassment and whether the punitive damages award against McKesson was excessive. As to the first issue, the Supreme Court reversed the Court of Appeal holding that there was insufficient evidence of Roby’s harassment claim. Rather, the Supreme Court held that biased personnel actions can be used as evidence of harassment because they can contribute to harassment by communicating hostility and evidence the discriminatory animus of the person taking the personnel action. These actions included demeaning comments about her body odor, arm sores, and the demeaning manner in which her supervisor acted towards her, including refusing to respond to greetings, failing to give gifts and other less favorable treatment. The Court found that none of these events was fairly characterized as official employment actions or personnel actions, and thus, could not be conduct that fell within the supervisor’s business and management duties. Thus, it reinstated the jury’s verdict finding for Roby on the discrimination claim. The Court also found there was sufficient evidence for the jury to infer the supervisor discriminated against Roby based on her medical condition, and that the constant hostility was also based on medical conditions, constituting harassment and in violation of applicable laws.
Bosetti v. The United States Life Ins. Co., 175 Cal. App. 4th 1208 (2009) is an important California Court of Appeal decision that addressed whether a two-year benefits limitation on disabilities due to “mental, nervous or emotional disorder[s]” could serve to limit benefits payable to an insured disabled from depression and anxiety who also complained of interrelated physical impairments.
Bosetti was employed by the Palos Verdes Peninsula Unified School District. As part of her employment benefits, she was covered under a group long-term disability insurance policy issued by The United States Life Insurance Company in the City of New York (“U.S. Life”).
Bosetti‘s job was eliminated for economic reasons. Shortly after she learned that her employment would be terminated, she saw a doctor for depression and was placed on temporary disability. Her disability extend beyond two years, and had a physical component as well as an emotional one. Under the policy, Bosetti could obtain disability benefits for two years if she was disabled from her own occupation. After that time, she could only obtain disability benefits if she was disabled from “any occupation.” U.S. Life concluded that Bosetti was not disabled from any occupation and terminated her disability benefits at the end of two years. That determination was based primarily upon the two-year benefits limitation for mental or nervous disorders, the results of a functional capacity examination, and an independent physician consultation.
After the U.S. Life moved for and was granted summary judgment, Bosetti appealed. The court of appeal held that the limitation was ambiguous and was not applicable if the claimant’s physical problems contributed to her disabling depression or were a cause or symptom of that depression. The Bosetti court further concluded that the insurer’s denial of benefits based upon that two-year limitation was not in bad faith under the genuine dispute doctrine.
The Bosetti court explained that the insured’s disability had both mental and physical elements, noting that one of her doctors had suggested that her physical disability arose out of her emotional disability and another that her emotional disability or depression arose out of her physical problems and chronic pain. The court held that the two-year mental limitation was ambiguous because it “does not clearly explain whether the limitation applies when the total disability is due in part to a mental, nervous …disorder” and because an insured’s reasonable expectations are that disabling depression arising from a physical condition like fibromyalgia and, correspondingly, disabling physical symptoms arising from depression, would not fall within the mental/nervous limitation.
As part of its analysis, the court rejected the rationale of Equitable Life Assurance Society v. Berry, 212 Cal. App. 3d 832, 835, 840 (1989), a California opinion concerned with an insured who was diagnosed with manic-depressive illness, a condition which has a chemical (physical) etiology, rather than a purely mental one. The Berry court concluded, as a matter of law, that there was no coverage due to a disability policy‘s exclusion for “[m]ental or nervous disorders” and a health policy‘s limitation on benefits for treatment for a neurosis, psycho-neurosis, psychopathy, psychosis, or mental or nervous disease or disorder of any kind, on the basis that these exclusions were unambiguous and referred solely to symptoms, rather than causes. Id. at 840. The court disagreed with Berry for two reasons: it disagreed with its analysis and its holding was abrogated by statute.
The court found that the holding of Berry did not survive Insurance Code section 10123.15, which provides that “every group policy of disability insurance which covers hospital, medical, and surgical expenses on a group basis, and which offers coverage for disorders of the brain shall also offer coverage in the same manner for the treatment of the following biologically based severe mental disorders: schizophrenia, schizo-affective disorder, bipolar disorders and delusional depressions, and pervasive developmental disorder. Coverage for these mental disorders shall be subject to the same terms and conditions applied to the treatment of other disorders of the brain.” It appears that based on the court’s ruling, the two-year mental or nervous disorders limitation can never be applied in California to the biologically based severe mental disorders of “schizophrenia, schizo-affective disorder, bipolar disorders and delusional depressions, and pervasive developmental disorder.”
The court adopted the Ninth Circuit’s approach in Patterson v. Hughes Aircraft Co., 11 F.3d 949, 950 (9th Cir. 1993) where the court concluded that a limitation on benefits resulting from “mental, nervous or emotional disorders of any type” was ambiguous as to whether mental disorders referred to causes or symptoms, and whether a disability is mental when it results from a combination of physical and mental factors. The court resolved the ambiguity in favor of the insured, holding that the limitation on coverage did not apply if the insured‘s disability was caused, in any part, by his physical symptoms.