Four myths — or soon to be myths — of insurance law in California
One definition of myth is a “widely held but false belief or idea.” In this article I outline four widely followed insurance-related rules developed by the Court of Appeal that I think meet this definition of “myth.” The view that two of these rules qualified as “myths” has so far been borne out by the California Supreme Court’s rejection of those rules. It is perhaps too soon to call the other two rules myths, since they have not yet been “busted.” But one is currently under consideration by the California Supreme Court. As for the fourth, the field is wide open for the plaintiff’s bar to bring the challenges that will one day expose it as a myth as well. Perhaps you can be the lawyer who busts the fourth myth.
Busted Myth #1: An insurer’s breach of its common-law duties cannot support a claim under the UCL
In State Farm Fire & Casualty Co. v. Superior Court (Allegro) (1996) 45 Cal.App.4th 1093, 1108, 53 Cal.Rptr.2d 229, 237, Division 3 of the Second Appellate District held that common-law claims for insurance bad faith or fraud would provide a predicate for a claim against an insurer under the unfair competition law (UCL), Business & Professions Code § 17200, et seq. But in Textron Financial Corp. v. National Union Fire Ins. Co. of Pittsburgh (2004) 118 Cal.App.4th 1061, 1071, 13 Cal.Rptr.3d 586, 594, Division 3 of the Fourth Appellate District held that Allegro had been abrogated by the California Supreme Court’s decision in Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 83 Cal.Rptr.2d 548, and that common-law duties could not support a UCL claim.
This was a myth, since the Cel-Tech Court expressly stated that its opinion dealt only with UCL actions between business competitors, and that “Nothing we say relates to actions by consumers or by competitors alleging other kinds of violations of the unfair competition law such as ‘fraudulent’ or ‘unlawful’ business practices or ‘unfair, deceptive, untrue or misleading advertising.’” (Cel-Tech, 20 Cal.4th at p. 187, n. 12.)
The myth was busted nine years after Textron was decided, by the decision in Zhang v. Superior Court (2013) 57 Cal.4th 364, 378, 159 Cal.Rptr.3d 672, which noted that Textron created a split of authority when it declined to follow Allegro. The Supreme Court resolved the split in favor of the Allegro approach, explaining that, “bad-faith insurance practices may qualify as any of the three statutory forms of unfair competition. [Citation omitted.] They are unlawful; the insurer’s obligation to act fairly and in good faith to meet its contractual responsibilities is imposed by the common law, as well as by statute. [Citations omitted.] They are unfair to the insured; unfairness lies at the heart of a bad faith cause of action. [Citation and footnote omitted.] They may also qualify as fraudulent business practices.” (Zhang, 57 Cal.4th at p. 380.)
Busted Myth #2: A trial court’s post-trial award of Brandt fees cannot be included in the due-process ratio of compensatory-to-punitive damages
In Brandt v. Superior Court (1985) 37 Cal.3d 813, 817, 210 Cal.Rptr. 211, the Supreme Court held that a successful policyholder plaintiff in an insurance bad-faith case could recover, as an element of its tort damages for bad faith, the attorney’s fees incurred in obtaining the policy benefits that had been wrongfully withheld by the insurer. The Brandt Court explained that the preferred manner of awarding these fees would be via a post-trial award by the trial court. (Id., 37 Cal.3d at p. 819-820.) But because they represented an item of damages, the parties would have to stipulate to this procedure. (Id.) If they did not, then the plaintiff would have to prove the Brandt fees as part of the case in chief, just like any other disputed element of damages. (Ibid.)
In BMW of North America, Inc. v. Gore (1996) 517 U.S. 559, 568, 116 S.Ct. 1589, and State Farm Mut. Automobile Ins. Co. v. Campbell (2003) 538 U.S. 408, 426, 123 S.Ct. 1513, the U.S. Supreme Court held that the due process clause prohibited grossly excessive awards of punitive damages, and that one aspect of the due process inquiry into whether such an award was grossly excessive involved a comparison of the amount of compensatory damages awarded to the punitive-damage award. “Absent special justification, ratios of punitive damages to compensatory damages that greatly exceed 9 or 10 to 1 are presumed to be excessive and therefore unconstitutional. (Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1182, 29 Cal.Rptr.3d 379.)
Since Brandt fees are an element of the plaintiff’s damages in a bad-faith case, it makes sense that they should be included in the ratio between compensatory and punitive damages. And in Major v. Western Home Ins. Co. (2009) 169 Cal.App.4th 1197, 1224, 87 Cal.Rptr.3d 556, the court confirmed this logical proposition. In Major, the Brandt fees had been awarded by the jury, not by the trial court in post-trial proceedings.
In Amerigraphics, Inc. v. Mercury Casualty Co. (2010) 182 Cal.App.4th 1538, 1565, 107 Cal.Rptr.3d 307, a case where the trial court awarded the Brandt fees post trial, the appellate court refused to include the Brandt-fee award in the ratio, concluding, “the trial court 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.” (Ibid.) No further citation to authority or rationale for this holding was provided, but it became the rule in bad-faith cases.
In Nickerson v. Stonebridge Life Insurance Company (2013) 219 Cal.App.4th 188, 215, 161 Cal.Rptr.3d 629, 650, review granted and opinion superseded sub nom. Nickerson v. Stonebridge Life Ins. (Cal. 2013) 165 Cal.Rptr.3d 61, and rev’d (2016) 63 Cal.4th 363, 203 Cal.Rptr.3d 23, the Court of Appeal followed Amerigraphics and refused to include a court-determined Brandt-fee award in the punitive-damages ratio. Hence, the rule became that Brandt fees would be included in the punitive-damage ratio only when they had been awarded by the jury.
This was a myth because, for the purposes of reviewing the constitutionality of a punitive-damage award, there is no basis to distinguish between whether a Brandt-fee award was made by the jury or the trial court. This myth was busted by the California Supreme Court in Nickerson v. Stonebridge Life Ins. Co. (2016) 63 Cal.4th 363, 370, 203 Cal.Rptr.3d 23, 28, which disapproved Amerigraphics on this point.
Myth #3 (hopefully on the verge of being busted): For the purposes of coverage, an “accident” cannot include the unexpected consequences of the insured’s deliberate acts
Almost all liability coverage sold in California extends only to bodily injury or property damage caused by an occurrence, which the policies define as an accident. In Delgado v. Interinsurance Exchange of Automobile Club of Southern California (2009) 47 Cal.4th 302, 308, 97 Cal.Rptr.3d 298, the Supreme Court explained that, “In the context of liability insurance, an accident is an unexpected, unforeseen, or undesigned happening or consequence from either a known or an unknown cause.” (Emphasis added and internal quotation marks omitted.) Absent a different definition stated in the policy, this common-law definition of accident is read into all liability policies in California. (Ibid.)
A consequence is “a result that follows as an effect of something that came before.” (Black’s Law Dictionary (10th Ed., 2014.) Accordingly, the definition of accident would seem to include the unexpected consequences of the insured’s deliberate acts. In fact, the California Supreme Court’s decisions in both first-party and third-party cases confirm that it does.
For example, in Richards v. Travelers’ Ins. Co. (1891) 89 Cal. 170, 175, a first-party case, the Court approved the use of a jury instruction telling the jury that the insured’s death from a head injury could be considered an accident if the person who struck the blow had not intended it to be fatal. In Rock v. Travelers’ Ins. Co. of Hartford, Conn. (1916) 172 Cal. 462, 465, the Court stated that deliberate acts could produce “unforeseen consequences” that would produce “what is commonly called accidental death.” Likewise, in Olinsky v. Railway Mail Ass’n (1920) 182 Cal. 669, 672-673, the Court explained that “[w]here the death is the result of some act, but was not designed and not anticipated by the deceased, though it be in consequence of some act voluntarily done by him, it is accidental death.”
The Court has used the same approach in third-party cases. In Geddes & Smith, Inc. v. St. Paul-Mercury Indem. Co. (1959) 51 Cal.2d 558, 334 P.2d 881, the Court held that the unexpected consequences of the insured’s sale of defective doors — property damage to the houses in which the doors were installed — qualified as an accident. Similarly, in Hogan v. Midland National Ins. Co. (1970) 3 Cal.3d 553, the Court held that the inadvertent cutting of boards below their specified thickness qualified as an accident.
This is not to say that all unexpected consequences from any act that an insured might commit qualify as an accident. Hogan held that claims related to lumber that had been deliberately sawn too wide were not covered because the overcutting was “calculated and deliberate” and therefore not an accident. (Id., 3 Cal.3d at pp. 559-560.) Likewise, the consequences of “acts done with intent to cause injury” cannot be viewed as the product of an accident, as a matter of law. (Delgado, 47 Cal.4th at pp. 311-312.) And regardless of intent, some acts, such as sexual misconduct, are deemed inherently harmful and therefore uninsurable. (See, e.g., J.C. Penney Casualty Ins. Co. v. M.K. (1991) 52 Cal.3d 1009, 1026, 278 Cal.Rptr. 64 [“Some acts are so inherently harmful that the intent to commit the act and the intent to harm are one and the same. The act is the harm.”])
Based upon what I have told you so far, you might think that the law in this area is fairly clear. And it is, as long as you only read decisions by the California Supreme Court. The picture becomes far murkier, however, once you start reading decisions by the California Court of Appeal, which has developed an entirely different approach to what qualifies as an accident, and hence what constitutes an occurrence that triggers coverage under a liability policy. The prevailing view in the Court of Appeal, which the Ninth Circuit has adopted, holds that the term accident “refers to the nature of the insured’s conduct, and not to its unintended consequences.” (Albert v. Mid-Century Insurance Company (2015) 236 Cal.App.4th 1281, 1291, 187 Cal.Rptr.3d 211.) In other words, if the insured does something on purpose, and is then sued as a result of the consequences of that deliberate act, there is no potential coverage for the claim because the unintended and unexpected consequences of that deliberate act do not constitute an accident.
This approach effectively functions as an all-purpose exclusion in liability policies, which has allowed insurers to avoid defending or indemnifying insureds in a wide variety of contexts. These include claims against a homeowner based on negligently trimming trees (Alpert, 236 Cal.App.4th at p. 1291); claims against a homeowner for building a structure that mistakenly encroached on a neighbor’s lot (Fire Ins. Exchange v. Superior Court (2010) 181 Cal.App.4th 388, 104 Cal.Rptr.3d 534); claims against the insured who, during “horseplay,” negligently struck his friend and caused injury (State Farm General Ins. Co. v. Frake (2011) 197 Cal.App.4th 568, 581, 128 Cal.Rptr.3d 301); claims against the insured for negligently failing to rescue the victim from a sexual assault (Gonzalez v. Fire Insurance Exchange (2015) 234 Cal.App.4th 1220, 1234, 184 Cal.Rptr.3d 1220); claims based on an MRI machine’s failure to restart after being “ramped down” (MRI Healthcare Center of Glendale, Inc. v. State Farm General Ins. Co. (2010) 187 Cal.App.4th 766, 781 115 Cal.Rptr.3d 27); and damages resulting from wrongful termination (Commercial Union Ins. Co. v. Superior Court (1987) 196 Cal.App.3d 1205, 242 Cal.Rptr. 454). In each of these cases the appellate court held that there was no potential for coverage because the insured’s conduct that generated the claim was deliberate, and it was therefore irrelevant if the consequences of that conduct were unexpected.
The most influential appellate opinion on this subject is Merced Mutual Ins. Co. v. Mendez (1989) 213 Cal.App.3d 41, 50 (“Merced”), which holds that the relevant inquiry focuses on whether the insured’s acts are “unforeseen, involuntary, [and] unexpected;” not on whether the consequences of those acts are unexpected. The key passage in Merced says:
We reject appellants’ argument that in construing the term “accident,” chance or foreseeability should be applied to the resulting injury rather than to the acts causing the injury. In terms of fortuity and/or foreseeability, both “the means as well as the result must be unforeseen, involuntary, unexpected and unusual.” (Unigard Mut. Ins. Co. v. Argonaut Insurance Co. (1978) 20 Wash.App. 261, 579 P.2d 1015, 1018, fn. omitted, emphasis added.)
We agree coverage is not always precluded merely because the insured acted intentionally and the victim was injured. An accident, however, is never present when the insured performs a deliberate act unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage. (Ibid.)
This analysis of accident has become the template used in the California and federal courts, having been cited directly in at least 66 cases and having indirectly influenced many more. The ultimate finding of no coverage in Merced certainly seems correct, since the insured’s claim was essentially that he had been unaware that his sexual battery of the woman suing him had been unwelcome.
Given the wide acceptance of the Merced analysis, and the fact that the case was correctly decided, how can it be viewed as a “myth?” There are two reasons. First, its analysis is inconsistent with 125 years of California Supreme Court precedent, as explained above. Second, the analysis is the product of a mistake, which can be plainly identified with a little sleuthing.
Look back at the passage from Merced cited above. You will see that its explanation of what constitutes an accident is drawn from a decision by the Washington Court of Appeal in Unigard Mut. Ins. Co. v. Argonaut Insurance Co. (1978) 20 Wash.App. 261, 579 P.2d 1015. The Merced court cited Unigard accurately; that is, Unigard says exactly what the Merced court cited it for. The problem is that the cases on which the Unigard court relied when it articulated the legal propositions that the Merced court cited did not involve insurance policies that provided coverage for losses caused by an accident. Instead, the Unigard court mistakenly relied on the rules that govern a different, more limited type of insurance coverage, called “accidental means.”
The distinguishing feature of “accidental means” coverage is that it does not cover the unintended consequences resulting from the insured’s deliberate acts. This is why the insurance industry created it in the first instance – to provide coverage that was more limited than policies that cover losses resulting from accidents. (Weil v. Federal Kemper Life Assurance Co. (1994) 7 Cal.4th 125, 135 n. 7, 27 Cal.Rptr.2d 316 (“Weil”).)
In light of the differences between the two types of coverage, the California Supreme Court has consistently and scrupulously rejected attempts by insurers and policyholders alike to apply “accidental means” rules to policies that covers accidents, and vice versa. (See, e.g., Fidelity & Cas. Co. of New York v. Industrial Acc. Commission of Cal. (1918) 177 Cal. 614, 616 [refusing to construe the term accident in worker’s compensation statute as though it said “accidental means”]; Weil, 7 Cal.4th at p. 139 [refusing to construe policy limited to death resulting from “accidental means” as if it covered death caused by an “accident”].)
Weil clearly illustrates the difference between the two types of coverage. The insured in that case deliberately ingested cocaine and inadvertently died from an overdose. The policy beneficiaries argued that the death was plainly an accident – something that the insured had not expected or intended – and urged the Court to apply its precedents defining an accident to find coverage. The Supreme Court did not dispute that the insured’s death was an accident. The problem was, the policy in Weil did not promise coverage for death caused by an “accident;” it covered death resulting from “accidental means.” The Court expressly declined to abandon the distinction between the two types of policies, stating:
Unless the limitation of coverage of ‘accidental means’ policies to a narrower class of cases than is covered by ‘accidental death’ insurance would violate a particular statute or other express public policy, it is not our proper role to mandate that the two types of policies be interpreted as coextensive. By repudiating the distinction, the court in effect would be ignoring the fact that the policy does employ the word ‘means.’ (Id., 7 Cal.4th at p. 139.)
Now, look back again at the passage from Merced cited above, and particularly at the statement, “both the means as well as the result must be unforeseen, involuntary, unexpected and unusual.” This is the definition of “accidental means.” Likewise, the statement in Merced that “[a]n accident . . . is never present when the insured performs a deliberate act unless some additional, unexpected, independent, and unforeseen happening occurs that produces the damage” is inaccurate, because it describes the test for what constitutes “accidental means.” This becomes clear if you read the cases that the Unigard court cites in support of these propositions.
In short, the Unigard court erroneously transposed the definitions of accident and “accidental means.” The Merced opinion then unwittingly transplanted that error into California law, where it quickly took root and spread throughout the Court of Appeal and into the Ninth Circuit.
Happily, the prospects for correction of the error seem good. The California Supreme Court accepted review in response to the Ninth Circuit’s certified question in Liberty Surplus Ins. Corp. v. Ledesma and Meyer Construction Co., No. 2236765. The issue for review is “Whether there is an ‘occurrence’ under an employer’s commercial general liability policy when an injured third party brings claims against the employer for the negligent hiring, retention, and supervision of the employee who intentionally injured the third party.” Since CGL policies define occurrence as an “accident,” it is likely that the Court will bring some clarity to this issue. (Full disclosure – the author represents the insured in Ledesma, and has raised the issues described above in the briefing. In response, the insurer has not argued that the unexpected consequences of the insured’s negligent conduct cannot be an accident; it has staked its defense on causation.)
Myth #4 (ripe for busting): In a bad-faith lawsuit, the proceeds of the policy must be excluded from the ratio of punitive-to-compensatory damages
The Textron decision that spawned busted-myth 1, above, is also the source of this myth, which I will call the “policy proceeds rule.” This rule posits that when a reviewing court determines whether a punitive damage in a bad-faith case comports with due process, it must exclude the proceeds of the insurance policy from the compensatory damages that are compared to the punitive-damage award. The Textron opinion announced the policy-proceeds rule this way:
As a corollary to its attack on the constitutionality of the punitive damage award, defendant argues consideration of the proportionality of the punitive damages to compensatory damages must focus on the amount awarded for breach of the implied covenant of good faith and fair dealing and for fraud ($89,744), excluding the sum plaintiff recovered on the contract claim ($75,670.40). This argument has merit. (Textron, 118 Cal.App.4th at p. 1084.)
The court rested its conclusion on Civil Code section 3294, subdivision (a), which allows for the recovery of punitive damages “in any action for breach of an obligation not arising from contract.” The court explained that breach-of-contract and bad-faith claims had been tried in separate phases, with the jury returning separate awards on each. In addition, the jury’s finding that the defendant acted with malice, fraud, or oppression applied only to the tort claims. Based on this, the court concluded, “our consideration of the disparity between plaintiff’s actual harm and the punitive damage award must be limited to its tort relief.” (Textron, 118 Cal.App.4th at p. 1084.)
Relying on Textron, the court in Major v. Western Home Ins. Co., 169 Cal.App.4th at p. 1224, held that, “because punitive damages are not authorized in contract actions under California law, where both contract and tort damages are awarded in insurance bad faith cases only the tort damages are considered in measuring the proportionality of a punitive damages award.” Nickerson v. Stonebridge Life Insurance Company (2016) 5 Cal.App.5th 1, 27, 209 Cal.Rptr.3d 690, 711, adopted this view as well.
The policy-proceeds rule suffers from two flaws that make it a myth ripe for busting.
The first is that, when a plaintiff succeeds in proving a bad-faith claim based on the insurer’s failure to pay the claim, the insurance-policy proceeds withheld by the insurer constitute “tort” damages. A bad-faith claim is simply a special type of breach-of-contract claim – which has two requirements that distinguish it from a garden-variety breach-of-contract claim: (a) the contract at issue is an insurance policy; and (b) the insurer’s conduct not only constitutes a breach of its obligations under the policy, but also constitutes a breach of the implied-in-law covenant of good faith and fair dealing. (See Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390, 400.) It is the breach of the implied covenant that converts the insurer’s breach of a contract term into a tort. (Id.) (See, also, Archdale v. American Intern. Specialty Lines Ins. Co. (2007) 154 Cal.App.4th 449, 466 [explaining that breach of the implied covenant sounds in both contract and tort].)
In order to establish that the insurer’s failure to pay the policy benefits was a tort, the policyholder must do more than simply prove that the insurer breached the contract; there must also be proof that the insurer’s failure to pay the claim was unreasonable or without proper cause. (Major, 169 Cal.App.4th at p. 1209.) Once this threshold is met, the bad-faith claim sounds in tort, and triggers the right to tort damages under Civil Code section 3333, “the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.” (Emphasis added.)
Having the insurance policy proceeds wrongfully withheld is surely part of the “detriment” suffered by the policyholder in a bad-faith case. This is why the law allows those proceeds to be recovered as part of the insured’s damages on a tort theory. This is made clear in Archdale, “If the insured elects to proceed in tort, recovery is possible for not only all unpaid policy benefits and other contract damages, but also extra-contractual damages such as those for emotional distress, punitive damages and attorney fees.” (Id., 154 Cal.App.4th at p. 467, n. 19, emphasis added.)
In this context the improperly withheld policy proceeds do not become “contract damages” simply because the plaintiff could have recovered them on a breach-of-contract theory. Sometimes the same recovery can be characterized different ways, depending on the legal theory advanced to obtain it. (See, e.g., Cortez v. Purolator Air Filtration Products Co., 23 Cal.4th at pp. 174-177 [explaining that the availability of a breach-of-contract remedy for an employer’s failure to pay wages did not eliminate an employee’s ability to also address the failure on a restitution theory under the UCL].)
The policy-proceeds rule purports to distinguish between the “contract” damages and the “tort” damages in a bad-faith action. But in reality, it confuses “tort damages” with “extra-contractual damages.” The latter are simply one aspect of the “tort damages” available in some bad-faith cases, but the presence of extra-contractual damages is not an element of a bad-faith claim.
This is illustrated by Amerigraphics, 182 Cal.App.4th at p. 1558. In that case the insured was a corporation, and hence was not eligible for an award of emotional-distress damages. Since the insured business was losing money at the time of the loss, it could not show that the insurer’s failure to pay the claim caused any other consequential damages, other than the Brandt fees incurred to obtain the unpaid policy proceeds. At trial, the jury was asked to determine (1) whether the insurer breached the policy; (2) if so, what damages the policyholder sustained (i.e., the policy proceeds); (3) whether the insurer breached the implied covenant by unreasonably failing to pay the claim; and (4) if so, whether the insurer acted with malice, fraud, or oppression. (Id., 182 Cal.App.4th at p. 1549.) The jury answered in favor of the insured, awarding damages of $130,000, finding that the insurer had acted in bad faith, as well as with malice, fraud or oppression. (Ibid.)
On appeal, the insurer argued that the punitive-damage award should be reversed because there was no finding of “tort damages.” The court rejected this argument, explaining:
[O]n the basis of the evidence offered at trial, the jury instructions, and counsel’s closing argument, it is clear that the jury intended to find that Amerigraphics had been harmed by Mercury’s bad faith in the same amount that it had been harmed by Mercury’s breach of contract. In other words, Amerigraphics suffered damage in the amount of $130,000, which could have been awarded for either breach of contract or bad faith. As such, we find Mercury’s argument to be without merit. (Id., 182 Cal.App.4th at p. 1558.)
In short, the wrongful withholding of the policy benefits is a tort, and the amount of the withheld proceeds represents “tort damages,” regardless of whether or not other tort damages are also awarded.
The second flaw is that the policy-proceeds rule is that it is a state-law rule (punitive damages are not available for breach of contract) that masquerades as a federal due process rule. But the due process clause does not forbid the recovery of punitive damages for breach of a contract. While California requires clear-and-convincing evidence of malice, fraud, or oppression in cases not arising from contract in order to make a punitive-damage award, other states follow a less stringent approach. Massachusetts, for example, permits punitive-damage awards in gross-negligence cases. (Aleo v. SLB Toys USA, Inc. (2013) 466 Mass. 398, 412.) Mississippi allows punitive-damage awards in breach-of-contract cases. (T.C.B. Const. Co., Inc. v. W.C. Fore Trucking, Inc. (2013) 134 So.3d 701, 704.) Neither approach violates the due process clause, because that clause simply limits states from imposing “grossly excessive” punishments on tortfeasors. (Cooper Industries v. Leatherman Tool Group (2001) 532 U.S. 424, 434, 121 S.Ct. 1678.)
Hence, the due process clause does not require the exclusion of policy proceeds from the consideration of the harm the plaintiff suffered when the insurer tortiously withholds the policy proceeds.
This means that there is neither a valid state law nor federal constitutional justification for the policy-proceeds rule. In most first-party bad-faith cases, the principal harm at issue is the insurer’s failure to pay the policy proceeds. To exclude this harm from the due process analysis would distort the very question that a court is considering when it tries to access whether the punitive-damage award is excessive, in light of the harm to the insured. The Supreme Court made this very point in the context of explaining why it was improper to exclude court-determined Brandt fees from the due process review of punitive-damage awards in bad-faith cases:
[T]o exclude the [court-determined Brandt] 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.
(Nickerson v. Stonebridge Life Ins. Co., 63 Cal.4th at p. 377.)
This reasoning applies with equal force to the policy-proceeds rule.
Conclusion — It’s your turn to bust a myth
Once an appellate court announces a rule, stare decisis makes it difficult to convince other courts that the rule is flawed and should not be followed. Hence, it can take years, and multiple attempts to bust a myth. But the Supreme Court’s decisions in Zhang and Nickerson show that it is possible. Hopefully, Ledesma will soon add to the list of busted insurance myths. It is time for the plaintiffs’ insurance bar to focus its attention on the flaws in the policy-proceeds rule, as well. Sooner or later, another court will see the light.
Jeffrey I. Ehrlich is the principal of the Ehrlich Law Firm, in Claremont, California. He is a cum laude graduate of the Harvard Law School, a certified appellate specialist by the California Board of Legal Specialization, and a member of the CAALA Board of Governors. He is the editor-in-chief of Advocate magazine and a two-time recipient of the CAALA Appellate Attorney of the Year award.
Copyright © 2019 by the author.
For reprint permission, contact the publisher: Advocate Magazine