Bad faith awards can cost insurance companies millions of dollars in addition to actual damages.
An appellate court in California has rejected an appeal by GEICO General Insurance Company from a judgment awarding $1 million in punitive damages for Geico's bad faith breach of an insurance contract.
The Case
After Michael Mazik was involved in a serious automobile accident on a highway in Riverside County, Calif., he received $50,000 from Mercury Insurance Company, the insurer for the driver of the other car who was at fault in the accident. That sum was the full value of the driver's policy.
Mazik's attorney submitted a claim for underinsured motorist benefits under Mazik's Geico policy, which had a limit of $100,000. The letter included medical records of Mazik's treatment along with other supporting documentation. In light of the "severity of the damages" and the residual effects of the injuries, the letter requested compensation of $50,000, representing the full policy amount offset by the $50,000 payment Mazik already had received.
A Geico claims adjuster prepared a written claim evaluation summary. The evaluation summarized the medical records included with Mazik's demand and assessed values for medical expenses, lost income, and "pain and suffering." It calculated a "negotiation range" for the full value of the claim (including the $50,000 that Mercury already had paid) from $47,047.86 to $52,597.86.
After preparing the evaluation, the adjuster obtained approval from Geico's regional liability administrator to reject Mazik's $50,000 claim, and Geico offered Mr. Mazik a settlement of $1,000.
A new claims adjuster began to work on the file and Geico, without receiving any additional information, increased its settlement offer to $13,800. Four months later, Geico increased its offer to $18,000.
Geico subsequently served a statutory offer to compromise Mazik's claim for $18,887. Mazik rejected the offer and reasserted his demand for the policy limits. Geico did not make any additional settlement offers, and the parties moved to arbitration.
The arbitrator issued an award for the full policy limits, and Geico ultimately provided Mazik with a check for $50,000.
Mazik sued Geico for bad faith. After a trial, the jury returned a verdict in his favor and awarded compensatory damages of $313,508, consisting of $300,000 for "[m]ental suffering, anxiety, and emotional distress" and $13,508 for attorneys' fees and costs.
The jury also awarded punitive damages of $4 million. The trial court found that the punitive damages award was excessive in light of the ratio of punitive to compensatory damages and the fact that Mazik's claim related to "financial damages" rather than personal injury. The trial court reduced the amount of punitive damages to $1 million.
Geico appealed the punitive damages award. The insurer argued that the evidence was insufficient to show:
- That any "officer, director, or managing agent" had been involved in any act of bad faith;
- That even if a managing agent had been involved, the evidence was insufficient to show that such an agent had personally engaged in "oppression, fraud, or malice" or had authorized or ratified such conduct by other employees, as required to support a punitive damages award; and
- That the punitive damages award was excessive, even as reduced by the trial court.
The appellate court's decision
The appellate court affirmed.
In its decision, the appellate court first found:
- That Geico's regional liability administrator, who had regional authority over the settlement of claims, met the definition of managing agent that the jury had been given;
- That Geico had "deliberately 'cherry-picked' medical information and disregarded unfavorable findings"; and
- That there was sufficient evidence for the jury to conclude that the regional liability administrator had engaged in oppressive conduct by ignoring information concerning the serious and permanent nature of Mazik's injuries for the purpose of saving money for Geico.
The appellate court then ruled that the jury reasonably could have concluded that the regional liability administrator was aware that claims adjusters had reported only selected information; that he was "fully aware of the serious nature" of Mazik's injuries; and that he had adopted an "improper adversary approach" to resolving Mazik's claim.
In summary, the appellate court decided, the jury had a sufficient basis to conclude that Geico's regional liability administrator had approved unreasonably low offers to Mazik that ignored medical records showing the serious and permanent nature of his injuries — conduct that amounted to "oppression or malice warranting punitive damages."
The appellate court concluded that the trial court's decision approving punitive damages of $1 million was within the range permitted by due process and did not exceed constitutional restraints.
The case is Mazik v. GEICO General Ins. Co., No. B281372 (Cal. Ct. App. May 17, 2019). Attorneys involved include: Sheppard, Mullin, Richter & Hampton, John T. Brooks and Karin Dougan Vogel for Defendant and Appellant. Pine Tillett Pine, Norman Pine, Chaya M. Citrin; Alder Law, Michael Alder, Lauri L. Brenner; and Michael H. Silvers for Plaintiff and Respondent.
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