June 15, 2011

L.A. trial court reduces punitive damages award against Stonebridge insurance from $19 million to $350,000

Earlier this year we reported on an insurance bad faith case against Stonebridge Life Insurance in which a Los Angeles jury verdict awarded $35,000 in compensatory damages and $19 million in punitive damages. The plaintiff, who purchased a hospital accidental indemnity policy from Stonebridge, claimed that Stonebridge unreasonably refused to pay for a lengthy hospital stay, agreeing to pay only for 19 days out of a 109-day stay.

The defendant brought posttrial motions seeking a reduction of the punitive damages award. The trial court’s order (see discussion beginning on page 13) reluctantly concludes that any award in excess of $350,000 (10-to-1 ratio) would violate the federal Due Process Clause. Interestingly, the order written by Judge Mary Ann Murphy states that an award of $350,000 is unlikely to deter Stonebridge from engaging in similar misconduct in the future, but “the Court is constrained to reduce the punitive damages award to 10:1 based on recent California and federal authority.”

The plaintiff will probably appeal, arguing that the 10-to-1 ratio is too low and relying on the statement in State Farm v. Campbell that higher ratios are appropriate when “a particularly egregious act has resulted in only a small amount of economic damages.” The defendant is likely to respond that the conduct at issue here is not so egregious as to warrant even a 10-to-1 ratio (if it warrants punitive damages at all).

The Daily Journal has coverage of this story here. (Subscription required).

Related post:

L.A. jury awards $19 million in punitive damages and $35,000 in compensatory damages in insurance bad faith case