January 17, 2014

California Supreme Court limits issues for review in Nickerson v. Stonebridge

Last month we reported on the California Supreme Court's grant of review in Nickerson v. Stonebridge Life Insurance.  The plaintiff's petition in that case raised three issues, and the Supreme Court granted review without limiting the issues, meaning that all three issues were in play. 

This week, however, the court has issued an order taking two of the three issues off the table, and limiting review to the second issue raised in the petition:

Is an award of attorney fees under Brandt v. Superior Court (1985) 37 Cal.3d 813 properly included as compensatory damages where the fees are awarded by the jury, but excluded from compensatory damages when they are awarded by the trial court after the jury has rendered its verdict? (Cal. Rules of Court, rule 8.516(a)(1).)
That means the court will not be considering these two other issues raised by the petition:
1. In calculating the 10:1 ratio between punitive and compensatory damages, the Court of Appeal held that the policy proceeds must be excluded. Two other published California decisions follow this approach; and one published opinion rejects it. Does due process require that the policy proceeds be excluded from the compensatory damages used to compute the ratio between punitive and compensatory damages?
3. Both the trial court and the Court of Appeal stated that the $350,000 punitive-damage award in this case was too low to deter Stonebridge from engaging in the same misconduct. Yet both courts felt “constrained” by due process to award no more than 10 times the compensatory award. If the courts determine that punitive damages reduced on the basis of a 10:1 ratio to compensatory damages will not deter a defendant from repeating its misconduct, can they permit substantially higher ratios without offending due process?
By taking issue #3 off the table, the Supreme Court has narrowed the potential impact of this case considerably.  The Supreme Court's decision on that issue would have affected all punitive damages cases, but now the decision will be limited to an issue that arises only in the context of insurance bad faith.