• Nickerson v. Stonebridge Life Ins. Co. (2013) ---Cal.App.4th----
  • November 11, 2013
  • Law Firm: McCormick Barstow Sheppard Wayte Carruth LLP - Fresno Office

    Nickerson sued his insurer for partially denying his claim for hospitalization benefits under a policy (not a health care policy) providing coverage for hospital confinement, intensive care confinement and emergency room visits.  The trial court granted the insured's motion for a directed verdict on his breach of contract claim, and ruled the "Necessary Treatment" policy provision limiting coverage (upon which the partial denial was based) was unenforceable because it was not conspicuous, plain and clear.  The court awarded an additional $31,500 in policy benefits.

    In the punitive damages phase of the trial, the court instructed the jury that the insurer failed to comply with two orders to produce documents.  The jury then found the insurer breached the implied covenant of good faith and fair dealing and awarded $35,000 in compensatory damages for emotional distress and punitive damages of $19 million.  The Second District Court of Appeal affirmed the trial court's remittitur of the punitive damage award from $19 million to $350,000, based on a ratio of punitive to compensatory damages of 10 to 1, holding that such a ratio comports with due process, and the original award did not because it exceeded such a ratio without particular justification.

    The appellate court relied on the rationales and factors articulated in State Farm Mut. Automobile Ins. Co. v. Campbell (2003) 538 U.S. 408 and Simon v. San Paulo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159.  In support of its holding that a 10:1 ratio of punitive to compensatory damages was warranted in this case, the appellate court found, inter alia, that the insurer's obstruction of unfettered communication between the insured's treating physician and the claims reviewer deprived the insured of his legal right to policy proceeds.


    When a punitive damages award exceeds a companion compensatory damages awarded by a ratio significantly greater than 9:1 or 10:1, absent special justification, due process generally requires that it be reduced on remittitur.  Also of note, while the insurer was not a health insurer, the appellate court found such a distinction did not affect its conclusion that the use of a "hidden" policy limitation to deny claims reflected a reprehensible indifference to the health and safety of others, because the insurer's practices still affected insured's hospitalization decisions.


    This opinion is not final. It may be withdrawn from publication, modified upon rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.