Last month, a California appellate court rejected an insurer's arguments and affirmed a large punitive damages award against the insurer, providing a fresh roadmap for policyholders to obtain such relief when insurers engage in certain bad-faith practices.
Mazik v. GEICO General Insurance Company (2019) 35 Cal.App.5th 455 involved a policyholder's claim for the $50,000 limits under his underinsured motorist policy. After a jury found that GEICO had unreasonably delayed paying those limits, it awarded the policyholder $313,508 in compensatory damages and $4 million in punitive damages. The trial court reduced the punitive damages to $1 million, but GEICO appealed, arguing that: (1) the evidence was insufficient to prove that "any officer, director or managing agent" of GEICO had acted in bad faith, (2) the conduct did not constitute "oppression, fraud, or malice", and (3) even the reduced punitive damages award was excessive.
The appellate court ruled that the evidence supported a finding that GEICO's regional liability administrator who helped handle the file was a "managing agent" because he had wide regional authority over the settlement of claims.
The court also determined that GEICO purposefully ignored medical information that supported the policyholder's claim and "cherry-picked" facts to support low settlement offers for over two years. Based on these facts, and the finding that GEICO's "managing agent" ratified this approach, the court found that GEICO engaged in "oppressive" conduct.
In evaluating whether the punitive damages award was excessive, the court examined certain "reprehensibility factors" to determine the constitutionality of the award. It found that the $1 million award was not excessive based on: (1) the policyholder's financial vulnerability, (2) GEICO's repeated "oppressive conduct" in handling the claim itself, (3) evidentiary support for GEICO's conduct being "intentional", and (4) the approximately 3-to-1 ratio between the punitive and compensatory damages being supported by the "reprehensibility" of GEICO's bad-faith conduct.
Mazik is a good reminder that where a policyholder is entitled to compensatory damages and the insurer has engaged in bad-faith claim handling, the policyholder may also be entitled to substantial punitive damages.
Miles C. Holden is a partner at Hanson Bridgett LLP and chairperson of the firm's Insurance Recovery practice group.
Kayla D. Bowen is a summer associate at Hanson Bridgett LLP and a law student at UC Hastings.