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Notrica v. State Compensation Insurance Fund3/17/1999
CERTIFIED FOR PUBLICATION
APPEAL from a judgment of the Superior Court of Los Angeles County, James E. Satt, Judge. Affirmed in part and conditionally reversed in part.
INTRODUCTION
Joe Notrica, doing business as Notrica's 32nd Street Market (Notrica), sued his workers' compensation insurer, State Compensation Insurance Fund (SCIF, sometimes State Fund or Fund), to recover in tort and for unfair business practices, based on allegations relating to SCIF's case reserve and claims handling policies and practices. In a bifurcated proceeding, the jury awarded Notrica $478,606 in compensatory damages and $20 million in punitive damages; the trial court enjoined SCIF from various business practices and awarded $333,319.65 in attorneys' fees. SCIF appeals from the judgment. We conclude that the punitive damages award must be reduced to $5 million and otherwise affirm.
PROCEDURAL BACKGROUND
In its complaint against SCIF, Notrica asserted two causes of action here pertinent: tortious breach of the implied covenant of good faith and fair dealing, to be determined by the jury; and unfair, unlawful, or fraudulent business practices (Bus. & Prof. Code, § 17200), to be determined by the trial court.
The implied covenant cause of action alleged the following pertinent facts.
SCIF is the state's largest workers' compensation carrier, created in 1914 as a public enterprise fund and subject to the jurisdiction and control of the state insurance commissioner. SCIF has issued policies to more than 250,000 California employers and has held itself out to the public as the most experienced carrier in California. SCIF, required by Insurance Code section 11775 to be neither more nor less than self-supporting, owns or controls assets exceeding $2.5 billion and "enjoyed a net investment gain on investment income of over $370 Million for the year ending December 31, 1989. Premiums earned for that year exceed $1.8 Billion." SCIF conducts its business in the same manner as a private carrier, can and does compete with private carriers, and is subject to the same standard of liability. SCIF may be sued in all actions arising out of any act or omission in connection with its business affairs, whether in tort or contract, pursuant to Insurance Code section 11783.
SCIF issued a workers' compensation policy (Policy) to Notrica for the period June 1988 through June 1989 which obligated it to investigate, defend, and settle claims reasonably and to estimate reasonable claim reserve levels. SCIF failed to meet these obligations, resulting in its breach of the implied duty of good faith and fair dealing. SCIF breached this duty for the purposes of either receiving higher premiums or paying less dividends, and increasing its revenues and surpluses while impairing Notrica's financial interests. As a proximate result, Notrica paid higher premiums to workers' compensation carriers, failed to receive sufficient dividends, and was forced to hire professionals to assist it in reviewing SCIF's conduct and to prosecute this action.
SCIF's conduct had been intentional and constituted fraud, oppression, or malice, justifying imposition of punitive damages under Civil Code section 3294.
Under the unfair competition cause of action (Bus. & Prof. Code § 17200, et seq.), which requested restitution, punitive damages, and injunctive relief, Notrica included the following additional allegations. SCIF failed to disclose certain internal policies in order to induce Notrica to enter into the Policy agreement. Notrica reasonably relied upon the inducements and incurred damages as a result. SCIF intentionally, wrongfully and with f
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