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Notrica v. State Compensation Insurance Fund3/17/1999
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In counsel's reply argument, he read a fraud instruction to the jury: "Fraud means an intentional misrepresentation, deceit or concealment of a material fact known to the defendant, with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury ." He then told the jury that although SCIF had "done them all," one was sufficient. Counsel represented that SCIF's Neary had agreed that "violation" of three out of the eleven NAIC categories was a material fact and that this fact had been "concealed." Counsel continued: "They concealed the [reserve] standard from everybody; they all admitted it. They concealed the fact that they denied access to their own claim files to their own insureds, and they concealed the fact that they wouldn't deal with third parties. [ ] They didn't conceal one thing. Minimally, they concealed four things."
Counsel's argument clearly established the nexus between the conduct supporting the award of bad faith and SCIF's concealment of those facts. Since evidence of SCIF's conduct of concealment of the material facts of its claims handling and reserving policies supported both awards, there was no error.
C. Due Process
Relying upon BMW of North America, Inc. v. Gore (1996) 517 U.S. 559, SCIF contends that the jury's punitive damage award, stemming from its findings of breach of the implied covenant and fraud, violated its right of due process, on the asserted ground that it did not receive fair notice of either the conduct that would subject it to punishment or the severity of the penalty that would be imposed. We disagree.
There was substantial evidence that senior management personnel at SCIF, the insurer of last resort, knew it was over-reserving and intentionally misled prospective insureds regarding how the reserve policy would be implemented. In addition, SCIF's claims handling and control of file access served to obfuscate the impact of the new "maximum probable potential cost" reserve guideline. SCIF management and sales personnel understood that the increase in case reserves would lead to increased future premiums for the affected employers, a factor potential insureds would want to consider before purchasing a policy. Notrica's premiums did increase substantially as a result of the implementation of the new guideline. This conscious disregard of Notrica's rights was fair notice that SCIF's conduct could subject it to punitive damages. (J.R. Norton Co. v. General Teamsters, Warehousemen & Helpers Union, supra, 208 Cal.App.3d at p. 444.)
D. Exclusion of Evidence of SCIF's Conduct
SCIF complains that the trial court's exclusion of evidence of its reform efforts requires reversal of the punitive damage award. We review the record.
During the penalty phase, SCIF asked Neary, a member of its executive committee, "Is the executive committee aware of the jury's verdict of yesterday?" Notrica objected that the evidence was irrelevant. The trial court sustained the objection, and SCIF asked for a conference.
In chambers, counsel for SCIF noted that BAJI No. 14.72.2 would instruct the jurors that if they found that punitive damages should be assessed, they must consider a number of factors in arriving at the amount of the award including "to what extent an award is necessary to deter State Fund from engaging in further conduct." He then indicated to the court what he intended to elicit: "So, the line of questioning that I'm getting into -- which will be very brief -- with Mr. Neary has to do with the need for a deterrent type award. And that's why I'm asking about State Fund's awareness of the verdict and what
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