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Notrica v. State Compensation Insurance Fund3/17/1999
raud, oppression, or malice, refused to deal directly with Commercial Benefits, Notrica's authorized representative for workers' compensation insurance concerns, thereby interfering with the contractual relationship between Notrica and Commercial Benefits. SCIF represented that denials of reviews of claims files was to protect the privacy interests of individuals; however, its motives were to perpetrate a fraud upon Notrica and other insureds, to destroy the third-party risk manager industry, to compete unfairly with private insurers, to inhibit or prevent discovery of SCIF's fraudulent and negligent conduct, to gain and maintain an unfair advantage over its insureds and the industry, to enable it to collect exorbitant premium payments, all of which acts constitute dishonest, deceptive, oppressive, fraudulent, unfair, and destructive conduct. SCIF's interference resulted in Notrica over-paying premiums.
The jury rendered several findings by special verdict. It found by a preponderance of the evidence that SCIF had breached the duty of good faith and fair dealing and that such breach had resulted in Notrica suffering damages totaling $478,606. The jury found by clear and convincing evidence that SCIF had acted with fraud, awarding $20 million in punitive damages.
The trial court, sitting in equity, found SCIF had engaged in unfair business practices (Bus. & Prof. Code, § 17200). It issued an injunction requiring SCIF to delete the term "maximum probable potential" from its claims estimating manual and to return to a previous standard. It further enjoined SCIF from denying insureds access to claim files as relevant to the employer's premium, from refusing to communicate with an insured's authorized representative, and from refusing to allow such representative to conduct an appropriate claim file review (Lab. Code, § 3762).
The trial court found that Notrica was the prevailing party on its cause of action for breach of the implied covenant of good faith and fair dealing, and on that ground it awarded costs and reserved jurisdiction to determine entitlement to reasonable attorneys fees. At a post-judgment hearing, the trial court awarded some $300,000 in attorney fees.
SCIF asserts the following contentions on appeal:
I. An insured employer should be prohibited from recovering tort damages where the only damage claimed is the impact on future premiums.
II. The bad faith judgment must be reversed because it is not supported by SCIF's reserving practices, claims handling, or claims review policies, including those governing its relationship to the insured's agents.
III. The compensatory damage award must be reversed for new trial.
IV. The injunction is not supported by the law or the facts.
V. The punitive damage award must be reversed and any new trial on this issue requires retrial of all issues.
VI. The award of attorney fees should be reversed or at least limited.
DISCUSSION
I. Basis for Tort Damages
The "particular risk presented by the insured's experience or insurance history" is one of the factors that an insurer is permitted to consider in setting premiums for its insureds. (P. W. Stephens, Inc. v. State Compensation Ins. Fund (1994) 21 Cal.App.4th 1833, 1836.) In the instant case, SCIF employed what it termed the "maximum probable potential" standard to workers' compensation claims against Notrica when setting aside amounts as reserves for Notrica cases. "The `maximum probable potential' standard means that the adjuster reserves for the absolute most SCIF may have to pay without any exercise of discretion or judgment as to the re
Page 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 California Personal Injury Attorneys
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