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Surgin Surgical Instrumentation Inc. v. Truck Insurance Exchange6/23/1998
CERTIFIED FOR PUBLICATION
(Super. Ct. No. 662216)
Appeal from a judgment of the Superior Court of Orange County, C. Robert Jameson, Judge. Reversed.
Introduction
Surgin Surgical Instrumentation, Inc. (Surgin) purchased comprehensive general liability (CGL) insurance, which included coverage for advertising injury, from Truck Insurance Exchange (Truck). Thereafter, Surgin became embroiled in a lawsuit with Alcon Surgical, Inc. (Alcon), one of its competitors. Surgin promptly notified Truck of the litigation and requested a defense. For months, Truck refused to either confirm or deny coverage. Close to a year after the initial tender of defense, Truck issued a reservation of rights letter in which it agreed to conditionally provide Surgin a defense. Despite such agreement, however, Truck refused to do so. Unable for financial reasons to continue its defense, Surgin settled the lawsuit on unfavorable terms.
Surgin then sued Truck for breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty and quantum meruit, and sought both compensatory and punitive damages. During the course of the lawsuit, Truck engaged in willful discovery misconduct by steadfastly refusing to turn over documents, despite court orders. At Surgin's request, the court ultimately imposed a terminating sanction, striking Truck's answer. Truck's default was entered and a prove-up hearing held in which Surgin presented evidence to support its claim for compensatory as well as punitive damages. With respect to the former, Surgin offered evidence it had expended approximately $270,000 defending the initial lawsuit by its competitor and over $300,000 in attorney fees in this action in an attempt to obtain its policy benefits.
As to the latter, Surgin offered evidence of a pattern and practice of bad faith by Truck in dealing with its other insureds. Finding Truck guilty of "despicable, vile, malicious, fraudulent, oppressive conduct," the court awarded Surgin $57,214,379 in punitive damages, 100 times the amount awarded in compensatory damages. Truck appeals, contending, among other things, Surgin's failure to provide notice of the amount it was seeking in punitive damages prior to obtaining its default mandates reversal. We agree.
Background
Surgin develops and manufactures medical devices, one of which broke a monopoly enjoyed by its competitor, Alcon. In April 1989, Surgin filed suit against Alcon for defamation and Alcon cross-complained for false advertising and unfair competition. Shortly thereafter, Alcon filed two lawsuits against Surgin for patent infringement.
Surgin notified Truck of the Alcon lawsuits and requested a defense. When three months went by without a response, Surgin contacted Truck again and was referred to one of its employees, Howard Hirsch. Hirsch promised a prompt response, but none came.
In March 1990, Surgin's defense counsel, Frisenda, Morris & Nicholson (Frisenda) contacted Truck, again requesting a defense. Truck promised a decision by mid-May. Later that month, having heard nothing from Truck, Surgin sent another letter requesting Truck provide a defense and emphasizing that it was not financially capable of conducting a defense without Truck's assistance. Truck sent a letter to Frisenda indicating the investigation was in its early stages and Truck had not yet reached a decision; however, it requested that Frisenda continue to represent Surgin pending its decision, with the promise it would reimburse Frisenda for fees and costs if it ultimately decided there was coverage.
In June, Surgin again requested a decision from Truc
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