Appellate Reports

Nickerson v. Stonebridge Ins. Co. — Affirms a punitive-damage award that is 10 times the amount of compensatory damages; holds that insurer’s claims handling was highly reprehensible

Jeffrey I. Ehrlich
2016 December

Nickerson v. Stonebridge Ins. Co.

(2016) _ Cal.App.5th _ (2d Dist., Div. 3.)

Who needs to know about this case? Lawyers litigating punitive-damage cases, particularly in insurance bad-faith cases.

Why it’s important: Affirms a punitive-damage award that is 10 times the amount of compensatory damages; holds that insurer’s claims handling was highly reprehensible.

Synopsis: Nickerson, a paraplegic, purchased a hospital-confinement policy from Stonebridge, which promised benefits of $350 per day for each day of confinement in a hospital for a covered injury. The policy included in its definitions section a “necessary treatment” provision that operated to limit the policy’s coverage to care that was provided in “the most economical and medically appropriate site for treatment.” Nickerson was a retired U.S. Marine, and eligible for free medical care in Veteran’s Administration hospitals. On February 11, 2008, Nickerson fell out of his wheelchair and suffered a comminuted displaced fracture of his right tibia and fibula (meaning that the leg was broken, splintered, and out of place.) He was taken to the emergency room of the VA Hospital in Long Beach, and then transferred to that hospital’s spinal-cord unit, which was equipped to treat paraplegics. Nickerson developed complications from the injury, and was confined to a hospital bed until February 29, 2008. Thereafter he was allowed to use a wheelchair, but could only tolerate limited time in it. He was ultimately discharged on May 30, 2008. In all, he spent 109 days in the hospital.

When he submitted his claim to Stonebridge, it ultimately submitted his claim to a private peer-review organization, asking it to determine, inter alia, whether the treatment was provided in the most economical and medically appropriate site. Stonebridge did not check the box on its assignment form that authorized the peer reviewer to contact Nickerson’s treating physician. The peer-review report concluded that Nickerson could have been transferred out of the hospital “to a more economical and medically appropriate facility” by February 29, 2008. Stonebridge therefore only paid Nickerson for the period between February 11 and February 29. Nickerson appealed, and had his physician write to Stonebridge, explaining the reasons why the entire hospital stay was necessary. Stonebridge never showed the letter to the peer reviewer, and denied the appeal, finding that his confinement in an acute-care setting was not the most economical and medically appropriate setting after March 1, 2008.

Nickerson sued. The trial court directed a verdict in his favor on breach of contract, finding that the “necessary treatment” provision in the policy was functionally an exclusion that was not clear and conspicuous. The jury awarded Nickerson $35,000 in emotional-distress damages, and imposed punitive damages of $19 million. The trial court reduced the punitive award to $350,000, ten times the compensatory damage award on the bad-faith claim. In a prior decision, the Supreme Court held that the $12,500 Brandt-fee award should be included in the punitive award. The Court of Appeal affirmed, but increased the punitive-damage award to $475,000 (ten times the emotional-distress award added to the Brandt fees.)

The Court held that Stonebridge’s behavior was highly reprehensible — satisfying four of the five reprehensibility subfactors prescribed by the U.S. Supreme Court. Specifically, the Court held that the harm evinced a reckless indifference to Nickerson’s health; that Nickerson was financially vulnerable; that the conduct was not an isolated incident because Stonebridge used its unenforceable “necessary care” provision to deny the claims of many insureds; and that the conduct evidenced trickery or deceit by Stonebridge.

Short(er) takes:

Excessive damages; appellate review Bigler-Engler v. Breg, Inc. (2016) _ Cal.App.5th _ (4th Dist., Div. 1)

In 2003, Whitney Engler, then a high-school athlete, suffered a knee injury and consulted Dr. David Chao, an orthopedic surgeon. Chao performed arthroscopic surgery and recommended that Engler use a Polar Care device after surgery. The device is available only by prescription, and treats the affected area with cold water circulated through a pad over the injury. Chao’s medical group rented the device to Engler. She used the device as directed and developed necrotic tissue on her knee. She required outpatient surgery to remove the dead tissue, leaving a large open wound that took nine procedures to close. These procedures were very painful. When the wound healed it left a 4-inch by 3-inch scar over her knee. She later had two scar-reduction surgeries, which by trial in 2012 left her with a “modest but noticeable scar across the top portion of her knee.” The area around the scar was painful to the touch. Engler was left with some functional limitations – including weakness and pain while kneeling. She could no longer ride horses competitively, had difficulty with some dance styles, and had trouble riding her bicycle accompanied by her leashed dog.

The jury awarded her $3 million for past non-economic damages and $2,127,950 for future non-economic damages, (totaling $5,127,950.) The Court of Appeal reversed this as excessive and remitted the award to $650,000 for past and $650,000 for future non-economic damages. The court held that in the nine years between Engler’s last medical procedure and the trial, her medical condition had improved steadily and dramatically. By the time of trial, her pain was at a low level, intermittent, and confined to the area around her scar. Her daily activities had returned to normal except for minor physical limitations, her scar was small and far less noticeable, and her anxiety and stress had substantially improved. On the record before it, the jury’s $5.1 million award was excessive, and appears to have been the result of misconduct by her counsel, which improperly influenced and inflamed the jury.

Legal malpractice; statute of limitations: GoTek Energy, Inc. v. SoCal IP Law Group, LLC (2016) _ Cal.App.5th _ (2d Dist., Div. 6)

SoCal IP Law Group (“SoCal”) was GoTek’s patent counsel. SoCal informed GoTek that it had failed to timely file patent applications for GoTek. Upon learning that GoTek planned to file
a malpractice action against it, on November 7, 2012, SoCal sent GoTek an email stating that it was withdrawing as its counsel, and that it no longer represented GoTek. On November 8, GoTek asked SoCal to transfer its file to another lawyer. The files were transferred to the new lawyer on November 15, 2012. GoTek filed its legal-malpractice action against SoCal on November 14, 2013. The trial court granted SoCal’s motion for summary judgment for failure to file the action within the one-year statute of limitations for legal malpractice, Civil Code § 340.6. Affirmed.

The court held that SoCal’s representation of GoTek ended by November 8, 2012 – the date that GoTek asked SoCal to transfer its file to new counsel. This request demonstrated that GoTek had agreed to SoCal’s withdrawal as its counsel as of November 7, 2012. The date that the files were transferred did not define when SoCal stopped representing GoTek. Since GoTek’s action was filed more than one year after it was aware of its claim, and there was no tolling for “continuous representation” past November 8, 2012, GoTek’s action was not timely filed.

Health clubs; gross negligence: Anderson v. Fitness International, California (2016) _ Cal.App.5th _ (2d Dist., Div. 7.)

Kirk Anderson joined an L.A. Fitness health club in Glendale in 2011. Upon joining he signed the club’s member agreement, which contained a waiver of liability and release. In September 2012, Anderson slipped in the club’s shower, breaking his arm. He sued LA Fitness in 2013, alleging that it negligently and recklessly maintained a shower room that was slippery because of residue from soap, conditioner, and body oils, and that its tile floor, which sloped toward the two drains in the center of the floor, lacked any mats, friction strips, hand rails, or warning signs. He alleged that he had fallen in the same shower at least twice, and had previously informed L.A. Fitness’s employees at the front desk of the club that the shower was dangerous. The trial court granted L.A. Fitness’s motion for summary judgment, finding that the release in the member agreement barred any negligence claims, and that Anderson had failed to show gross negligence. Affirmed.

Anderson failed to produce any evidence that showed that the condition of the shower floor at the time he fell was “an extreme departure from conditions one would expect in a health-club shower facility.” Nor, given his claim that he had previously fallen in the same shower, could he claim that the risk was unknown to him. He failed to show that L.A. Fitness engaged in any activity that increased the risk inherent in its shower facility, or that it had concealed a known dangerous condition. At most, it showed that L.A. Fitness was negligent. In addition, he failed to show that after he notified the employees at the front desk, that his complaints were ignored. Rather, all he alleged is that he gave the notice and that he did not notice any changes. Since he failed to produce any evidence that would allow a fact finder to determine that the condition of the shower represented an extreme departure from the standard of care, he could not raise a triable issue of fact on gross negligence.

General contractor’s liability to subcontractor’s employees; Privette; retained control; non-delegable duty: Khosh v. Staples Construction Co. (2016) _ Cal.App.5th _ (2d Dist., Div. 6.)

Privette v. Superior Court (1993) 5 Cal.4th 689, holds that an employee of an independent contractor generally may not recover tort damages for work-related damages from the contractor’s hirer. (In the typical scenario, this means that an employee of a subcontractor cannot proceed in tort against the general contractor for injuries suffered on the job.) There are exceptions to this rule, but the court determined that they did not apply here. California State University Channel Islands hired Staples Construction to install a backup electrical system at the campus. Staples hired DK as the high-voltage subcontractor. DK hired Myers to install the switchgear for the system. Khosh worked for Meyers. Khosh was injured while performing work on the system while it was still energized, two hours before it was scheduled to be shut down for the job. In his complaint against Staples, Khosh alleged that Privette did not bar his claims because (a) Staples retained control over the work and affirmatively contributed to his injuries, and (b) Staples violated nondelegable regulatory duties by failing to have a qualified electrical worker present to supervise the work, and by failing to have a written procedure for the electrical shutdown. The trial court granted summary judgment for Staples. Affirmed.

Khosh presented competent evidence that Staples retained control over project safety. Its contract with the University required Staples to “keep all phases of the work under its control,” including compliance with safety laws and regulations. It also required Staples to implement a job-safety program and install safety devices on equipment. The contract required Staples to be “exclusively responsible” for the health and safety of subcontractors, and to “exercise precaution at all times for the protection of persons and their property” and to comply with all safety rules.

But in order to prevail on a retained-control theory, the employee must also show that the hirer made an “affirmative contribution” to the plaintiff’s injury. Here, Khosh was unable to make that showing. His allegations of Staples’ omissions – the failure to provide a written plan for the power shutdown, or to have a superintendent onsite, were not sufficient. Staples did not directly participate in the construction activities. It did not assist in building the electrical substation or its component parts. Nor did it represent that all steps of the construction had passed inspection before Khosh began his work. Staples’ contract with the University imposed only a general duty to prevent accidents, as opposed to specific measures that Staples was required to undertake in response to an identified safety concern.

As for nondelegable duty, the court held that the regulations that Khosh relied on did not create nondelegable duties. And even if they did, he would still be required to show that the breach of the duty made an affirmative contribution to his injury. The absence of a work plan or a supervisor did not affirmatively contribute to Khosh’s injuries. 

Jeffrey I. Ehrlich Jeffrey I. Ehrlich

Jeffrey I. Ehrlich is the principal of the Ehrlich Law Firm in Claremont. He is a cum laude graduate of the Harvard Law School, an appellate specialist certified by the California Board of Legal Specialization, and an emeritus member of the CAALA Board of Governors. He is the editor-in-chief of Advocate magazine, a two-time recipient of the CAALA Appellate Attorney of the Year award, and in 2019 received CAOC’s Streetfighter of the Year award.  He is also the chair of the California Academy of Appellate Lawyers’ Task Force on Generative AI and the Law.

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