Mazik v. Geico Gen. Ins. Co.

35 Cal.App.5th 455

247 Cal.Rptr.3d 450

Michael MAZIK, Plaintiff and Respondent,

v.GEICO GENERAL INSURANCE COMPANY, Defendant and Appellant.

B281372

Court of Appeal, Second District, Division 2, California.

Filed May 17, 2019

Sheppard, Mullin, Richter & Hampton, John T. Brooks and Karin Dougan Vogel, San Diego, for Defendant and Appellant.

Pine Tillett Pine, Scott Tillett, Norman Pine, Sherman Oaks; Alder Law, Michael Alder, Lauri L. Brenner, Los Angeles; and Michael H. Silvers for Plaintiff and Respondent.

LUI, P. J.

GEICO General Insurance Company (GEICO) appeals from a judgment against it awarding punitive damages to respondent Michael Mazik for GEICO’s bad faith breach of an insurance contract. A jury concluded that GEICO unreasonably delayed paying its policyholder Mazik the policy limits of $ 50,000 on an underinsured motorist policy after Mazik was injured in a serious automobile accident. The jury awarded compensatory damages of $ 313,508 and punitive damages in the amount of $ 4 million. The trial court subsequently reduced the punitive damages to $ 1 million.

GEICO appeals only the punitive damages award. It argues that (1) the evidence is insufficient to show that any "officer, director, or managing agent" was involved in any act of bad faith ( Civ. Code, § 3294, subd. (b) );¹ (2) even if a managing agent was involved, the evidence is insufficient to show that such an agent personally engaged in "oppression, fraud, or malice," or authorized or ratified such conduct by other employees, as required to support a punitive damages award (ibid. ); and (3) the punitive damages award was excessive, even as reduced by the trial court.

We reject GEICO’s arguments and affirm. There is sufficient evidence in the record to show that GEICO’s managing agent ratified conduct warranting punitive damages. In concluding that Mazik’s claim was worth far less than the policy limits, GEICO disregarded information provided by Mazik showing that he had a permanent, painful injury, and instead selectively relied on portions of medical records that supported GEICO’s position that Mazik had fully recovered. As reduced by the trial court, the $ 1 million in punitive damages (approximately three times the amount of compensatory damages) is within the constitutionally permitted range in view of the degree of reprehensibility of GEICO’s conduct.

BACKGROUND

1. Mazik’s Accident and Treatment

On August 11, 2008, Mazik was involved in a serious automobile accident on a highway in Riverside County. While driving about 45 to 50 miles per hour, he collided head-on with another car that was in his lane driving about the same speed. The other driver, who had crossed over double yellow lines in his attempt to pass slower traffic, was killed.

Mazik received initial treatment at the Riverside County Regional Medical Center. Along with lacerations and abrasions, he was diagnosed with a "[g]rossly comminuted fracture of the left calcaneus," i.e., heel bone.

Mazik sought subsequent treatment at the Idyllwild Health Center and from Dr. Barry Grames with the San Bernardino Medical Orthopedics Group. He also received physical therapy.

Dr. Grames confirmed the diagnosis of a severely comminuted fracture to the left calcaneus. Dr. Grames treated the fracture as "nonoperative" due to the "severe soft tissue swelling and severe comminution" of the fracture. In early December 2008, nearly eight months after the accident, Dr. Grames concluded that Mazik "may have chronic pain and discomfort and may require a subtalar fusion." Dr. Grames saw Mazik periodically from August 20, 2008, through June 30, 2009.

Dr. Grames’s final report stated that Mazik "is overall doing quite well." However, he also reported that Mazik still had pain of "3–4 on a pain scale of 1 to 10," and had "very limited range of motion of the hind foot and subtalar joint." With respect to work status, Mazik was still "temporarily totally disabled." Dr. Grames concluded that, if Mazik has "increasing pain or discomfort, he may be a candidate for a subtalar joint effusion in the future."

Mazik again sought medical treatment in January 2012 from Dr. Bobby Yee. The treatment was prompted by "problems walking and working due to the pain" in his left heel. Dr. Yee reported that Mazik had a severely restricted range of motion and arthritis in his ankle.

2. Mazik’s Injuries

Mazik’s medical expert at trial, Dr. Jacob Tauber, described the injury to Mazik’s heel as "devastating." He explained that the "reason it hurts so much, is you not only have the deformity of the bone, but you’ve destroyed the joint between the ankle bone, the talus, and the heel bone, the calcaneus." Dr. Tauber testified that he had reviewed X-rays and CAT scan records of Mazik’s injury, and they showed that Mazik’s bone had "literally exploded." He testified that the severe nature of Mazik’s injury was apparent from his doctors’ diagnoses "right from the beginning." He explained that the diagnosis of a "comminuted" fracture was a "fancy orthopedic word for many pieces."

Dr. Tauber further explained that surgery was not a good option for Mazik because Mazik’s bone had "burst into too many pieces." The best option was the treatment that Mazik had received, which was to splint him until the fracture healed in "whatever deformed state" and consider a fusion in the future if "you can’t take the pain." He testified it was his opinion that Mazik would "have a lifetime of chronic pain and issues related to" his heel injury.

3. Mazik’s Demand

Mazik received $ 50,000 from Mercury Insurance Company (Mercury), the insurer for the driver of the other car who was at fault in the accident. That sum amounted to the full value of the driver’s policy.

On December 31, 2009, Mazik’s attorney submitted a claim to GEICO under Mazik’s underinsured motorist policy, which had a policy limit of $ 100,000. The letter included medical records of Mazik’s treatment to date along with other supporting documentation. In light of the "severity of the damages" and the residual effects of the injuries, the letter requested compensation of $ 50,000, representing the full policy amount offset by the $ 50,000 payment Mazik had already received.

4. GEICO’s Response

After receiving Mazik’s December 31, 2009 demand, a GEICO claims adjuster prepared a written "Claim Evaluation Summary" (Evaluation). The Evaluation summarized the medical records included with Mazik’s demand and assessed values for medical expenses, lost income, and "pain and suffering." It calculated a "negotiation range" for the full value of the claim (including the $ 50,000 that Mercury had already paid) from $ 47,047.86 to $ 52,597.86. As discussed further below, Richard Burton, a GEICO claims adjuster who later worked on Mazik’s file, testified at trial that the summary of the medical reports in the Evaluation omitted important information from the medical records that Mazik had provided.

After preparing the Evaluation, the adjuster obtained approval from GEICO’s regional liability administrator, Lon Grothen, to reject Mazik’s $ 50,000 claim. Accordingly, on January 22, 2010, GEICO offered Mazik a settlement of $ 1,000.

In September 2010, after a new claims adjuster began to work on the file but without receiving any additional information, GEICO increased its settlement offer to $ 13,800. Four months later, on January 22, 2011, GEICO increased its offer to $ 18,000. A note from Grothen approving the offer stated that he had "Increased The General Damage Range To Increase The Possibility of Settlement."

GEICO requested an independent medical evaluation of Mazik, which occurred on May 23, 2011. The examiner, Dr. Don Williams, summarized Mazik’s prior medical records and then stated his brief conclusions. Dr. Williams reported that Mazik was "doing well two years after" the accident, and there was "no indication that he needs surgery." He concluded that Mazik’s injury "does not restrict his occupation as a teacher" and that "[n]o further medical care is indicated." He opined that Mazik’s "prognosis is good."

On February 16, 2012, GEICO served a statutory offer to compromise Mazik’s claim for $ 18,887. Mazik rejected the offer and reasserted his demand for the policy limits.

GEICO did not make any additional settlement offers. Grothen explained that GEICO declined to do so, even though he had authorized payment of more money, because "there was no negotiation from the other side. So they never came off their policy limit. We call that throwing good money after bad. If we can’t get them to negotiate, he would have been—it’s bidding against yourself."

On August 31, 2012, even after GEICO had received copies of Dr. Yee’s treatment records reporting continuing medical issues three years after the accident, Grothen gave his "Ok To Move This Toward Arbitration. I Do Not See This As A Policy Limits Case."

5. The Arbitration

The arbitration took place in April 2013. The arbitrator issued an award for the full policy limits, and GEICO provided Mazik with a check for $ 50,000 in June 2013, 30 months after the jury in this case concluded that GEICO should have paid the policy limits.

6. Mazik’s Bad Faith Action

Mazik filed this action for bad faith against GEICO on May 7, 2014. The case was tried to a jury in July 2016. The jury returned a verdict in favor of Mazik and awarded compensatory damages of $ 313,508. The compensatory damages consisted of $ 300,000 for "[m]ental suffering, anxiety, and emotional distress" and $ 13,508 for "attorney’s fees and costs to recover the insured policy benefits."

The jury also awarded punitive damages of $ 4 million. Following a motion for a new trial, the trial court found that the punitive damages award was excessive in light of the ratio of punitive to compensatory damages and the fact that Mazik’s claim "relates to financial damages" rather than personal injury. The court reduced the amount of punitive damages to $ 1 million.

DISCUSSION

1. Standard of Review

A. Oppression, fraud, or malice

Punitive...