Money Can Buy Happiness: Arguing Damages Is Critical to Avoiding Excessive Damage Awards

Author: David Kahn

Why does Tyson & Mendes emphasize the importance of aggressively arguing damages as part of its defense strategy?  The answer is illustrated by the recent California Supreme Court decision Nickerson v. Stonebridge Life Insurance Company (2016) 203 Cal. Rptr. 3d 23, WL 3192499 where the trial court reduced a $19 million punitive damage award to $350,000.

California Supreme Court Case Analyzes Jury Award in Insurance Bad Faith Case

In the Nickerson case, the issue was whether attorney fees awarded as compensation for an insurer’s bad faith should be factored into the trial court’s post-verdict review of a jury’s punitive damage award.  Plaintiff Thomas Nickerson, a veteran, was awarded $31,500 in unpaid policy benefits, $35,000 in compensatory damages for emotional distress and $19 million in punitive damages on his bad faith claim against Stonebridge, whose denial of coverage for much of his hospital stay for a broken leg was deemed fraudulent by the jury.  Mr. Nickerson was also awarded $12,500 in attorney fees (known as Brandt fees from the earlier California Supreme Court decision, Brandt v. Superior Court (1985) 37 Cal.3d 813) which are awarded as an element of damages in a bad faith claim for costs incurred to compel payment of wrongfully denied benefits.  Brandt attorney fees are determined either by the jury or by the court after trial if the parties agree.

Mr. Nickerson served in the U.S. Marines and was entitled to medical care at Veterans Administration hospitals at no cost.  Following a snowmobile accident in 1997, Mr. Nickerson was paralyzed from the chest down and relied on a wheelchair.  On February 11, 2008, Mr. Nickerson sustained a broken leg when he accidentally hit the control of his wheelchair while being lowered out of his van which resulted in an extended hospital stay.  Mr. Nickerson was single and worked as a live-in care taker for other veterans in exchange for free rent and his only income was a small military pension.

The Stonebridge policy was not for health care but instead paid $350 per day directly to Mr. Nickerson for each day of confinement to a hospital for a covered injury.  Mr. Nickerson was free to use the benefit as he wished.  The dispute arose of out of Stonebridge’s partial denial of coverage for an extended hospital stay recommended by Mr. Nickerson’s treating physician.  Stonebridge based its denial of coverage on what the jury ultimately determined was a hidden “necessary treatment” provision, a breach of the implied covenant of good faith and fair dealing, and a fraudulent act warranting punitive damages.

Trial Court Reduces Punitive Damage Award

During the punitive damages phase of trial, the court instructed the jury Stonebridge failed to comply with two orders to produce internal claim denial forms.  Plaintiff introduced two exhibits:  one showing Stonebridge had a net worth of $368 million and a second which was a binder of other claims Stonebridge had similarly denied.  Based on this evidence, the jury awarded punitive damages in the sum of $19 million.

Arguing the punitive damage award was excessive, Stonebridge moved for a new trial.  In ruling on the motion, the trial court performed the constitutional analysis for evaluating punitive damage awards and reduced the award to $350,000 using a 10:1 ratio based on compensatory damages of $35,000 awarded by the jury for emotional distress.  In explaining its reduction, the court stated it “may be unlikely that a punitive damage award reduced to a 10 to one ratio will deter Stonebridge from engaging in similar tortious conduct in the future” but felt “constrained to reduce the punitive damage award to 10:1 based on recent California and federal authority.”  Nickerson v. Stonebridge Life Insurance Company (2013) 161 Cal. Rptr. 3d 629, 638; See State Farm v. Campbell (2003) 538 U.S. 408; Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal. 4th 1159.  The trial court did not include the $12,500 in attorney fees in computing the revised punitive damage award.

Court of Appeal Affirms Reduction of Punitive Damages Award

The reduction was upheld by the Court of Appeal.  See Nickerson v. Stonebridge Life Insurance Company (2013) 161 Cal. Rptr. 3d 629.  In analyzing whether the award violated the due process clause of the Fourteenth Amendment, the Court of Appeal explained the amount of punitive damages offends due process “only if the award is ‘grossly excessive’ in relation to the state’s legitimate interest in punishment and deterrence.”  Id. at 640 [citation omitted].  The court examined in detail the three “guideposts” for determining the constitutional limit for punitive damage awards: (1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the award; and (3) the difference between the award and civil penalties issued in comparable cases.  Ibid.  The key factor is the reprehensibility of defendant’s conduct which is analyzed using five factors: (1) the harm caused was physical as opposed to economic; (2) the conduct was indifferent to or in reckless disregard of the health and safety of others; (3) the target of the conduct was financially vulnerable; (4) whether the conduct was repetitive or an isolated instance; (5) and whether the conduct involved malice, trickery or deceit or was mere accident.  Ibid.

The Court of Appeal found four of the five aggravating reprehensibility factors present justifying an award of punitive damages at the constitutional limit considering Stonebridge’s net worth of $368 million.  Id. at 650.  The Court of Appeal also upheld the trial court’s exclusion of attorney fees from the punitive damage award calculation.

California Supreme Court Affirms Reduction of Punitive Damages Award

On appeal to the California Supreme Court, Mr. Nickerson argued attorney fees were part of economic damages in a bad faith claim and should be part of the court’s post-verdict punitive damages calculus.  Stonebridge argued because Brandt attorney fees are awarded post-verdict and not based on evidence presented to the jury during trial it would violate due process for the court to include Brandt attorney fees in the punitive damages calculation.

In analyzing the issue, the Supreme Court concluded when a court evaluates the propriety of a jury’s punitive damage award, it may consider facts outside of what was considered by the jury including Brandt attorney fees which the parties agreed to submit to the court rather than the jury for determination.  Nickerson v. Stonebridge Life Insurance Company, 2016 WL 3192499 at p. 7.  The Supreme Court reasoned when a court is reviewing a post-verdict damage award for constitutional excessiveness its purpose is not simply to “suss out jury irrationality by limiting review to matters presented to, and considered, by the jury.”  Ibid.   Rather, the court’s role is to make an “independent determination whether the amount of the award exceeds the state’s power to punish.” Ibid.  Ultimately, the Supreme Court disagreed with the Court of Appeal and held Brandt attorney fees could be included with compensatory damages when the trial court computes a reduction in a punitive damage award to comport with due process limitations and remanded the case to the Court of Appeal for further proceedings consistent with its opinion.

Nickerson Affirms Why Defense Must Argue Damages at Trial In Order to Avoid A Runaway Jury Verdict

As discussed in Nickerson, the trial judge is charged with making an “independent determination” of the reasonableness of a jury verdict when limiting an award.  Nickerson affirmed the trial judge has discretion to consider not only evidence presented and considered by the jury, but also outside facts not considered by the jury when evaluating whether a jury verdict should be reduced.  While the outside facts (attorney fees) in Nickerson happened to be favorable to the plaintiff, the essence of the Supreme Court’s rationale for allowing outside facts to be considered in the damages computation may be used by the defense when arguing punitive damages and general damages alike.  Fortunately, not every case involves punitive damages but nearly all personal injury cases will include a prayer for general damages based on pain and suffering and emotional distress.

Punitive damages and general damages are abstract concepts for jurors.  Specifically, jurors lack the inherent ability to assign a fair and reasonable value to punish a defendant (punitive damages) or compensate a plaintiff for pain and suffering or emotional distress (general damages) in the same way they can assign a value for medical treatment or loss of income (special damages).  In both instances plaintiff attorneys ask jurors to award excessive amounts based on emotion rather than reason.  An excessive, unreasonable damage award, by any name, effectively punishes the defendant.  Accordingly, defense counsel must argue damages to the jury.

By providing a framework for the jury to analyze general damages, defense counsel provides the foundation for a jury to award a fair and reasonable amount to compensate for abstract loss such a pain and suffering or emotional distress.  Simultaneously, arguing damages at trial also provides a framework for the judge to evaluate an excessive award post-trial, if necessary.

Tyson & Mendes’ Framework for Arguing General Damages – Give A Number

Just as there is a constitutional framework for arguing and limiting punitive damages as depicted in the Nickerson case, Tyson & Mendes had developed a framework for arguing general damages[1] which is a critical component of the firm’s defense philosophy to avoiding runaway jury awards.  The key to arguing personal injury damages is to put the value of money in a common sense perspective for the jury and later, if necessary, the judge.  This is accomplished by developing and arguing a defense damages number from jury selection through closing argument, even when liability is contested and a defense verdict is sought.

In the case of arguing a defense number for pain and suffering, the focus must shift from plaintiff’s arguments of entitlement to what fair and reasonable amount of damages will make plaintiff whole after the loss at issue.  In order to determine a fair and reasonable award for general damages, defense counsel should examine two critical factors:  (1) the impact of the accident on plaintiff’s life and (2) the impact of money on the plaintiff’s life.  To be effective, the strategy for attacking and arguing damages by developing a defense number must begin early in the case during discovery so that it becomes incorporated into the defense narrative.

Impact of the Accident on the Plaintiff’s Life

In order to determine a defense value for general damages, counsel must first explore the impact of the accident on plaintiff’s life.  Plaintiff’s deposition is an opportunity to develop a personality and financial profile of the plaintiff.  Examine plaintiff’s educational background, work history, hobbies, and interests and explore the depth of their personal relationships.  The goal is to find out what constitutes quality of life for the plaintiff and what causes them stress and worry.  Invariably, most plaintiffs emphasize spending time with family as important to their quality of life.  This kind of testimony provides a great foundation for a reasonable defense number for general damages.

Impact of Money on the Plaintiff’s Life

Plaintiff’s deposition may also be used to establish the second critical prong of a reasonable general damages figure:  the impact of money on plaintiff’s life.  How much money does plaintiff make per year – both before and after the accident?  What does plaintiff spend their money on: cars, clothes, jewelry, art, vacations?  What financial stressors does plaintiff have:  mortgage, credit-card debt, student loans, tax debt?  By rooting a value for general damages in plaintiff’s life experience, defense counsel is able to establish a reasonable value for the jury that is fair and reasonable to every party.

Implementing the Tyson & Mendes Formula

How does this strategy play out at trial?  Assume a hypothetical plaintiff sued a hospital for negligence and one of its physicians for professional negligence.  Assume plaintiff’s attorney asked the jury for $5 million in general damages.  What is this number based on?  Perhaps one or two times medical damages?  Not for the defense.

During deposition our hypothetical plaintiff testified he made $50,000 per year, he enjoys the outdoors and the mountains, spending time with his family and is depressed because he is now confined to using a wheelchair full time.  Rather than leaving the jury with the option of accepting plaintiff’s number which will be based purely on emotion, assume the defense argues $ 1 million would be a fair and reasonable damages number.  The defense number which was developed during discovery and incorporated into the defense narrative is predicated on what $1 million dollars would mean to the plaintiff.  It would take this plaintiff an entire decade to earn just half that amount and a lifetime to save that much.  Plaintiff could buy a vacation home in Big Bear for $500,000 and invest the remainder as a peace of mind.  He could afford to fly relatives to his vacation home once a year off the interest earned from the investment.  Arguing damages in this manner gives the jury an economic framework from which to assess general damages rather than emotion and sympathy.

Nickerson’s Rationale Affirms Importance of Arguing General Damages at Trial

An excessive general damages award is no less punishing than a punitive damage award and should be argued just as vigorously by the defense.  Because the trial court may consider facts outside of what was considered by the jury in determining the propriety of a damage award, as confirmed by the California Supreme Court in Nickerson, Tyson & Mendes argues damages to the jury with the understanding the court may later consider the argument should the jury come back with an excessive award.  The Tyson & Mendes approach to arguing damages is both a proven and effective method for avoiding or mitigating excessive damage awards and is what separates the firm from the rest.  While the circumstances in each case will vary, the overall effect of arguing damages in this manner is designed to achieve the same result: a reasonable damage award that is fair to all parties.  By arguing a defense damage number early and often during the trial, the jury and the judge are conditioned to appreciate money can buy happiness and make the plaintiff whole based on real-life economics at a price decidedly more reasonable than a runaway verdict based purely on emotion and sympathy.

ABOUT THE AUTHOR: David Kahn specializes in civil litigation in the areas of personal injury, professional liability, general liability, and employment litigation. Contact David at 858.459.4400 or dkahn@tysonmendes.com.

[1] A personal injury plaintiff in California is entitled to general damages which are fair and reasonable to compensate for pain and suffering and emotional distress.  The defendant takes the plaintiff as they find them at the time of the incident.

 

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