Victaulic Co. v. American Home Assurance Co. et al.

1st District Court of Appeal

Justice James A. Richman

Appellant's Lawyers: Dennis P. Riordan, Riordan & Horgan; Emily C. Cuatto, Peter Abrahams, Mitchell C. Tilner, Horvitz & Levy LLP; Doron Weinberg, Law Offices of Doron Weinberg

Appellee's Lawyers: Kevin M. Fong, Joseph D. Dean, Colin T. Kemp, Clark T. Thiel, Pillsbury Winthrop Shaw Pittman LLP

The case transcripts read more "A Few Good Men" than a typical insurance bad faith trial.

"I understand now," Alameda County Superior Court Judge Frank Roesch said, turning to a witness in the middle of heated questioning concerning requests for admission in previous litigation. "The facts don't matter. Is that what you're telling me?"

"The facts don't matter in this litigation," Nancy Finberg, an insurance examiner responded, after repeatedly claiming the plaintiff's attorney wasn't allowing room for nuance in her answers.

She invoked the Fifth Amendment the next day.

The litigation began after pipe manufacture Victaulic Co. faced nine product liability lawsuits across the country and its insurer subsequently claimed a reservation of rights, filing suit against Victaulic seeking declaratory relief, saying it didn't have to indemnify several of the cases because poor craftsmanship wasn't covered.

In response, Victaulic filed its own suit against the insurers, members of American International Group Inc., for insurance bad faith.

Finberg was called to testify about requests for admission in the product liability cases.

When an attorney for Victaulic pressed her on these answers, Finberg equivocated, trying to solicit from the attorney whether the inquiries pertained to the handling of the claims or the coverage litigation.

Its attorneys used Finberg's testimony and her refusal to testify about requests for admission in previous litigation to paint her as a lying insurance examiner in closing argument.

A whopping $52 million verdict followed and AIG turned to Horvitz & Levy LLP and two sole practitioners well versed in the Fifth Amendment to secure a reversal.

That investment paid off.

In February 2018, a 1st District Court of Appeal panel vacated the award. Victaulic Co. v. American Home Assurance Co. et al., 20 Cal. App. 5th 948 (Cal. App. 1st Dist., filed Feb. 26, 2018).

In a lengthy, unanimous opinion authored by Justice James A. Richman, the court said admitting Finberg's testimony regarding requests for admission was in error. So too were Roesch's decisions to "interrogate" her and later allow a blanket Fifth Amendment invocation, effectively blocking AIG's attorneys from rehabilitatating Finberg through their own questioning.

"The series of trial court errors in handling Finberg's testimony, coupled with Victaulic's exploitation of those errors in closing argument, surely influenced the bad faith verdict, especially as the vote was nine to three," Richman wrote.

The decision is an important victory for the defense bar.

It creates new precedent on when it's appropriate to use testimony about requests for admission at trial. But the decision does leave some questions open. Finberg, through attorneys from Pillsbury Winthrop Shaw Pittman LLP, argued that an insurer's position in coverage litigation could be used as evidence of bad faith.

Richman and his two colleagues, Justices Therese M. Stewart and Marla J. Miller, didn't reach that issue.

The merits of the case are still live and a case management conference is scheduled for March in Alameda County Superior Court.

-- Nicolas Sonnenburg