Notrica's 32nd St. Market v. State Compensation Insurance Fund, et al.
Published: Sep. 9, 1995 | Result Date: Aug. 18, 1995 | Filing Date: Jan. 1, 1900 |Case number: BC016464 – $20,478,600
Court
L.A. Superior Central West
Attorneys
Plaintiff
Drew E. Pomerance
(Roxborough, Pomerance, Nye & Adreani LLP)
Nicholas P. Roxborough
(Roxborough, Pomerance, Nye & Adreani LLP)
Michael J. Bidart
(Shernoff, Bidart & Echeveria LLP)
Defendant
Frank Falzetta
(Sheppard, Mullin, Richter & Hampton LLP)
Andre J. Cronthall
(Sheppard, Mullin, Richter & Hampton LLP)
Experts
Plaintiff
Oakley Van Slyke
(technical)
Lucille Van Der Heyden
(technical)
H. Samuel Smith
(technical)
Defendant
Michael McMurray
(technical)
Katherine Linnemann
(technical)
Facts
Plaintiff Notrica's 32nd Street Market is a large supermarket with 3 separate locations in Southern California. It had purchased workers' compensation insurance with Defendant State Compensation Insurance Fund during policy years 1988 and 1989. During those 2 years, Notrica paid State Fund more than $400,000 in premiums and State Fund paid out approximately $500,000 for claims made under those policies. Notrica alleged that, as a result of the State Fund's handling of those claims, Notrica's loss experience became so poor that its premiums jumped by hundreds of thousands of dollars during the subsequent policy years of 1990, '91, '92, and '93. Notrica alleged that, when it insured with State Fund, it was told that it was a "major account," which meant that it would receive superior service, be assigned only the most experienced adjusters, and have "meaningful" claims reviews. The purpose of a claims review is to discuss the status of claims with the insured. After the policy was purchased, Notrica learned that State Fund had a policy of not turning over claim files for inspection by insureds. State Fund would conduct claim reviews, provide written summaries, and answer questions regarding the status of claims; physical access to the claims was denied. State Fund alleged that its policy was necessary to protect the privacy rights of injured workers. Notrica alleged that it was not interested in sensitive or private medical information, rather it wanted to know what was going on with the claims. Notrica hired Commercial Benefits of Century City to assist Notrica in managing claims and to "reduce its workers' compensation costs." State Fund agreed to meet with Commercial Benefits as long as an employee of Notrica was present, but would not do so at State Fund offices. Notrica claimed that it was forced to terminate its relationship with Commercial Benefits because Commercial Benefits could not get access to claim files and therefore could not help Notrica's manage its claims. With respect to the manner in which State Fund estimated the value of claims, Notrica alleged that the industry standard was to reserve a workers' compensation claim based on the realistic and reasonably anticipated costs. The manner in which a workers' compensation carrier reserves or estimates a claim file has a direct relationship on the premium that the employer pays; the greater the reserves on a file, the more premium that is ultimately charged in subsequent years; therefore, it is important that reserves be accurate and not overstated. Notrica argued that State Fund changed its reserving standard in July of 1989, from a "reasonable" and "realistic" standard to one based on the "maximum probable potential" of a claim. State Fund alleged that its policy of placing accurate and adequate reserves on claims never changed, although the "maximum probable" phrase was included in a procedure manual. State Fund alleged the language change was reasonable and did not lead to over-reserving.
Settlement Discussions
Plaintiff contends that it initially demanded $500,000 and Defendant made no offer. Following the verdict in the first phase and while the jury was deliberating during the punitive damages phase, Notrica demanded $30,000,000 (lowered to $19,000,000) and State Fund offered $4,000,000 (to settle the dispute, including the injunction Judge Satt indicated he would sign). According to defendant's counsel, Plaintiff made no settlement demand until the second phase of the trial, when the initial demand of $30,000,000 was made.
Damages
Plaintiff claimed $598,000 in damages.
Result
During the first phase, the jury found (Poll: 9-3) State Fund acted fraudulently and breached the implied covenant of good faith and fair dealing. The jury awarded $478,606 in compensatory damages (reduced by $152,610 in premiums owed by Notrica). Plaintiff sought $598,000. Based on the finding of fraud (there was no finding of malice or oppression) the trial went to a second phase, after which the jury awarded $20,000,000 in punitive damages.
Other Information
The Court, sitting as the trier of fact in equity, found that State Fund committed unfair business practices in violation of Business and Professions Code Section 17200. As a result, the Court entered a statewide permanent injunction against State Fund to prevent it from ever using the phrase "maximum probable potential" in their claims manual or to instruct their claims personnel to reserve using that standard; State Fund was also enjoined from denying to its insureds access to workers' compensation claim files; and finally State Fund was enjoined from refusing to communicate directly with an insured's authorized representative.
Deliberation
2 days (1st phase), 3 days (2nd phase)
Poll
9-3
Length
4 weeks
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