Facts

Westport Insurance Co. was El Pollo Loco’s excess insurer on its workers’ compensation claims that exceed El Pollo Loco’s self-insured retention. The third party administrator hired by El Pollo Loco to handle and adjust the workers’ compensation claims was Specialty Risk Services.

An El Pollo Loco employee was injured on the job, and her claim exceeded the retention. Specialty Risk Services was handling the claim, and following the employee’s alleged suicide attempt, Specialty Risk Services agreed to stipulate to 24 hour/7 day a week, around the clock, licensed vocational nursing care.

Although Specialty Risk Services initially filed suit seeking declaratory relief, its complaint was dismissed before trial, and only Westport’s cross-complaint went to trial, making Westport the de facto plaintiff. The court tried Westport’s causes of action for equitable subrogation and negligence.

PLAINTIFF'S CONTENTIONS: The stipulation was open ended and essentially provided that such care would be for the rest of the employee’s life. The claims adjuster agreed to this without any medical evidence demonstrating the necessity for such care, and failed to take any steps following the entry of the stipulation to verify that she needed such care. In workers’ compensation, there is a limited window of time in which a court is permitted to reconsider its orders based upon available evidence. Westport claimed there was substantial available evidence at the time that she did not require around the clock nursing care for the rest of her life, as a short hospital stay would be sufficient to determine whether she posed a danger to herself. Because the claims adjuster failed to take any steps to mitigate his error, the stipulation in effect became a lifetime award, forcing Westport, as the excess insurer, to pay substantially inflated benefits and then ultimately settle the case for millions of dollars more than the reasonable value of the case.

Westport alleged that the claims handler, Specialty Risk Services, negligently mishandled the claim by agreeing to stipulate for 24 hour care, 7 days a week, for the rest of the claimant’s life, without any reasonable basis to do so.

DEFENDANT'S CONTENTIONS: Specialty Risk Services contended that all times they acted in accordance with all reasonable industry standards, and that the medical evidence was sufficient to justify the adjuster agreeing to around the clock nursing care.

Settlement Discussions

At one point, Westport demanded $3 million to settle and Specialty Risk Services never offered above $1 million.

Result

A bench verdict in favor of Westport awarded it $9,121,427, which is comprised of $6,756,500 in compensatory damages plus another $2,334,927 in prejudgment interest through the date of judgment.

Other Information

Following trial, Westport filed a motion for attorney fees and costs pursuant to CCP section 2033.420, which provides that if a party denies Requests for Admissions without a reasonable basis for doing so, and the requesting party later proves those facts at trial, the party who denied the requests can be liable for attorney fees and costs incurred in proving what was denied. Westport was able to prove Specialty Risk Services mishandled the claim, and that there was no medical evidence to support 24/7 nursing care. Westport had sought about $2.5 million in attorney fees and costs that it had incurred in proving those facts. Prior to hearing on the motion, the parties settled this portion of the case for the payment of an additional $1 million.

Length

three weeks