The California Supreme Court considered whether the calculation for punitive damages may include attorneys' fees expended to obtain benefits determined after the jury has rendered its punitive damages verdict. Nickerson v. Stonebridge Life Ins. Co., 2016 Cal. LEXIS 3757 (Cal. June 9, 2016).
The insured broke his leg on February 11, 2008, when he fell from the wheelchair lift on his van. He was treated in the emergency room and then admitted to the hospital. After spending several weeks confined to a hospital bed, he was permitted to move to his wheelchair, but could tolerate sitting in the wheelchair for only limited periods of time. On May 19, 2008, the insured's doctor determined he was ready to return home except that he was unable to maneuver through his home without a particular part for his wheelchair. After obtaining the part, the insured was released from the hospital on May 30, 2008. He had been hospitalized for 109 days.
Following his release from the hospital, the insured sought benefits from Stonebridge Life Insurance Company under a policy that promised to pay him $350 per day for each day he was confined in a hospital for necessary care and treatment. Invoking the policy's definition of "necessary treatment", Stonebridge determined, without consulting the views of the insured's treating physicians, that his hospitalization was "medically necessary" only from February 11 to 29. Stonebridge sent the insured a check for $6,450, which represented payment of $150 for one visit to the emergency room and $6,300 for 18 days of hospitalization at $350 per day.
The insured file suit, alleging that Stonebridge breached the policy by failing to pay him benefits for the full 109 days of his hospital stay and that Stonebridge breached the implied covenant of good faith and fair dealing by denying him his full policy benefits. The parties stipulated before trial that if the insured succeeded on his complaint, the trial court could determine the amount of attorneys' fees to which the insured was entitled under Brandt v Superior Court, 37 Cal. 3d 813 (1985). Under Brandt, if the insurer withholds policy benefits in bad faith, attorneys' fees incurred to compel payment of the benefits are recoverable as an element of the plaintiff's damages.
The jury awarded the insured $31,500 in unpaid policy benefits and $35,000 for emotional distress. The jury also found that Stonebridge engaged in fraud and awarded $19 million in punitive damages. After the jury rendered its verdict, the parties stipulated that the amount of attorneys' fees to which the insured was entitled under Brandt was $12,500, and the court awarded this amount.
Stonebridge moved for a new trial seeking a reduction in the punitive damages award. The trial court agreed and granted Stonebridge a new trial unless the insured consented to a reduction of the punitive damages award to $350,000. In calculating the permissible amount of punitive damages, the court considered only the $35,000 the jury had awarded in compensatory damages for emotional distress for Stonebridge's tortious breach of the implied covenant of good faith and fair dealing; it did not include the $12,500 in Brandt fees.
The insured rejected the reduction in punitive damages and appealed the order granting a new trial. The Court of Appeal affirmed, rejecting the insured's argument that the trial court should have taken in to account the $12,500 in Brandt fees.
The California Supreme Court granted review, limited to the following question: "is an award of attorneys' fees under Brandt properly included as compensatory damages where the fees are awarded by the jury, but excluded from compensatory damages when they are awarded by the trial court after the jury has rendered its verdict?" In other words, should the $12,500 that was awarded as attorneys' fees be included in the calculation of the ratio of punitive damages to compensatory damages for the purpose of determining whether, and by what amount, the jury's $19 million punitive damages award exceeded constitutional limits?
Stonebridge argued that when a trial court determines Brandt fees after the jury has already rendered its punitive damages verdict, the fees should not be considered in calculating the punitive-compensatory ratio.
The Supreme Court disagreed. There was no reason to exclude the amount of Brandt fees from the constitutional calculus merely because they were determined, pursuant to the parties' stipulation, by the trial court after the jury rendered its punitive damages verdict. To exclude the fees from consideration would mean overlooking a substantial and mutually acknowledged component of the insured's harm. Therefore, the judgment of the Court of Appeals was reversed and the case was remanded to the Court of Appeals for further proceedings.