A HALF – CENTURY OF INSURANCE

July 20, 2016

Jan Weinberg's book, Confessions Of A Personal Injury Lawyer , should be published later this year. Chapter Sixteen of the book, " A Half Century Of Insurance" appears below for your reading pleasure.

I had appeared several times before district court judge James Shigemura in a few criminal cases. The judge was a strong-willed person who clearly was in charge of his courtroom. In a preliminary hearing on a criminal case, after Judge Shigemura had interrupted my cross-examination several times. I shrugged my shoulders at one of his rulings. He looked sternly at me and admonished me to show appropriate respect for the court. Paraphrasing a remark made in a movie by Mae West to a judge, I responded that I was attempting to show the court all the respect to which it was entitled. I came within a hair of being held in contempt. I sensed that in spite of my behavior Judge Shigemura liked my feistiness and enjoyed some drama in his courtroom.

A couple years after opening my firm, I received a call from Judge Shigemura. He wanted to refer a case to me. The client, an elderly woman, had lost her beachfront home in Kailua to a fire. Her adult son had died in the conflagration. The woman, the judge informed me, had been mistreated by her insurance company, which had low-balled the cost to rebuild her home. According to the judge, suit had been filed against the insurance company. However, the woman's lawyer unfortunately had a serious drinking problem and wanted to withdraw from the case.

I was honored that Judge Shigemura was referring this case to me. He had apparently known the woman's husband, a deceased admiral in the US Navy. I contacted the woman, Gladys M. I met with her several days later to discuss her case. I had already called her lawyer to let him know that Judge Shigemura had referred his client to me. He welcomed my meeting with her and sounded relieved to have the burden of this litigation taken off his back.

Gladys was a tall woman in her late seventies with a commanding presence. She told me that her adult son, who had died in the burning house, was gay. There were rumors that the fire was caused by arson, and possibly had something to do with a former friend of her son's. While she was grieving the loss of her only child, she was also increasingly disturbed about the conduct of her insurance company, USAA. Alter a number of unexplained delays, USAA had hired a company, ironically called Thrifty Builders, to evaluate the cost to rebuild the house.

Mrs. M. claimed that months had passed before Thrifty submitted a proposal to rebuild the home for $38,000. At that time, she believed that the cost to rebuild her beachfront home was over $100,000 and that Thrifty had low-balled her. In spite of repeated requests made by her and her lawyer to USAA to obtain a-realistic appraisal, USAA refused to do so. Mrs. M. informed me that she and her husband, who had been deceased for some years, was insured with USAA for fifty years, or, as she aptly put it, "for a half-century." She was determined to make USAA pay her what it owed.

This type of case is known as a first-party bad faith case. It wasn't until 1996 that the Hawaii Supreme Court recognized the tort of first-party bad faith in the Best Place case. In Best Place, the Hawaii Supreme Court relied on a leading 1973 Califomia Supreme Court decision in Gmenburg, which had given legal recognition to this cause of action or claim. In taking on Mrs. McCool's case against USAA around 1981, I anticipated that the Hawaii court would follow the favorable law established in California on first-party bad faith. Of course, there were no guarantees in that regard. We sued for contractual damages of the cost to rebuild her home and other related costs, as well as emotional distress caused by USAA's bad faith, and for punitive damages.

If an insurance company delays in settling a claim, or fails to place the rights of its insured on an equal footing with its own interests, the insured can sue for the benefits due under the policy, as well as emotional distress, and for punitive damages. Punitive damages were the main threat to insurance companies in most first-party bad faith cases. If a jury had rendered a verdict that included, for example, a punitive damages award of twenty million dollars, the award could be reduced by the trial judge only if it were considered to be excessive, which happened frequently.

The publicity surrounding large punitive damages awards can be misleading. The public naturally assumes that these very large verdicts end up being paid in full, when that is not close to reality. In the late 1980s, I undertook a personal survey of cases where there had been large punitive damages verdicts.

I contacted the plaintiffs' attorneys on those cases to find out what had ultimately been collected. I don't have the notes on those conversations and don't want to misstate the specific facts uncovered. In general, almost all of the over thirty large punitive damages verdicts that I researched had ultimately resulted in recoveries ranging from zero to small fractions of the punitive damages awards. In some cases, the appellate courts had reversed the jury verdicts and remanded the cases for new trials. Most of the cases had settled before appellate decisions were rendered.

One of the cases I inquired about was the $128 million verdict in Grimshaw v. Ford Motor Company by an Orange County jury in 1978 against the Ford Motor Company following a six-month trial. Of that amount, $125 million was assessed for punitive damages. The facts were egregious. A Ford Pinto had stalled on a freeway and was then rear-ended by another vehicle. The Pinto burst into flames. The Pinto's driver died as a result of her burns, and her passenger suffered severe burns over his entire body, which required extensive surgeries.

The estate and surviving burn victim essentially proved at trial that Ford had intentionally designed and manufactured the Pinto with fuel tanks that ruptured at low impact. There were reasonably safe and cost-effective alternatives, but for financial reasons, the Pinto was sold to the public in this unsafe condition.

If ever a case was worthy of a substantial punitive damages verdict, this was it. Yet, what followed was very typical of what can happen to punitive damages awards after the verdict is rendered. Ford moved for a new trial on a number of grounds, including the excessiveness of the punitive damages award. I understood that the punitive damages award by the jury was based on the amount Ford had saved by improperly designing and manufacturing the Pinto. Nevertheless, the trial judge ordered a remittitur, or order reducing the punitive damages award, to $3.5 million. A trial judge has the power to order that a jury verdict be reduced and, if the prevailing party doesn't accept the remittitur, then a new trial can be ordered. Ford appealed the court's ruling.

In 1981, three years after the jury verdict and twelve years after the horrible accident, the California Court of Appeals upheld the verdict and the court's reduction of punitive damages from $125 million to $3.5 million. In the end, the estate and burn victim who sued Ford were only able to recover their compensatory damages, totaling around $3 million, and punitive damages of $3.5 million.

In 2003, the US Supreme Court struck a serious blow to punitive damages cases in its State Farm v._Campbell decision. The plaintiffs had won a trial verdict in the Utah state court for $1 million in compensatory damages and $145 million in punitive damages. The Supreme Court, based on Fourteenth Amendment due process rights, reversed the verdict on punitive damages and remanded the case to the Utah court for a new trial on punitive damages. In doing so, the Supreme Court held that the ratio of punitive damages to compensatory damages must fall within single digits, or a maximum ratio of nine to one. For example, if the damages for emotional distress and contractual benefits owed were $250,000, then the highest sustainable award for punitive damages would be $2,250,000. The US Supreme Court, in its infinite "wisdom" (arrogance?) had substituted its selection of a single-digit ratio over the discretion of trial judges presiding over the actual trials.

Returning to the USAA bad faith case, I accepted Mrs. M's case and entered an appearance of counsel. I knew that her deposition had been scheduled by USAA's attorney, who was my old boss/mentor, David Dezzani. I called his office to request that the deposition be rescheduled. His secretary, Judy, advised that he wasn't available for several days. I asked her to take the deposition off the calendar and to advise me on Dave's next available date. She agreed. The client's former attorney, whom I replaced, had apparently twice failed to appear with the client for depositions, which Dezzani had properly noticed.

The next week, on the date the deposition had been scheduled for, I was on the Big Island on another case. I hadn't heard from Dave or his secretary, and called him as a matter of precaution. He told me that he intended to proceed with the deposition and would move to default my client if she didn't appear. He told me that even though Judy had been his secretary for over ten years, she didn't have the authority to cancel the deposition. I was angered by his decision, and sent a letter the next day that recounted the history of the cancelled deposition. Within ten days, Dezzani filed a motion to dismiss the case. When I worked for Dave, I had heard stories from opposing plaintiffs' attorneys about him committing "sharp practices." I had never known Dave to act this way when I worked under him as an associate. Now I was having a very unpleasant experience with him that I never would have anticipated. USAA was, however, one of his major clients.

A hearing was held before State Circuit Court Judge Toshimi Sodetani. Judge Sodetani was mild-mannered and always civil. As Dezzani stood next to me to argue for the dismissal, I was fuming. Even though it would have been very unfair for the case to be dismissed, it was not entirely out of the realm of possibility. Dezzani was a very respected figure in the state courts. Dave argued that my client and both her counsel had ignored multiple deposition notices and the court should impose the sanction of dismissal. He denied that his office had approved the cancellation of the last deposition.

It was my turn to argue. I told the court that I had been Mr. Dezzani's associate and, as such, had been taught by him to use words such as "mislead, misstate, misrepresent, and mistake" to characterize the representations he had made to the court. I then told the court that I chose to use different words to describe his argument to the court. I stated to the court that "what Mr. Dezzani has just informed the court was a flat-out, bald-faced lie, and that's '1-i-e' for the record." Judge Sodetani appeared somewhat offended by my unnecessary language, but summarily denied Dezzani's motion. The war was now officially on.

I haven't researched court archives on this case. I don't recall my client's deposition by Dezzani. I have only a vague recollection of deposing the president of USAA in a conference room at USAA's headquarters in San Antonio, Texas. There was a pervasive high level of tension in this case, especially given my confrontation with Dave and the importance to him of USAA as a valued client. I think my having been a former associate and one of his protégées may also have been a factor in the tension surrounding this case.

The trial date was rapidly approaching. The trial judge was Judge Ronald Moon. Before being appointed a circuit court judge in the early 19803, Judge Moon had been a name partner in a top defense firm representing insurance companies in personal injury cases. Although, in my opinion, Judge Moon tended to be conservative in his evaluation of cases, he was a talented and fair-minded trial judge. We were fortunate to have him preside on this complex and confrontational case.

In the 1980s, the state trial judges played a very important role in the settlement of cases. Some judges were naturally better at it than others. Unlike today's era, where almost every litigated case ends up in mediation, trial judges were the medium, in that settlement negotiations were successful or not. USAA took this case seriously and had sent a senior vice president to attend the settlement conference with Judge Moon. During a break in the proceedings, Dezzani and I came as close as I ever have to a physical confrontation in a courtroom. He and I both had tempers. I think the pressure of this case had badly frayed his nerves. The trial was scheduled to begin the very next week.

After the confrontation between Dezzani and me in his courtroom, Judge Moon encouraged the USAA vice president and me to talk directly. Perhaps the VP and Dezzani had been playing good cop, bad cop. The vice president, Wesley J. Gish, and I walked the grounds of Iolani Palace, which was directly across from the courthouse on - South King Street. The vice president was a "good ol' boy" type. Tall and confident, he conveyed a serious attitude about resolving the case. After an hour or so of general chit-chat and discussion, he offered around $650,000 for emotional distress plus the cost of a quality rebuild for the home and other contractual benefits. Judge Moon was impressed with the offer. He told me in chambers that he was not aware of any other first-party bad faith case in Hawaii that had commanded this kind of settlement. As of that date, this statement was probably true.

Judge Moon kept pressuring me to settle. I wanted to go to trial because I believed the case had the potential to result in a very large punitive damages award. If I were simply concerned about publicity and being viewed as a top gun trial lawyer, I should have tried the case. l was concerned about two things, however. First, I was concerned that if I didn't accept the settlement the judge had strongly recommended, his rulings at trial wouldn't go my way. Second, by the date on which trial was scheduled, Gladys was about eighty-two years old. If we won a large verdict in the case, USAA would almost certainly appeal. Appeals then required two to three years for a decision. There were certain to be serious issues of law on appeal. If the appellate court reversed a favorable verdict and remanded for trial, Mrs. M., if still alive, would be in her mid-eighties and wouldn't have received any compensation while her beach home remained a burned-out shell, forever serving as a tragic reminder of the loss of her only son.

I agreed to recommend the settlement offer to our client. Roy Bell and I drove to Gladys' home to review the settlement. She did not want to accept the settlement. Standing at her front door as we departed her home, she made it absolutely clear in her deep-toned voice that she rejected the settlement offer and directed us to go to trial. Roy and I left her house feeling a bit liked whipped dogs.

I drove to Orson's restaurant in Kailua, where we each consumed three martinis to calm our jittery nerves. Roy was particularly unhinged. I was more amused and detached. I assured him that tomorrow would be a new day and that we would revisit our client to discuss the case. My sense was that she was blustering, and underneath her frustration, grief, and anger, she wanted the case to resolve.

The next morning we met again with Gladys. Her attitude was entirely different than the preceding afternoon. Looking back on the events today, I'm uncertain whether Gladys was under the influence of a few cocktails the prior afternoon. She was certainly much calmer the next morning. She gave us her most serious look and said, "So, you're telling me that you don't want to try this case and that I should settle it?" We were silent. She continued, "And you're telling me I might not be alive to see a single penny from USAA if we go to trial?" We both said nothing. Mrs. M. imperiously concluded, "Well, then, I guess I have no option but to settle. Go ahead, boys, and settle my case."

That is exactly what we did. Gladys rebuilt her beachfront house. Within two years of the settlement, unfortunately, Gladys died of natural causes at age eighty-five.