Scott Glovsky
Pattern-and-practice evidence in bad-faith cases How many times does it take to be reprehensible? Getting the goods in discovery
Insurance companies frequently rely
on company-wide policies or practices that affect many policyholders when they deny insurance claims. Under California law, evidence demonstrating that the defendant insurance company has engaged in a widespread illegal practice or a practice that has been harmful to its insureds is directly relevant to not only proving bad faith, but also to establishing punitive-damages claims. In order to determine whether an insurer’s conduct towards your client is part of a pattern and practice of similar behavior towards other policyholders, it is crucial to serve pattern-and-practice discovery.
Colonial Life California’s seminal case on “pattern
and practice” discovery is Colonial Life & Accident Ins. Co. v. Superior Court (1982) 31 Cal.3d 785 [183 Cal.Rptr. 810]. In Colonial Life, the plaintiff brought a third-party bad-faith action arising out of Colonial Life’s unreasonable refusal to settle her claim. Plaintiff had been injured and developed progressive gangrene that caused doctors to amputate her leg. Colonial Life employed a claims-adjusting company, Equifax, to adjust the claim. Equifax employed a claims adjuster, Sharkey. Colonial Life, through Equifax and Sharkey, claimed that the policy did not cover plaintiff’s leg amputation, refused to tender the policy limits, and made a low settlement offer. Plaintiff served Equifax with a
request to produce all documents relating to claims that Sharkey handled for Equifax. Equifax objected that the request sought irrelevant documents and invaded the other policyholders’ rights of privacy under California Insurance Code section 791.01. The trial court ordered Equifax to produce the names and addresses of the Colonial Life claimants. Colonial Life filed a writ of mandate to
stop plaintiff’s counsel from obtaining the names and records of the claimants on the ground that the information was not rele- vant. The California Supreme Court rejected
28— The Advocate Magazine JUNE 2011
Colonial Life’s argument as “patently merit- less” and held that the requested discovery was directly relevant to the plaintiffs’ claim for at least three reasons. First, because direct evidence demonstrating that a defen- dant knowingly harmed a plaintiff is often difficult to obtain, a plaintiff must often rely on circumstantial evidence that a defendant engaged in conduct with such a frequency so as to indicate a general business practice. Therefore, and because a plaintiff may establish a bad-faith claim by showing that the acts that harmed him were knowingly committed or engaged in with such fre- quency as to indicate a general business practice, discovery addressing the “frequen- cy of alleged unfair settlement practices” is likely to produce relevant evidence. Second, other instances of unfair
practices are “highly relevant” to the plain- tiff’s claim for punitive damages. In California, to be liable for punitive dam- ages a defendant must act with the intent to vex, injure or annoy or with a conscious disregard for a plaintiff’s rights. A plaintiff may prove these elements directly or by implication. And a plaintiff can prove these elements through indirect evidence of a pattern of unfair practices. The Court cited Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 922 [148 Cal.Rptr. 389] for the proposition that it previously affirmed a punitive damages award based on an insur- er’s failure to settle where the evidence showed that the failure to settle was part of a “conscious course of conduct, firmly grounded in established company policy.” Third, evidence regarding the claims
adjuster’s previous dealings were relevant to prove ratification or authorization by defendants of his unfair acts, which also supported plaintiff’s claim for punitive damages. To protect the policyholders’ rights
of privacy, the Court required plaintiff’s counsel to send a letter to the other claimants to obtain their consent to release their records. Subsequent decisions have upheld a
plaintiff’s right to obtain “pattern and practice” discovery in bad-faith actions. In
Moore v. American United Life Insurance Company (1984) 150 Cal.App.3d 610 [197 Cal.Rptr. 878], plaintiff sued her disability insurer for wrongfully denying her claim. The definition of “total disability” in plain- tiff’s policy was narrower than the relevant definition of “total disability” for so-called “any occupation” disability policies under California law. Plaintiff claimed that American United engaged in a pattern and practice of obtaining misleading opinions from physicians by providing them with a definition of “total disability” that was nar- rower than the applicable definition under California law. Plaintiff also alleged that American United routinely misled its poli- cyholders by including the narrower defini- tion of total disability in their policies. Plaintiff contended that American United knew before it denied plaintiff’s claim that its definition of total disability did not comply with California law. Plaintiff introduced evidence at trial
regarding two other American United dis- ability claims to establish that American United engaged in a pattern and practice of improper claims handling and to show that American United knew that its defini- tion of “total disability” was improper under California law. The jury awarded plaintiff $30,000
for compensatory damages and $2.5 mil- lion in punitive damages. American United appealed on the ground that evidence regarding the other claims was not relevant to any disputed fact. Relying on Colonial Life, the Court found that the evidence was relevant to establishing a pattern and prac- tice of unreasonable claims handling. American United also argued that evi- dence regarding the other claim was not relevant because it was not factually similar to plaintiff’s claim as it involved a different definition of total disability. The Court rejected the argument and found that the policies were substantially similar. Finally, the Court rejected American United’s argument that the danger of undue preju- dice substantially outweighed any probative value of the evidence.
See Evidence, Page 30
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96