Insurance companies are obligated to review and attempt to settle claims in good faith.  Different standards of “good faith” apply depending on whether you paid the premium (such as when you are the defendant in a suit, or when you are making a claim under your automobile policy’s uninsured or underinsured coverage), or another person paid the premium.  When an insurance company breaches that duty, the individual or entity harmed by the bad faith dealing may bring an action for compensatory and often punitive damages against the insurer.
 
A 2003 U.S. Supreme Court decision, State Farm v. Campbell (2003) 538 U.S. 408 limited punitive damages in such cases, and California courts since then have generally imposed a 10-1 ratio of punitive damages to compensatory damages.  Since that ratio may be unfair in individual cases and almost certainly is insufficient to deter insurance companies from changing bad faith practices, plaintiffs’ counsel and insurance companies have been engaged in a pitched battle to determine what qualifies “compensatory damages” in this type of case.  The California Supreme Court recently held in Nickerson v. Stonebridge Life Insurance Co. (2016) 203 Cal.Rptr.3d 23 that plaintiffs’ attorneys’ fees are considered compensatory damages in calculating the ratio of punitive to compensatory damages. 
 
It remains to be seen whether this small but potentially meaningful win for those sitting on the opposite side of the bargaining table from the insurance companies will affect those companies’ coverage and claim settlement decision making.  Janssen Malloy LLP’s attorneys are experienced in analyzing and, when appropriate, litigating insurance bad faith cases.