This published opinion is a likely candidate for California Supreme Court review.

This is an insurance bad faith case in which a jury awarded compensatory damages of $313,508 and punitive damages of $4 million against GEICO for unreasonably failing to pay its policyholder the policy limits of $50,000 under an underinsured motorist policy.  The trial court reduced the punitive damages to $1 million.  GEICO appealed only the punitive damages award.

GEICO argued that evidence was insufficient to to show that any managing agent of GEICO participated in or authorized an act of malice, fraud, or oppression, as required by Civil Code section 3294.

The Court of Appeal (Second District, Division Two) began its analysis by considering whether the clear-and-convincing standard of proof affects appellate review of the sufficiency of the evidence.  As we have noted, California’s appellate courts have split on this issue and the California Supreme Court recently granted review to resolve the split. 

The Court of Appeal here decided to disregard the clear-and-convincing standard for purposes of  appellate review.  In so doing, the court cited a 1973 Supreme Court opinion (Crail v. Blakely), but did not discuss some of the more recent cases or acknowledge that the issue is currently pending before the Supreme Court.

The court’s decision on the standard of review issue appears to be pivotal to its analysis of the merits.  The court concluded that the plaintiff’s evidence was sufficient, based in large part on inferences that the jury might have drawn from equivocal evidence.  For example, the court discussed evidence that claims adjusters at GEICO, who were not managing agents, cherry-picked evidence from the plaintiff’s medical files to justify their decision not to pay his claim.  They prepared evaluations that minimized the plaintiff’s injuries, while ignoring evidence to the contrary.  There was no direct evidence, however, that GEICO’s managing agent (a regional liability administrator) knew about the information that the adjusters omitted from their reports.  The Court of Appeal concluded, however, that the jury could have inferred the managing agent’s knowledge of that information based on evidence that he had “more than a passing familiarity” with the claim. 

Had the Court of Appeal taken the clear-and-convincing evidence requirement into account, it might have reached a different conclusion.  Cases applying that standard have held that equivocal evidence is not sufficient to qualify as clear and convincing—when the evidence is equally consistent with ordinary negligence as with malice, the plaintiff has failed to show malice by clear and convincing evidence.

There’s a good chance that if GEICO petitions the California Supreme Court for review, the court will grant review and decide it along with the currently pending case on this issue (or hold this case pending the resolution of the other case).