Horvitz & Levy obtained a reversal of an insurance bad faith and punitive damages verdict of approximately $52 million against several member companies of AIG. The punitive damages award was one of the largest in California history, far exceeding any amount ever upheld against an insurer.
Victaulic Company, a plumbing component manufacturer, sued AIG for breach of contract and bad faith for AIG’s alleged mishandling of nine products liability lawsuits against Victaulic. During the trial, the court permitted Victaulic to use AIG’s denials of certain requests for admission (RFA) as evidence that AIG “denied” coverage for the claims, even though AIG had defended the claims under reservations of rights. Victaulic used the “denials” during its cross-examination of the principal claims adjuster to suggest that, while the claims adjuster believed there was a potential for coverage when she handled the claims, she “lied” on her verified discovery responses denying the potential for coverage. While this cross examination was occurring, the trial judge took over the examination and suggested the witness had committed perjury in her RFA responses when she “denied” them under oath despite having adjusted the claims as if there was a potential for coverage. Faced with the judge’s perjury accusation, the witness ultimately asserted her Fifth Amendment privilege not to testify further. The court excused her before AIG was given any opportunity to question her.
The Court of Appeal reversed the jury’s $8.2 million Brandt fee award and $46 million punitive damages award in a published opinion. The court held the trial judge committed prejudicial misconduct in his questioning of the claims adjuster; prejudicially erred in allowing Victaulic to use RFA denials as evidence (an error Victaulic exploited during argument); and prejudicially erred in how it handled the claims adjuster’s invocation of the privilege (which it let her do on a blanket basis, without any consideration of waiver, and made her do in front of the jury).