By Duane W. Shewaga
Adleson, Hess & Kelly, APC
Campbell, California
In Torres v. Automobile Club of So. California (1995) 95 D.A.R. 9352, the Court of Appeal for the Fourth Appellate District held that emotional distress damages were not recoverable in an insurance bad faith action unless the emotional distress was severe and substantial. The Court of Appeal reversed an award for emotional distress damages supported by the plaintiff's testimony that he was outraged, frustrated, angered, upset and "lost a little bit of sleep". The Court of Appeal held that such evidence was insufficient to recover emotional distress damages in an insurance bad faith action, as the emotional distress must be "severe, substantial or enduring".
The California Supreme Court subsequently granted a petition for review but
later limited the issue for review as to whether or not a defendant was entitled
to a new trial on both liability and compensatory damages after reversal of
a punitive damages award. On June 2, 1997, the Supreme Court held that retrial
would be limited to the punitive damages issue only. (97 D.A.R. 6919.) The
Supreme Court did not address whether or not emotional distress had to be severe
and substantial to be recoverable in a bad faith action. However, that issue
has again recently been addressed by the First Appellate District in its recent
decision in Clayton v. United Services Automobile Association (1997)
97 D.A.R. 5786.
The First Appellate District in the Clayton case held that emotional
distress need not be severe to be recoverable in an insurance bad faith action.
The First Appellate district found that it did not need to follow the Torres decision
as the Supreme Court had granted a petition for review limiting the issue on
review as to the scope of a new trial after reversal of the punitive damages
award. The Court of Appeal in Clayton held that once economic loss
was shown, the plaintiff was entitled to all emotional distress caused by the
insurers bad faith without proving any causal link to the economic loss.
In the Clayton case, USAA initially offered to settle an underinsured
motorist's claim arising from the death of the insured's 15-year-old son for
only $10,000.00 but on the eve of arbitration settled the claim for $175,000.00
(the policy limits less what was recovered from another insurer).
Interestingly, the only economic damages suffered by the plaintiff in the Clayton case
was the plaintiff's attorney's fees incurred to obtain the benefits due him
under his policy of insurance which was awarded as economic damages by the
jury.