Kelly A. Knight is an attorney and mediator based in Los Angeles, CAlifornia. He handles matters throughout California.

Court of Appeal reverses $55M judgment in insurance-bad-faith case due to error including use of requests for admission at trial and mishandling of invocation of Fifth Amendment privilege

In a fascinating and incredibly written opinion that reads like a courtroom drama, the First District Court of Appeal in Victaulic Co. v. American Home Assurance Co., Cal. Ct. App. 1st Dist. no. A146617 (Feb. 26, 2018) (slip opinion linked here), reversed a $55M judgment in an insurance-bad-faith case. 

The underlying facts are in the slip opinion---suffice it to say that it was an insurance-bad-faith case where the carriers denied coverage. The insuring agreements was complicated and involved layers of coverage, three separate agreements, and a varying "retained amount" for defense costs that fluctuated year by year. See slip op. at 3-5.

The underlying claims involved "a lawsuit in Oregon alleging that rubber on a Victaulic plumbing component installed in a condominium complex was deteriorating, causing black specks to appear in the water." Slip op. at 6. Eight other construction-defect cases were filed against Victaulic, tendered by Victaulic to the carrier, and ultimately resolved (one going to judgment).

Carrier AIG issued a reservation of rights and defended the underlying claim; AIG also filed a declaratory-relief lawsuit in Pennsylvania against its own insured Victaulic alleging that it had no duty to indemnify in several of the underlying cases on the basis that faulty workmanship (or products liability) is not a covered occurrence. Slip op. at 6, 8, 10-11. Victaulic filed a bad-faith case in California against the carriers, and the carriers filed a cross-complaint seeking declaratory relief that they did not owe payments under some of the claims. Id. at 8. 

The trial court ruled on summary adjudication that the insurers had a duty to defend three of the claims, ordered the case bifurcated, and proceeded with a phase-1 bench trial on the declaratory-relief-claims. Id. at 9. The trial court ruled that AIG had both a duty to defend and indemnify Victaulic, and the court set a phase-2 and phase-3 jury trial for breach of contract, bad faith, and damages. Id. at 10-11. The result was a judgment that included roughly $1 million for breach of contract, approximately $8 million for attorney's fees under Brandt v. Superior Court, 37 Cal.3d 813 (1985), $46 million in punitive damages, approximately $5.5 million in cost-of-proof sanctions for the carriers' refusal too admit there was a "potential for coverage" and that the damage alleged was caused by an "occurrence," and $840,000 in interest. Id. at 2, 13.

If you're wondering where the monster punis award likely came from, here it is. During trial, the trial court allowed Victaulic's counsel to question the claims handler, Finberg, who verified responses to requests for admission (RFAs) under penalty of perjury all denying potential for coverage of the claims, about those RFA denials. And the trial court itself interjected questioning that may have revealed disdain for the denials. The following is a large excerpt from the opinion, which quotes the trial testimony, but it's a very worthwhile read (TLDR version: the trial court allowed extensive questioning about the denials, interjected its own questions, and showed disbelief in the witness's testimony with statements like, "I understand now. The facts don’t matter. [¶] Is that what you’re telling me?," followed by the trial court asking to see counsel in chambers):

Confronting Finberg with the responses to the RFAs, counsel for Victaulic asked: “So each of the seven cases at issue in this litigation presented a potential for coverage; right?” Finberg responded, “Are you making a distinction between the handling of the claims or the coverage litigation? Because they’re two separate things.” Counsel then clarified his question, leading to this colloquy: “[MR. JEAN (counsel for Victaulic)]: So in the underlying claims handling, you make a determination as a potential for coverage one way, and then in the coverage case, this litigation, the potential for coverage is determined differently? “[MS. FINBERG]: They’re two separate things. “THE COURT: Answer his question. Are they determined differently? “[MS. FINBERG]: I don’t know that I can answer yes or no because they’re two separate things.” Counsel for Victaulic began to formulate a question, interrupted by the court: “ I can see that we should take our break now.” Following the break, the questioning resumed. This is how it went:

“MR. JEAN: . . . Now, Ms. Finberg, before we left for break we were talking about potential for coverage. [¶] Do you recall that?

“[MS. FINBERG]: Yes.

“[MR. JEAN]: And I think where we left off, you had—you started talking about that maybe you handled the potential for coverage one way in the—when you handled claims, and perhaps in the litigation or this litigation maybe it’s handled differently? [¶] Did I understand your testimony correctly?

“[MS. FINBERG]: Well, there are two separate issues, two separate things.

“THE COURT: That was a yes-or-no question.

“[MS. FINBERG]: I don’t know if I can answer yes or no, Your Honor, the way—

“THE COURT: You don’t know if you can answer that.

“[MS. FINBERG]: The way he asked it. [¶] I’m sorry, would you ask it again.

“THE COURT: Why don’t you rephrase the question. The witness doesn’t understand it.

“MR. JEAN: Thank you. I will. [¶] . . . And I think what I—this is just what I took away from what you’d said and I just want to clarify. [¶] You handle claims every day. You handle Victaulic claims; right?

“[MS. FINBERG]: Yes. “[MR. JEAN]: And we’ll call that claims handling?

“[MS. FINBERG]: Okay, yes. “[MR. JEAN]: Okay. And then you have—where you’re testifying today, we have a litigation?

“[MS. FINBERG]: Yes. “[MR. JEAN]: And that’s a coverage litigation?

“[MS. FINBERG]: Yes. “[MR. JEAN]: And it involves AIG and Victaulic in suit against each other about whether the policies cover the particular claims, the seven underlying claims; right?

“[MS. FINBERG]: Yes. 

“[MR. JEAN]: Okay. So with that baseline understanding, we were talking about the potential for coverage; right? Now, do you handle the potential for coverage or make your assessments as a potential for coverage differently when you handle claims than as is done in this litigation?

“THE COURT: Do you understand the question?

“[MS. FINBERG]: I understand what he’s asked, but it’s hard to answer yes or no to that question, Your Honor.

“THE COURT: Do you use the same analysis to determine if there’s coverage in your claims handling as you would in responding to questions in this lawsuit?

“[MS. FINBERG]: If it’s yes or no, then I would have to say no.

“THE COURT: You don’t?

“[MS. FINBERG]: If I could qualify that.

“THE COURT: You use a different analysis to determine coverage in coverage litigation as in claims handling?

“[MS. FINBERG]: May I— “THE COURT: I’m just trying to get you to say

“[MS. FINBERG]: Thank you. The claims handling I handle no matter what. In these claims that you—the claims that are the subject of the litigation I’ve handled the same all along. Nobody’s asked me to change the way I handle the claims or make any decisions differently than I normally would because of this coverage litigation.

“[MR. JEAN]: But then in connection with the litigation—

“THE COURT: So how is it that your analysis is different if it’s coverage litigation than if it’s claims handling? Isn’t the potential for coverage based on the facts that you find by the plaintiff in the underlying case? Isn’t that where you get the concept of potential for coverage?

“[MS. FINBERG]: In the underlying case, yes, that’s correct.

“THE COURT: So how is that analysis different in a coverage case?

“[MS. FINBERG]: Because in this coverage litigation—

“THE COURT: So what? The facts are the facts, aren’t they?

“[MS. FINBERG]: We’re taking a legal position in this coverage—

“THE COURT: The facts of the underlying cases are the facts of the underlying cases.

“[MS. FINBERG]: Yes, correct.

“THE COURT: Is that right? [¶] And is it an analysis of the facts of the underlying cases that lead you to a determination of whether there’s a potential for coverage?

“[MS. FINBERG]: Yes.

“THE COURT: And that’s both in—wherever you are and whenever you are, that’s the rule; right?

“[MS. FINBERG]: That’s correct.

“THE COURT: Okay. Good luck, Mr. Jean.

“MR. JEAN: Thank you, Your Honor.”

Brief questioning followed, counsel for Victaulic asking Finberg “what AIG is doing in litigation.” Finberg answered: “The only thing I know about this litigation is involving the RFAs that I reviewed with counsel and signed.”

The court said, “excuse me one moment,” and there was a short pause in the proceedings, followed by this:

“THE COURT: Ladies and gentlemen of the jury, before trial each party has the right to ask other parties to admit in writing that certain matters are true. Those are called requests for admissions, RFA. If the other party admits those matters, you must accept them as true. No further evidence is required to prove them, okay? I just wanted to read my usual instruction on discovery.”

Victaulic’s counsel said: “Thank you. I appreciate that. Thank you, Your Honor.”

There followed several pages of questioning by counsel for Victaulic, confirming that Finberg had been deposed as AIG’s person most knowledgeable, and that AIG had decided to defend the claims. Finberg also authenticated the individual insurer’s responses to the RFAs, and acknowledged that she verified those responses. And Finberg pointed out, the insurers’ response: “ ‘Deny’ ” was “after a series of objections.”

Victaulic’s counsel then asked a question beginning with his claimed confusion, leading to some brief questioning by counsel—and then questioning by the court. This is how it all went:

“[MR. JEAN]: So when you were—I’m a little confused because how is it that you could sign these under oath under penalties of perjury and deny the potential for coverage when you knew as a claims handler that there was the potential for coverage?

“[MS. FINBERG]: I think I can clear up your confusion.

“[MR. JEAN]: Yeah. Please do. I mean, that was an open-ended question, so go ahead.

“[MS. FINBERG]: Okay. Thank you. These verifications, these requests for admissions were drafted and provided to me by coverage counsel, Mr. Eads’ office.

“[MR. JEAN]: Yes.

“[MS. FINBERG]: These are legal documents. I’m not an attorney. I’m just an adjuster. And I read them, and I reviewed them with Mr. Eads and his partners and was told, ‘This is a legal position that we’re taking in the coverage litigation. We’re preserving legal issues. We’re asking the Court for guidance, if you will.’ [¶] It had nothing to do with the way I handled my claims. Nobody ever asked me to withdraw a defense or stop handling or change the way I was handling. I signed these as the person most knowledgeable, the legal position asking the Court for guidance.

“THE COURT: So you knew it was false when you verified it under penalty of perjury based on your own understanding of the underlying facts? Is that what you’re telling us?

“[MS. FINBERG]: What was false, Your Honor?

“THE COURT: It’s false that there was, in fact, a potential for coverage under all of those seven. You told us that already today. [¶] And what you’re telling me is that you signed this under penalty of perjury, and you knew it was false?

“[MS. FINBERG]: No, Your Honor. This is not false. I was handling my claims because there was a potential for coverage under all those claims. But these verifications, RFAs, were legal positions that were being taken in this coverage litigation, so . . .

“THE COURT: So you knew that the underlying facts were that it was true that there was a potential for coverage, and yet you write in your verification that you declare under penalty of perjury that the foregoing responses are true and correct?

“[MS. FINBERG]: Right, because that was true and correct to the legal position that was being taken.

“THE COURT: Oh, okay.

“[MS. FINBERG]: So I wasn’t being inconsistent.

“THE COURT: I understand now. The facts don’t matter. [¶] Is that what you’re telling me?

“[MS. FINBERG]: The facts don’t matter in this litigation.

“THE COURT: All right.

“BY MR. JEAN: . . . So—

“THE COURT: May I see counsel in my chambers.”

Slip op. at 15-20.

After the in-chambers meeting, outside the presence of the jury, the court stated on the record that the claims handler Finberg would be allowed to assert Fifth Amendment privilege against self-incrimination:

“THE COURT: All right. Well, I will try to summarize. We’ve had a conversation, counsel and I, in my chambers regarding the testimony of the current witness, and the admission that she perjured herself in her verification. [¶] And at the conclusion of our conversations, it was determined at Mr. Goines’ request that the witness be allowed an opportunity to obtain private counsel and either take the Fifth Amendment and refuse to respond to questions or not. [¶] Consequently in our questioning we’re going to have a different witness this afternoon starting at one o’clock, and Ms. Finberg will be back tomorrow at nine o’clock for continued examination.”

Id. at 21.

Defense counsel moved for mistrial on grounds that the court's interactions with Finberg and questioning Finberg in front of the jury the way that it did and then going into chambers "clearly conveyed to the jury that there was something serious, something was amiss, that Your Honor disbelieved the credibility of the witness, and that is not an impression now that can be cured before the jury," and that the court's questioning of Finberg "telegraphed to the jury that [the court] disbelieved the witness, and that that is invading the exclusive province of the jury to determine the credibility of the witness, and now the jury has the impression that [the court] disbelieves Ms. Finberg...." Id. at 21-22. The trial court denied the motion. Id. at 22.

The next day, Finberg appeared with personal counsel, who told the trial court that Finberg would assert the Fifth Amendment privilege and refuse to testify any further. Id. at 23. Over objection by the defense, who argued that they had a right to ask examine Finberg themselves and that the privilege should be invoked on a question-by-question basis, the trial court ruled that Finberg would be allowed to assert the Fifth Amendment privilege on a blanket basis and not be subject to further questioning. Defense counsel again moved for mistrial, arguing that without being able to ask questions (because the privilege would be invoked on a blanket basis) and "with Finberg’s testimony cutoff midstream, it would be impossible for the insurers to rehabilitate her or give her an opportunity to explain her prior testimony." Id. at 23. Finberg took the stand, and, in front of the jury, asserted the privilege, and was excused. Id.

Okay, whew. So that's much of the trial record cited by the Court of Appeal. Now on to the appeal. And yes, as you can imagine, this resulted in a reversal.

First, the Victaulic court held that it was error to admit the RFAs into evidence. The court first cited Gonsalves v. Li, 232 Cal. App. 4th 1406 (2015), which held that it was error to allow questions about RFAs at trial. Among other reasons, Gonsalves cited the well-known opinion of Rifkind v. Superior Court, 22 Cal. App. 4th 1255 (1994), for the proposition that it is improper to ask "legal contention questions" at a deposition because those questions require a party to make a "'law-to-fact application' that is beyond the competence of most lay persons." See slip op. at 24. (If Rifkind and Gonsalves aren't in your deposition and trial folders, add them immediately, along with Victaulic.) The Gonsalves court applied that reasoning to questioning about qualified denials of RFAs during trial in front of a jury. See id.

Among other things, the Gonsalves court cited a Massachusetts opinion holding that RFAs are not admissible at trial and discussing that (1) the purpose of an RFA is to narrow an issue for trial and identify the issues and facts that must be proved, but (2) a denial of an RFA "is not a statement of fact; it simply indicates that the responding party is not willing to concede the issue and, as a result, the requesting party must prove the fact at trial," and further cited opinions from Florida, Missouri, and Texas that are in accord. See id. (Check out Gonsalves for the details and discussion.)

The Victaulic court then noted that Finberg's testimony at trial showed that she signed the RFA denials to take a legal position. It doesn't matter whether the denial was inconsistent with other trial testimony---the RFA denials were inadmissible and it was error to allow questioning about them. (Note that the opinion seems clear that it is error to allow any questioning on RFAs in any form and for any reason, including to show bad faith in an insurance-bad-faith case. See slip op. 24-26.)

Second, the Victaulic court held that the trial court's own interrogation of Finberg was prejudicial error. By questioning Finberg as it did, the trial court violated the principle that any questioning of a witness must be carefully done so that the jury does not perceive that the judge disbelieves the witness, constituting improper error:

While it is difficult to read inflection, or tone, or demeanor from a cold transcript, any fair reading of the transcript here lends support to the insurers’ contention that the court “openly mocked Finberg on the stand, acting as an advocate for Victaulic.” It began when Finberg attempted to explain the distinction between her role as a claims handler and the insurers’ legal positions reflected in the RFA responses; the trial court apparently grew frustrated and intervened with the admonition to “[a]nswer his question.” Two pages later was more of the same, telling her that Victaulic’s counsel’s question was a “yes-or-no question.” Then, when Finberg said she was not sure she could answer with a simple yes or no, the court, apparently incredulously, said: “You don’t know if you can answer that?” Two pages later, the court took over the questioning the first time, telling Finberg, “I’m just trying to get you to say yes or no. You’ll be given plenty of opportunities to make your explanations.” The court also asked Finberg to admit that the “facts are the facts, aren’t they?” and then turned Finberg back over to Victaulic’s counsel, remarking: “Good luck, Mr. Jean.”

Before long, the court intervened again, acting as cross-examiner for Victaulic, in the colloquy quoted above, grilling her with questions including: “So you knew [the RFA denial] was false when you verified it under penalty of perjury based on your own understanding of the underlying facts? Is that what you’re telling us?” Finberg responded with a question, to which the court said, “It’s false that there was, in fact, a potential for coverage [for all of the underlying claims]. You told us that already today. [¶] And what you’re telling me is that you signed this under penalty of perjury, and you knew it was false?” Finberg said: “This is not false. I was handling my claims because there was a potential for coverage under all those claims. But these verifications, RFAs, were legal positions that were being taken in this coverage litigation, so . . . .” The court interrupted: “So you knew that the underlying facts were that it was true that there was a potential for coverage, and yet you write in your verification that you declare under penalty of perjury that the foregoing responses are true and correct?” Finberg answered, “Right, because that was true and correct to the legal position that was being taken. [¶] . . . [¶] So I wasn’t being inconsistent.” The court’s interrogation ended with this:

“THE COURT: I understand now. The facts don’t matter. [¶] Is that what you’re telling me?

“[MS. FINBERG]: The facts don’t matter in this litigation.”

Slip op. at 29-30.

This constituted misconduct that, the court noted, in other cases resulted in reversal based on such misconduct alone. Id. at 30. 

But the Victaulic court wasn't done.

Third, the Victaulic court also held that the trial court mishandled Finberg's invocation of the Fifth Amendment privilege in a way that constituted prejudicial error.

On this issue, the trial court first erred by ruling that Finberg could take a blanket waiver and that the defense would not be allowed questions to rehabilitate her or to have her tell their side of the story (with the trial court allowing Finberg's testimony up until that point to remain rather than striking all of it). See slip op. at 33-34. Once a witness has testified on a topic, questioning by the other side must be allowed; otherwise, the integrity of the fact-finding process is undermined if a witness is only questioned by one side and then asserts privilege and is not subject to questioning by the other side. Id. at 33. The trial court committed error by violating this rule, having Finberg testify under questioning by the plaintiff, but then refusing to allow rehabilitation questioning by the defense and requiring blanket assertion of the privilege. Id. at 33-34 ("Victaulic was allowed to examine Finberg. The insurers were not. This was error . . . . The court nevertheless ruled as it did, allowing Finberg’s testimony to remain in the case without more, to devastating effect.")

Finally, the trial court should not have allowed Finberg to invoke the privilege on a blanket basis. A witness is not allowed to make a blanket refusal to testify---invocation of the Fifth Amendment privilege must be made on a question-by-question basis. Id. at 34 (citing Warford v. Medeiros, 160 Cal. App. 3d 1035, 1045 (1984) ("For the reasons set forth in the federal case law, we hold that a blanket refusal to testify is unacceptable; a person claiming the Fifth Amendment privilege must do so with specific reference to particular questions asked or other evidence sought. We hold, additionally, that once this is done, the trial court must undertake a particularized inquiry with respect to each specific claim of privilege to determine whether the claimant has sustained his burden of establishing that the testimony or other evidence sought might tend to incriminate him.").

Additionally, Finberg testified about much more than the RFA denials, yet the trial court refused to allow questioning on those relevant topics, even though there would have been no basis to invoke the Fifth Amendment privilege for those topics and questions (because the potential perjury issue related only to the RFA denials). That, too, was error. Id. at 34-35.

But, the Victaulic court held, "perhaps the most egregious error was yet to come, making Finberg invoke the privilege in front of the jury." Id. at 35.

Numerous opinions hold that it is improper to have a witness take the stand only to assert the Fifth Amendment privilege in front of the jury---this " 'would only invite the jury to make an improper inference' from the invocation of the privilege." Id. (quoting People v. Frierson, 53 Cal. 3d 730, 743 (1991)). The Victaulic court included this nice statement of the law: 

As one Court of Appeal summed up: “Once a court determines a witness has a valid Fifth Amendment right not to testify, it is, of course, improper to require him to invoke the privilege in front of a jury; such a procedure encourages inappropriate speculation on the part of jurors about the reasons for the invocation. An adverse inference, damaging to the defense, may be drawn by jurors despite the possibility the assertion of privilege may be based upon reasons unrelated to guilt. These points are well established by existing case law. (See, e.g., People v. Mincey [(1992)] 2 Cal.4th [408,] 441.)”

See Id. at 35-36 (quoting People v. Lopez, 71 Cal.App.4th 1550, 1554 (1999)).

The impact of the errors discussed above was borne out during the questioning of other witnesses (see, e.g., slip op. at 36 (excerpt of trial transcript showing questioning of another witness for a response about about Finberg lying at trial, a question that would never have happened or been allowed had the RFA denials been excluded)), and during closing argument. This is a long excerpt, but again worth the read (TLDR version: the RFA denials and argument about Finberg "lying" and asserting privilege was powerfully used in closing):

Early in Victaulic’s closing argument, counsel referred to Finberg’s response that she opened some claim files because she was told to by Taylor, that she was just “ ‘doing what [she was] told.’ ” And then counsel said this:

“Zero basis to open this. And she just does it anyway. Ms. Finberg had more than 35 years of experience in the business. She ran the fraud investigation unit at Sequoia. She knew exactly what she was doing. Incredibly, it didn’t stop there. Because what happened after that? AIG decides it’s going to lie on the RFAs.

“Remember, these are requests for admission. These are documents that are submitted under oath, penalties of perjury. They are designed to help parties narrow the issues in dispute. They are required under the law to answer these truthfully.

“And how did they respond? Forty, more than 40 times, how did they respond? You walked through these with Mr. Van de Voorde. I’m not going to go through all of them with you today. But deny. Admit the potential for coverage under one or more of the insurance policies. Deny. [¶] . . . [¶]

“So they send Ms. Finberg out. They authorize her. She says, ‘I’m the chief of PMK,’ and that, if you remember, is the person most knowledgeable. That is a very important person in the litigation process. It is someone who is authorized by the defendant or by the plaintiff. . . . The person authorized by the company to testify under oath, penalties of perjury, and give their response. And you heard her say she was the PMK on these RFAs.

“Now, this is a long way of getting to AIG breached the contracts. I’m going to walk through the verdict form in a few minutes. But they breached it. They knowingly breached it. They fraudulently breached it by lying, and they did it in bad faith, ladies and gentlemen.”

Victaulic’s counsel then moved to the verdict form, saying that he couldn’t “possibly hope to summarize it all today. We’ll be here for several days.” But he did “walk through” it, and following discussion on the “breach of contract” question, said the jury must move to question Nos. 2 and 3, damage caused by the breach, which he would try to “summarize.” And, he said, the “easiest place . . . to look is Exhibit 1267, because that summarizes all in one place the monetary component of that harm.”

The argument then turned to question No. 4 on the verdict form, bad faith. After reading from a portion of CACI No. 2337, off counsel went, with the “lies,” the “subterfuges and evasions.” This was it:

“Subterfuges and evasions. That’s what we have heard about over the last three weeks. Conduct that does not comply with community standards of decency, fairness and reasonableness. We heard a lot about that, too.

“During my opening, I said, ‘These are the very lessons that we teach our children. The rules that we all try to live by.’ Keep our promises, act fairly and honestly. And perhaps most importantly, don’t lie.

“You’ll recall that AIG lied in over 40 of its responses, requests for admission. Important documents that AIG fraudulently used to perpetuate this litigation, even though its claims handlers knew the response was wrong. Important documents that AIG used to fraudulently deny Victaulic policy benefits.

“Now, AIG seems to suggest that that was okay, and its lies are okay as long as we had a reason for it, and as long as there was an explanation to why we lied. Now, these, of course, are the requests for admission. There’s a stack of them. We all know Ms. Finberg verified them with the authorization.”

Then, after a brief description of a request for admission, and that Finberg verified them, counsel said this:

“How did you verify under penalty of perjury interrogatory responses that point to a document you had never seen before, you don’t have any knowledge of? You don’t. Another lie.

“This is the type of conduct that complies with these community standards of decency, fairness or reasonableness, or is it just subterfuge or evasion? I submit the latter. And it is this type of despicable conduct that screams out bad faith. It’s AIG’s lies and misrepresentations to Victaulic and the courts that cause Victaulic to incur more than $10 million in fees to get here today before you. And asking you to render a verdict in our favor.

“Now, you heard Jim Schratz. Done a lot of claims handling. He testified that this is one of the worst cases of bad faith—well, he didn’t use bad faith. He said one of the worst cases in the industry he had ever seen, top five. And this is the guy who has seen it all.” There were “lies in the coverage positions,” counsel went on, three pages later referring to the RFAs “[u]nder oath, penalties of perjury.”

Turning then to the claim for damages from the claimed bad faith, counsel referred to exhibit No. 1179, Schratz’s expert witness summary, arguing that what Victaulic seeks is an award, “I’m rounding, $8.25 million in fees.” The actual amount in the summary was $8,232,677.68.

The argument concluded with the issues regarding punitive damages, and CACI instruction No. 3946. It was a “long” instruction, counsel said, and he was “not going to go through all of it here.” But summarizing a few paragraphs, beginning with: “Conduct. Malice, oppression or fraud,” this is what counsel said:

“So let’s look at these, and we’ll look at the conduct you saw throughout the case. But first, let’s focus on the conduct. Malice. What does ‘malice, oppression’ mean? It’s in your jury instructions. Not words that we commonly use. But malice and oppression. Despicable conduct. Knowing disregard for someone else’s rights. Fraud. Intentional misrepresentation or concealment of a material fact plus an intent to harm.

“We have that here. Both of these. AIG’s lying on the RFAs, lying on the interrogatories is despicable under any measure. Under oath, penalties of perjury. They know what they are doing. They lied. And they did it with complete disregard for the law and for Victaulic’s rights. Not only, though, do those constitute, those RFAs, the interrogatories, do they constitute malice and oppression. It’s fraud. It is fraud. They knew what they were doing and they intentionally misrepresented the facts.

“You heard Ms. Finberg. The facts don’t matter in litigation. The facts don’t matter. It’s the only witness that said that. . . .  

“Now, one of the things that in retrospect, when I was thinking about the crossexamination of Ms. Finberg, I was thinking, okay. So you’re wearing your claim adjuster hat and you’re wearing your litigation hat. And you know what? There’s not two hats. There’s not two hats. There’s one hat. You get to tell the truth. You have to tell the truth. She knew it. She signed the request for admission. She was authorized to do so. AIG knew and they let her do it. They made her do it. And that is despicable.

“And I think I personally felt a sense of disgust when I, at that moment when I realized she admitted to lying. That’s something that just doesn’t happen. Shouldn’t happen. Shouldn’t happen in documents and shouldn’t happen in business and shouldn’t happen in our everyday lives. Certainly not on—certainly under oath. Certainly not under penalty of perjury. Certainly not by someone who ran a fraud investigation unit and knows better.

“Was it intentional? Absolutely, absolutely. Ms. Finberg testified. Her attorneys told her, ‘This is the legal position we are taking in the coverage position,’ and she continued. Nobody ever asked me to withdraw a defense or stop handling or changing the way I was handling. I signed these as the person most knowledgeable. The legal position asking the courts for guidance. Asking the courts for permission while lying about it. That is just not right.

“AIG would not change its position in any of the underlying matters based on the facts until it was forced to do so, and then in litigation, rather than relying on the facts, it falsified the facts. It falsified the requests for admission and it falsified the interrogatory responses. We went through all the other ones that she responded to. All 40 of them. And those are all examples of malicious, oppressive and fraudulent acts.”

Victaulic’s final argument was, as he promised, “extremely brief,” three pages to be exact. It began this way: “Yes. Thank you, Your Honor. I’ll be extremely brief. Mr. Goines had a quite shining presentation, very impressive. But if you scratch a little bit under the surface, you will see that it is based upon—virtually entirely upon lies and misrepresentations.

“And I know that you sat here through three and a half weeks of trial. It was actually quite difficult for me to listen to because of that. The lies and the misrepresentations. But you sat here for three and a half weeks. You listened to the testimony. You heard the evidence. You saw the evidence.

“And I’m not going to go over everything. I’m not going to show you what he misrepresented. I’m going to leave it to you to find the truth for yourself. Because it is there. But I do want to say one thing. Mr. Goines, AIG is asking for you to look at reasonableness under a lens that lies are reasonable. Lying under oath on more than 40 RFAs, requests for admission that could have brought this case to an end a year ago. That is okay. And if that is the standard, then everything they did, everything is reasonable. And that is just not acceptable.”

Slip op. at 37-41 (footnotes omitted).

The Victaulic court made clear that the powerful influence of closing argument---and the "exploitation" during closing of the trial court's errors during the trial---"surely influenced" the verdict:

There is no question that the closing argument can play a significant role in assessing whether error was prejudicial. (Veronese v. Lucasfilm Ltd. (2012) 212 Cal.App.4th 1, 26–27.) As described in detail above, Victaulic’s argument was Finberg, Finberg, Finberg; RFAs, RFAs, RFAs; her lies, lies, lies; and plenty of “penalty of perjury.” Countless times Finberg’s name and those terms were mentioned, culminating in the argument that ultimately led to the punitive damages: “[M]alice and oppression. Despicable conduct. . . . [¶] We have that here. . . . AIG’s lying on the RFAs, lying on the interrogatories is despicable under any measure. Under oath, penalties of perjury. They know what they are doing. They lied.” Lest the jury miss the point, Victaulic’s counsel added that he “personally felt a sense of disgust when I, at that moment when I realized she admitted to lying. That’s something that just doesn’t happen. Shouldn’t happen. Shouldn’t happen in documents and shouldn’t happen in business and shouldn’t happen in our everyday lives. . . . Certainly not under penalty of perjury.”

The series of trial court errors in handling Finberg’s testimony, coupled with Victaulic’s exploitation of those errors in closing argument, surely influenced the bad faith verdict, especially as the vote was nine to three. (See Robinson v. Cable (1961) 42 55 Cal.2d 425, 428 [“The fact that only the bare number of jurors required to reach a verdict agreed upon the verdict” lends support to finding of prejudice]; Whiteley v. Philip Morris, Inc. (2004) 117 Cal.App.4th 635, 665 [10-to-two verdict was “close”].)

Superimposed on the above is that there were multiple errors which, as our colleagues have put it, is significant in and of itself: “Without attempting to analyze separately these issues of prejudice, we conclude that the cumulative effect of the errors was unquestionably to make it ‘reasonably probable that a result more favorable to the appealing party would have been reached in the absence of the error[s].’ ” [citations] Likewise here. 

Slip op. at 42-43. 

Judgement reversed.



Cal Supremes grant review in closely watched Kim v. Reins, which held that settling individual wage-hour claims results in destruction of standing to prosecute an enforcement action under the PAGA

Update: California Supreme Court grants review in Lawson v. Z.B., N.A.