Bad-Faith Insurance Award Tops $40 Million

A Canadian-based women’s sportswear firm has won a $40.3-million verdict in a bad-faith insurance case that arose out of a 1978 accident in which a Torrance man lost a leg.

A Los Angeles Superior Court jury awarded $5.3 million in compensatory damages and $35 million in punitive damages Tuesday to Winnipeg-based Tan Jay International Ltd. from the Canadian Indemnity Co. The total figure, awarded by a unanimous jury, is one of the largest sums ever won in this type of case, attorneys said.

The suit, heard before Judge James G. Kolts, arose out of an accident that occurred when Tan Jay employees attempted to tow a sailboat from Marina del Rey to Gardena, according to Douglas G. Gray, Tan Jay’s attorney.

The sailboat, which belonged to Tan Jay owner Peter Nygard, was being taken to Gardena for use as an advertising prop, Gray said.

Tan Jay “sent the wrong people” to move the boat, and they began moving it without lowering the mast, Gray said. The mast struck a power line, and a passenger, Douglas Michaelson, 26 at the time, suffered electrical shocks that caused severe burns and the loss of a leg.

Michaelson won a $4.4-million judgment from Tan Jay and another defendant in 1983; it was later reduced to $2.15 million, Gray said.

Although Tan Jay had purchased a comprehensive business liability policy from Canadian Indemnity, the Winnipeg-based insurer claimed that the policy did not cover the incident.

According to court documents, the Canadian Indemnity policy covered up to $500,000 in liability, but the insurance company--in line with the advice of its Long Beach-based attorney, Joseph Ryan Jr.--refused to pay Michaelson that sum.

Ryan, who also defended Canadian Indemnity against Tan Jay’s lawsuit, was not immediately available for comment Wednesday.

According to court documents, Ryan argued on Canadian Indemnity’s behalf that its policy did not cover the incident because transport of the privately owned sailboat “had no connection . . . to the ‘business operations’ of the garment manufacturer.”

The jury, however, found that transport of the sailboat was a legitimate business activity.

Multimillion-dollar verdicts in bad-faith insurance cases have become increasingly common in recent years, but judges and appeals courts frequently reduce the figures. An appeal is expected in this case.