Award Ruled Excessive in ‘Bad Faith’ Insurance Case

The 2nd District Court of Appeal on Tuesday reversed as “excessive” a $13.7-million jury verdict for a Calabasas couple whose insurance company failed to help when an injured customer sued them.

When the verdict was handed down before Los Angeles Superior Court Richard I. Ibanez in 1983, it was considered the largest award in the relatively new field of “bad faith” insurance cases in which an insurer is sued for failing to pay claims promptly or fully.

Jurors had awarded $659,231 in compensatory damages and $13,054,479 in punitive damages to Bill Berk and his wife, Jacqueline, former owners of Blue Haven Pools of Sherman Oaks. The verdict was against National Union Fire Insurance Co. of Pittsburgh.

The Berks’ suit stemmed from a dispute seven years ago when the pool company was sued for $5 million by a customer, Mark Faubert, who became a paraplegic after he dived into his newly built pool and hit his head on an underwater love seat.

Because National Union carried comprehensive liability coverage for Blue Haven Pools, Berk asked the insurer to defend him in the lawsuit and pay any damages. But the insurance carrier refused, denying that it even insured the pool company.

Berk had lost his original insurance policy in a fire, but copies of it and certificates of insurance convinced jurors that valid coverage had existed and that National Union should have backed Berk in the liability suit.

The state appellate court’s 51-page opinion, written by Justice Elwood Lui, with the concurrence of Justices George Danielson and Armand Arabian, concluded that the pool company was validly insured and that the carrier should have defended it against Faubert’s suit.

But the justices overturned the compensatory damage award, noting that the Berks suffered little emotional distress and that the amount was “not justified by the evidence and is excessive as a matter of law.”

In reversing the punitive damages, Lui wrote: “The $13-million punitive damage award is grossly disproportionate to (National Union’s) net worth and net income, and (National Union’s) conduct did not justify the extraordinarily large punitive damage award. . . .”

The case can now be retried on the amount of damages.

The Berks had settled the customer’s suit out of court in 1980 by paying him $825,000, partly from another insurance company’s coverage and partly out of their own pocket.