Jury Award Against Farmers Insurance Upheld : Courts: The firm, which is ordered to pay $58 million in damages to Cypress firm, plans to appeal the decision.

A Superior Court judge Friday upheld a $58-million jury award against Farmers Insurance Co. and one of its subsidiaries, making the $56 million in punitive damages the largest to face appellate review in California, according to lawyers involved in the case.

During a 90-minute hearing before Judge Byron K. McMillan, Farmers attorney Bruce N. Graham argued that the jury verdict in favor of a Cypress engineering firm, its founder and four others last July was made with passion and prejudice against an industry that does not currently enjoy the public’s esteem.

“This is a judgment against the entire insurance industry,” he said. “We are not the entire insurance industry.”

Graham asked the judge to overturn the jury award and order a new trial.

William H. Ford III, who represented one of the plaintiffs in the action, said the sizable judgment against the insurance company, with its $1.6 billion in assets, should stand, noting that “nothing short of this punitive damage will deter Farmers in the future.”

Following McMillan’s ruling upholding the judgment, a Farmers spokesman in Los Angeles said the company would take the case to the state Court of Appeal.

“We believe the decision handed down in this case was an improper one,” the spokesman said. “Farmers intends to file an appeal and believes in the validity of its position.”

The case stemmed from a contested stock sale of Marmac, a Cypress engineering firm founded by James R. Waller Jr. A minority stockholder challenged Waller’s 1986 decision to sell his 60% ownership in the firm to four other employees. The minority stockholder sued, alleging that Waller and the others conspired against him.

Waller and the four others sought to get Truck Insurance Exchange, a subsidiary of Farmers, to finance their legal defense, a provision, they claimed, was included in Marmac’s comprehensive general liability policy.

But Waller and the others were unsuccessful in getting Truck Insurance Exchange to honor the claim. They in turn sued the insurance company and Farmers.

Waller, 58, was later exonerated in the suit filed by the minority stockholder, but the case against the others is still in Orange County Superior Court.

In July, following a 10-week trial, a jury found that Truck Insurance Exchange and Farmers acted in bad faith and committed “malice, fraud and oppression” toward Marmac, Waller and the four others when the company rejected their claim.

The jury originally awarded $60 million in punitive damages and about $2 million in actual damages. McMillan, who was the trial judge, trimmed about $4 million from the punitive damages Friday.

Ford, a Los Angeles attorney who represents Waller, said the punitive damages will be the largest ever appealed to the state Court of Appeal.

Graham told Judge McMillan that none of the plaintiffs in the case had suffered any actual injury, and “that alone would require a new trial.”

He argued that the damages were excessive because the decision of denying the insurance claim was made by inexperienced employees and was not company policy.

“As long as insurance companies are run by people, there will be mistakes,” Graham said. “People make mistakes.”

But Ford and John J. Kendrick Jr., a Newport Beach attorney representing the four other plaintiffs, argued that the punitive damages should remain high to ensure that Farmers and other insurance companies in the future do not deny legitimate claims from their policyholders.

“We are doing the public’s work here,” Ford said.

In an earlier interview, Waller said he waited almost a year for the insurance company to begin paying for his defense. “I couldn’t get anyone to answer my letters or sit down and talk with me, period,” he said.

The insurance industry has been under fire since voters demanded reforms by passing Proposition 103, which called for sweeping insurance rate rollbacks. The proposition has been the subject of an ongoing legal fight ever since its passage in 1988.