Firm’s $58-Million Judgment Against Its Insurer Reversed

A state appeals court Tuesday reversed a $58-million judgment against Los Angeles-based Farmers Insurance Group in a bad-faith lawsuit brought by Surgin Surgical Instrumentation Inc., a small Tustin company.

A three-judge panel for the 4th District Court of Appeal in Santa Ana ruled that the big insurance company wasn’t properly notified of its potential liability in the lawsuit.

However, the panel also ruled to affirm a finding made five years ago by a lower Orange County trial court that Farmers had engaged in flagrant abuse of the process of legal discovery.

Lawyers for both sides said the lawsuit likely will go back to the lower court for trial. Farmers lawyer Irving Greines called Tuesday’s ruling a “big victory” but said the panel’s ruling on discovery abuse was disappointing and that the company would vigorously defend itself if a trial proceeds.

Dan Callahan, a lawyer for Surgin Surgical, said, “I’ve had better days. I’d prefer to have a check for $58 million.” The appellate ruling on abuse should strengthen the company’s case at trial, he said.

Surgin Surgical originally sued Farmers charging failure to provide a legal defense in a lawsuit brought against the Tustin company by a competitor, Irvine-based Alcon Laboratories, a unit of Swiss food giant Nestle S.A. Alcon had alleged that Surgin infringed a patent for a device used in cataract surgery and made false advertising claims.

Callahan said Surgin couldn’t afford to fight the suit, thus it settled with Alcon and withdrew its device from the marketplace.

Callahan said Surgin has paid his firm $303,000 to represent it in the appeal. Company officials couldn’t be reached for comment.