Brandt Fees Are Part of the 1 in State Farm's Punis Ratio

Nickerson v. Stonebridge Life Ins. Co., No. S213879 (Jun. 9, 2016).

I wrote about this case back in 2013 when it was decided by the Court of Appeal. The focus of my post was on an instructional issue. But the Supreme Court granted review on a different issue in the case—one that merited three sentences paragraph in the Court of Appeal’s opinion: When deciding whether punitive damages in a bad faith insurance case exceed the constitutionally proscribed ration of nine or ten time the actual damages, should the baseline include so called Brandt fees. These are fees that, notwithstanding the American rule, can be recovered by an insurance coverage plaintiff to compensate for legal costs of obtaining coverage over the carrier’s objection. The Court of Appeal said they could not, citing a 2010 case on the point. But the Supreme Court—with Justice Kruger writing for a unanimous court—disagrees. Brandt fees are an element of compensatory damages in a bad faith case. It is thus appropriate to consider them as part of the starting point in the State Farm/Gore analysis, which puts a nine- or ten-to-one ratio of punitives to compensatories at the outer limits of the state’s power to punish. That’s the case even when the parties follow the common practice—as happened here—of stipulating to have the court calculate Brandt fees post-trial in the event of a bad faith verdict in the plaintiff’s favor.

Reversed.