Opinion ID: 1217902
Heading Depth: 1
Heading Rank: 1

Heading: self punishment

Text: Civil Code section 3294 provides: In an action for the breach of an obligation not arising from contract, where a defendant has been guilty of oppression, fraud, or malice, express or implied, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant. An action based on an implied covenant must be considered an action arising from contract. Punitive damages are an anomaly in our civil jurisprudence. The civil law is concerned with vindicating rights and compensating persons for harm suffered as a result of infringement upon those rights. A plaintiff is customarily made whole for infringement by compensatory damages; punitive damages awarded to him rather than to the government constitute a windfall or unjust enrichment for plaintiff. (See, e.g., Carsey, The Case Against Punitive Damages (1975) 11 The Forum 57, 60; Note, Insurance Coverage of Punitive Damages (1974) 10 Idaho L.Rev. 263, 268.) The purpose of punitive damage is to punish wrongdoers, deterring further commission of wrongful acts. ( Evans v. Gibson (1934) 220 Cal. 476, 490 [31 P.2d 389]; Morris, Punitive Damages in Tort Cases (1931) 44 Harv.L.Rev. 1173, 1183.) In the usual case, risk of liability for compensatory damage provides a substantial deterrent against wrongful conduct, and additional deterrence furnished by the risk of punitive damage is marginal at best. (Long, Punitive Damages: An Unsettled Doctrine (1976) 25 Drake L.Rev. 870, 888; Ghiardi, The Case Against Punitive Damages (1972) 8 The Forum 411, 418; Note, The Imposition of Punishment by Civil Courts: A Reappraisal of Punitive Damages (1966) 41 N.Y.U.L. Rev. 1158, 1161-1173.) [1] The principal criticism to the concept of punitive damage is that standards are so vague that the determination whether to award is left to absolute and unguided jury discretion. ( Brewer v. Second Baptist Church (1948) 32 Cal.2d 791, 801 [197 P.2d 713]; Ferraro v. Pacific Fin. Corp. (1970) 8 Cal. App.3d 339, 351 [87 Cal. Rptr. 226].) And the damages when awarded are wholly unpredictable amounts bearing no necessary relation to the actual harm caused. ( Gertz v. Robert Welch, Inc. (1974) 418 U.S. 323, 350 [41 L.Ed.2d 789, 811, 94 S.Ct. 2997]; Ghiardi, The Case Against Punitive Damages, supra, 8 The Forum 411, 413-414.) Others correctly criticize when the cost of punitive awards may be passed on to the public, resulting in a public subsidy of plaintiff windfalls. (Note, Insurance Coverage of Punitive Damages, supra, 10 Idaho L.Rev. 263, 268; Carsey, The Case Against Punitive Damages, supra, 11 The Forum 57, 60.) Such result, obviously contrary to sound public policy (cf. Gov. Code, § 818 (no punitive damages against a public entity)), is nonetheless risked when punitive damages are awarded against an insurer for deficiencies in its claims practice. (Cf. Borer v. American Airlines Inc. (1977) 19 Cal.3d 441, 447 [138 Cal. Rptr. 302, 563 P.2d 858].) The risk becomes a certainty for mutual insurance companies like Mutual. Because future premiums are based largely on past loss experience and administrative expense in the industry, such premiums can be expected to reflect punitive damages paid by the industry. The public, then, is in the peculiar and indefensible position of penalizing itself with the payment going as unjust enrichment to someone for whom the tort law, through the medium of compensatory damages, already fully provides. (Long, Punitive Damages: An Unsettled Doctrine, supra, 25 Drake L.Rev. 870, 888; Note, Insurance Coverage of Punitive Damages, supra, 10 Idaho L.Rev. 263, 268.) [2] Because each insurer can be expected to attempt to increase its profits and reduce its losses, punitive awards will serve as a substantial deterrent. [3] However, the question raised is whether the deterrent factor is of sufficient importance to justify penalizing the public to support the unjust enrichment of the plaintiff, or whether we should adopt special rules eliminating awards of punitive damages where it is likely the cost will ultimately be borne by the public. [4] In determining whether the deterrent factor of punitive damages warrants the public punishing itself to unjustly enrich the claimant, it must be borne in mind that there are alternative deterrents to improper insurer claim practices. An insurer improperly denying benefits and breaching its covenant of good faith and fair dealing is not only liable for all compensatory damages  including damages for mental distress  but can also expect to incur substantial counsel fees and litigation expenses. Considering such deterrent factor, I am of the view that the public should not punish itself for the unjust enrichment of the claimant, and we should not impose punitive damages for improper claims practices. Although in other situations actions for breach of the obligations imposed by the implied covenant of good faith and fair dealing have been said to sound in both contract and tort, it must be concluded that within the meaning of the punitive damage statute (Civ. Code, § 3294), such an action is one for the breach of an obligation ... arising from contract, making the statute inapplicable.