Opinion ID: 1217902
Heading Depth: 1
Heading Rank: 4

Heading: Segal

Text: Following his surgery on 26 February 1971, plaintiff submitted a new proof-of-loss form on 5 April 1971. This claim was assigned to defendant Segal, an agency claims adjuster. Segal was aided in his field investigations by claims analyst Romano from Mutual's home office. Although not entirely clear, it appears Romano was assigned to the agency to assist in a backlog of field investigations. Romano was not Segal's superior; rather, he occupied a position equivalent to Segal's position with the agency. Segal and Romano, in the course of their field investigations, reviewed records of Workers' Compensation Appeals Board, State Compensation Insurance Fund, and the hospital where plaintiff's surgery was performed. State Compensation Insurance Fund records contained letters from Dr. Carpenter, plaintiff's surgeon, and Dr. Singelyn. Dr. Carpenter stated in his letter: [plaintiff's medical] history appears consistent with a man with probable discogenic disease with multiple aggravations over the last several years, finally culminating in a specific incident a little over seven months ago.... Dr. Singelyn stated in his letter: I would apportion 50% of his current subjective complaints to his industrial injury, and 50% to the natural progression of his preexisting pathology of degenerative wear and tear osteoarthritis of the spine. Neither Segal nor Romano made an effort to reach plaintiff's physicians. Based on Segal's review of medical records, plaintiff's condition was reclassified from one of injury to one of nonconfining illness. In May 1971 Segal visited plaintiff at home, telling him he suffered from an illness  not an injury. Segal handed plaintiff a check for medical costs and three months' disability payments, the maximum benefits for disability due to nonconfining illness. Plaintiff did not cash the check. He testified he refused Segal's offer of a larger check if plaintiff would surrender his policy. In addition to the tendered benefits for illness, the policy provided for lifetime benefits if the insured became totally disabled as a result of an accidental injury independent of sickness and other causes. The only reasonable construction of the information reviewed by Segal was that plaintiff's disability was due to sickness or other causes in addition to the accident. Plaintiff's surgeon reported discogenic disease, and the other doctor reported preexisting pathology. Again, insofar as the majority opinion may indicate that Segal should have paid accident benefits on the basis of the information available to him, it is unreasonable. Insofar as the opinion suggests that Segal's refusal to pay such benefits warrants an award of punitive damages, it is absurd. What practices are the majority attempting to deter by allowing punitive damages? Is it an improper insurance practice warranting punitive damages to deny claims when the medical reports of the plaintiff's treating physicians show that no benefits are due? The only significant wrongful conduct on the part of the adjusters was that they did not make efforts to discuss the case with the physicians, instead relying upon the physicians' written reports. [8] Testimony at trial established that efforts to discuss the case with the attending physician would ordinarily have been made by a claims adjuster. [9] However, the failure to make efforts to consult the physicians shows only a careless mistake. The adjusters, at most, acted on the basis of a careless mistake. (See Wolfsen v. Hathaway (1948) 32 Cal.2d 632, 649 [198 P.2d 1].) The fact the information resulted from poor investigation does not elevate their mental states to malice. An act performed on the basis of erroneous information, when the error is unknown, does not constitute oppression or fraud and cannot be equated with conduct conceived in a spirit of mischief or with criminal indifference.... Mere negligence, even gross negligence, is not sufficient to justify an award of punitive damages. ( Gombos v. Ashe, supra, 158 Cal. App.2d 517, 526-527.) [10] Moreover, even assuming the adjusters' conduct could be found to be malicious, such conduct may not be imputed to Mutual for purposes of sustaining a punitive award. Although the doctrine of respondeat superior generally imposes liability on an employer for the torts of its employees, the doctrine will not support an award of punitive damages against a principal. ( Ebaugh v. Rabkin (1972) 22 Cal. App.3d 891, 895 [99 Cal. Rptr. 706].) Punitive damages may properly be awarded against a principal for the acts of its agent only if: (a) the agent was employed in a managerial capacity and acted within the scope of his employment; (b) the principal ratified or approved the act; (c) the principal authorized the performance and manner of performing the act; or (d) the agent was unfit and the principal was reckless in employing him. ( Deevy v. Tassi (1942) 21 Cal.2d 109, 125 [130 P.2d 389]; Hale v. Farmers Ins. Co. (1974) 42 Cal. App.3d 681, 691 [117 Cal. Rptr. 146]; Rest.2d Torts (Tent. Draft No. 19, 1973) § 909.) A managerial employee for purposes of imposing punitive damage must occupy a high level policy-making  as opposed to a policy-implementing  position. (E.g., Lowe v. Yolo County etc. Water Co. (1910) 157 Cal. 503, 510-511 [108 P.2d 297] [corporate president]; Davis v. Local Union No. 11, Internat. etc. of Elec. Workers (1971) 16 Cal. App.3d 686, 698 [94 Cal. Rptr. 562] [No. 2 man]; Toole v. Richardson-Merrell, Inc. (1967) 251 Cal. App.2d 689, 712 [60 Cal. Rptr. 398, 29 A.L.R.3d 988] [high level management].) When those who control the corporation, and who are in essence the corporation itself, seek to further its interest through adoption of malicious, oppressive, or fraudulent policies, imposition of punitive damages may achieve its deterrent purpose because such award is directed at the corporation itself. However, to impose punitive damages because one of the corporate employees improperly applied an otherwise lawful and reasonable corporate policy, simply serves to enlarge judgments. In such case, the corporation itself may not properly be considered the actual wrongdoer. It has formulated policies and directed its employees in a manner consistent with the law. The deterrence, if any, is ineffective. In Hale v. Farmers Ins. Exch., supra, 42 Cal. App.3d 681, 697, a claims supervisor  a position analogous to McEachen's  with authority to deny claims, was held not a managerial employee for purposes of punitive damages. The fact McEachen possessed authority to accept or reject claims does not warrant finding him a managerial employee. As noted, the claims supervisor in Hale possessed such authority. Further, acceptance of such a rule would equate punitive damage liability with respondeat superior liability. Under such an approach virtually any employee having the capacity to effect a decision would be a managerial employee for purposes of assessing punitive damages. This would extend the concept to a vast majority of corporate employees. The rule that punitive damages may be awarded against a corporation only for the conduct of its managerial employees does not permit a corporation to absolve itself of all responsibility merely by formulating a proper policy without supervising its execution. The corporation remains liable for all compensatory damages resulting from an incorrect decision by its employees. In addition corporate policy forming a basis for imposition of punitive damages does not require a showing of a formal adoption of the policy by resolution or formal direction by a managing official, but may be established as a de facto policy upon a showing of uniform course of conduct by lower level employees. A single act by one employee in an isolated instance does not, of course, establish a de facto policy. Thirdly, the corporation may incur liability for punitive damages if it ratifies employee conduct. The award of punitive damages may not be predicated on authorization or ratification of the adjusters' conduct by Mutual. There is no evidence Mutual specifically authorized their conduct. Ratification may not be established by the fact Mutual continued to employ the adjusters. Retention alone cannot support an award of punitive damages. ( Coats v. Construction & Gen. Laborers. Local No. 185 (1971) 15 Cal. App.3d 908, 915 [93 Cal. Rptr. 639].) A rule allowing mere retention to support a finding of ratification would be unduly harsh on employees as appears in this case. To allow retention without more to establish ratification would place a tremendous incentive on employers to terminate employees whenever any question concerning their conduct might be raised. (See Sullivan v. Matt (1955) 130 Cal. App.2d 134, 144 [278 P.2d 499].) The record is simply not sufficient to sustain an award of punitive damages. RICHARDSON, J., Concurring and Dissenting. I concur in the judgment. For the reasons well expressed in Justice Clark's concurring and dissenting opinion, however, I disagree with the majority's conclusion that punitive damages are recoverable under the circumstances presented in this case. As Justice Clark explains, the careless, negligent conduct of claims agents McEachen and Segal would not constitute that form of oppression, fraud, or malice required by section 3294 of the Civil Code for imposition of exemplary damages. Moreover, it is doubtful that the conduct of these persons should be imputed to their employer, under the evidence adduced in this case. Unlike Justice Clark, however, I would not absolutely preclude an award of punitive damages in every case involving a breach by an insurer of the implied covenant of good faith and fair dealing. We have previously held that such a breach sounds in both contract and tort (e.g., Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 573-575 [108 Cal. Rptr. 480, 510 P.2d 1032]), and that punitive damages are recoverable for an aggravated breach of the implied covenant, so long as the insurer has acted `with the intent to vex, injure, or annoy, or with a conscious disregard of the plaintiff's rights.' ( Neal v. Farmers Insurance Exchange (1978) 21 Cal.3d 910, 922 [148 Cal. Rptr. 389, 582 P.2d 980], quoting from Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 462 [113 Cal. Rptr. 711, 521 P.2d 1103].) My dissent from the majority opinion in Neal was directed at entirely different issues from that relating to the above principle. The Neal majority, for example, deemed an award of punitive damages justified by evidence that the insurer was pursuing a conscious policy to utilize the insured's exigent financial circumstances as a lever to force a settlement more favorable to the insurer than the facts otherwise would have warranted. ( Id., at p. 923.) Thus, I would not eliminate the possibility of a punitive damages award in an appropriate case, where the acts of the insurer demonstrate actual malice, fraud or oppression. As Justice Clark observes, it is true that the insurer may simply pass on the punitive award to its customers in the form of increased premiums. Yet as the Neal majority explained, increased premiums thereby charged may permit the insurer's competitors to obtain a competitive advantage, thus promoting, to a degree at least, the object of deterrence which underlies an award of punitive damages, and resulting in an ultimate benefit to insurance consumers as a whole. ( Id., at p. 929, fn. 14.) The petitions of appellant Mutual of Omaha and respondent for a rehearing were denied October 11, 1979. Clark, J., and Richardson, J., were of the opinion that the petitions should be granted.