Receiver Can Recover Punitive Damages on Behalf of Recivership Estate in Insurance Bad Faith Action

Brant Attorney Fees Can Be Recovered For Defending a Judgment on Appeal

Baron v. Fire Insurance Exchange (Sept. 4, 2007, H029830, Sixth Appellate District)
18 p. opinion

While an arbitration was in process between the two owners of a property, the property was extensively damaged by a fire. After issuing his decision, the arbitrator, on the stipulation of the two owners, appointed respondent Baron to be the receiver of the property. Baron was authorized to take possession of the property and all fire insurance proceeds. He was also empowered to restore or sell the property and to engage in any legal proceedings that he thought necessary to care for the property. For these services he was to be compensated at an hourly rate.

Fire Insurance Exchange, which had issued a policy that included fire insurance for the property, then engaged in a series of actions that provide a perfect example of insurer bad faith. Baron sued Fire Ins. for breach of the insurance contract, bad-faith refusal to pay policy benefits, declaratory relief, negligence, fraudulent misrepresentation and negligent misrepresentation. At trial the jury found in favor of Baron on all issues and awarded compensatory damages of $96,462 and punitive damages of $1.5 million.

In its appeal Fire Ins. argued that the receiver's appointment was void because the arbitrator had no jurisdiction to appoint him. Fire Ins. had not sought dismissal of the lawsuit in the trial court and the Court of Appeal held that Fire had waived this argument. Because the statute of limitations had run on any bad faith action by the insured, invalidating the appointment of the receiver would work a substantial injustice.

What Fire Ins. had argued in the trial court was that the receiver was not authorized to pursue the purely personal tort causes of action. The trial court had rejected this upon equitable grounds (the insured's statute had already run). In addition the arbitrator's appointment of the receiver had been explicitly confirmed when the arbitration award had been confirmed by the superior court. The superior court had statutory authority to appoint a receiver.

Fire Ins.' second contention on appeal was that the receiver lacked standing to pursue the tort causes of action and therefore could not obtain an award of punitive damages because punitive damages could only be awarded in a tort action. (Fire Ins. did not raise the issue of whether the receiver had the authority to bring the actual tort claims of bad faith and fraud, just whether he could obtain an award of punitive damages on them.) Fire Ins. argued that the turning over of the insurance claims to the receiver was in essence an assignment of them to him. The personal tort causes of action associated with insurance bad faith cannot be assigned.

The Court of Appeal disagreed with this characterization of the receiver's role. The respondent was not acting as an assignee. He had been explicitly authorized by the arbitrator's appointment (confirmed as an order of the court) to pursue the tort claims. The damages recovered on them would go to the receivership estate. The receiver would be permitted to retain his contractual compensation, not the full recovery on the cause of action, the way an assignee would.

Finally the Court of Appeal addressed the respondent's request for Brandt attorney fees for defending the judgment on appeal. After strongly implying that it would have declined to address this issue if Fire Ins. had objected to the extreme lateness of the respondent's papers on it, the Court found for the respondent on the merits. The pupose of the Brandt rule is to see to it that an insured gets the full benefits of his insurance policy. This does not occur if the insured is out-of-pocket for the attorney fees expended to get those benefits. This reasoning logically extends to the attorney fees spent to defend a judgment on appeal.
Justice Elia wrote the opinion. Presiding Justice Rushing and Justice Premo concurred.

Comment: This opinion is the source of the quote of the week for the week of September 3rd on the Civil Litigation Quote of the Week blog.