United States: Victaulic Company V. American Home Assurance Company

In Victaulic Co. v. American Home Assurance Co., 20 Cal.App.5th 948 (February 26, 2018), the First District Court of Appeal reversed a judgment for bad faith entered in favor of the Victaulic Company (“Victaulic”) against American Home Assurance Company, Insurance Company of the State of Pennsylvania, and National Union Fire Insurance Company of Pittsburgh, PA (collectively, “AIG") in connection with the handling of multiple underlying product liability lawsuits against Victaulic. The claim analyst assigned to handle product liability claims against Victaulic was Director of Complex Claims, Nancy Finberg. Ultimately, the trial court held that AIG was obligated to defend and indemnify Victaulic in connection with eight out of nine claims at issue in the declaratory relief and bad faith lawsuit.

In respect to the bad faith portion of the trial, the trial court allowed Victaulic’s counsel to use denials to requests for admissions executed under penalty of perjury by Ms. Finberg to establish that AIG had acted in bad faith in connection with refusing to defend Victaulic against the underlying product liability lawsuits. The trial court also extensively questioned Ms. Finberg regarding her conclusion that as a claims analyst she believed that a duty to defend was triggered under the AIG policies and handled such claims accordingly but that in connection with the subject litigation, she denied Victaulic’s contention that a defense obligation was owed based on a legal defense.

As a result, the court discontinued Ms. Finberg’s testimony at mid-point and held a conference in chambers. All of this conduct took place before the jury. The trial court denied AIG's counsel's motions for mistrial based on the improper use of responses to Victaulic’s request for admissions, questioning of Ms. Fienberg and requiring her to assert a blanket Fifth Amendment privilege against self-incrimination such that she ultimately refused to testify any further. Hence, AIG was denied the opportunity to examine Ms. Finberg regarding her testimony.

In reversing the judgment in favor of Victaulic, the Court of Appeal addressed each of the trial court's errors as follows:

  • Use of Denials in Response to Request for Admissions – Denials for request for admissions may not be introduced as evidence.
  • Interrogation by Trial Court – While a trial court is entitled to question witnesses, it may not make discourteous and disparaging remarks to the witness and counsel suggesting that it is advocating for either party to a lawsuit. Such conduct in the Victaulic case prejudiced AIG's defense of its claims for bad faith.

The Court of Appeal also held that the trial court should not have allowed Ms. Finberg to invoke her privilege after she had already testified under Victaulic’s questioning for nearly 2 days, thus preventing AIG from questioning her regarding her testimony; allowing her to unilaterally invoke the privilege on a blanket basis, failing to either strike Finberg's testimony or declare a mistrial and requiring Ms. Finberg to invoke the privilege in front of the jury.

The Court of Appeal summarized the trial court’s misconduct justifying the reversal of the bad faith judgment in favor of Victaulic as follows:

The series of trial court errors in handling Finberg’s testimony, coupled with Victaulic’s exploitation of those errors in closing argument, surely influenced the bad faith verdict, especially as the vote was nine to three. (See, Robinson v. Cable (1961) 55 Cal.2d 425, 428 [“The fact that only the bare number of jurors required to reach a verdict, agreed upon the verdict” lends support to finding of prejudice]; Whiteley v. Philip Morris, Inc. (2004) 117 Cal.App.4th, 635, 665 [10-to-two verdict was “close”].)

Superimposed on the above is that there were multiple errors which as our colleagues have put it, is significant in and of itself. “Without attempting to analyze separately these issues of prejudice, we conclude that the cumulative effect of the errors was unquestionably to make it reasonably probable that a result more favorable to the appealing party would have been reached in the absence of the error[s]. (Johnson v. Tosco Corp. (1991) 1 Cal.App.4th 123, 141; see Delzell v. Day (1950) 36 Cal.2d 349, 351 [cumulative comments by trial court]). Likewise here.

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