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Court of Appeal, Second District, Division 4, California.

Michael EGAN, Plaintiff and Respondent, v. MUTUAL OF OMAHA INSURANCE COMPANY et al., Defendants and Appellants.

Civ. 47079.

Decided: November 12, 1976

Pettit, Evers & Martin, Joseph W. Rogers, Jr., Robert J. Heil, San Francisco, Ka plan, Livingston, Goodwin, Berkowitz & Selvin, Herman F. Selvin, Sheldon W. Presser, Beverly Hills, Poindexter & Doutre, Alfred B. Doutre, Los Angeles, for defendant and appellant Mutual of Omaha Ins. Co. Robert A. Seligson, San Francisco, for defendants and appellants Jon M. Segal and Andrew T. McEachen. Hafif & Shernoff by Herbert Hafif, William M. Shernoff and Stephen L. Odgers, Claremont, for plaintiff and respondent. Adams, Duque & Hazeltine by James S. Cline and Kimler G. Casteel, Los Angeles, for amicus curiae International Claim Assn. Ropers, Majeski, Kohn, Bentley & Wagner, and Michael J. Brady, Redwood City, for amicus curiae Association of Defense Counsel of Northern California. Charles A. O'Brien, Don B. Kates, Jr., O'Brien & Hallisey, San Francisco, for amicus curiae Health Ins. Ass'n of America. Beardsley, Hufstedler & Kemble, Seth M. Hufstedler and Peter O. Israel, Los Angeles, for amicus curiae Consumer Credit Ins. Ass'n, in support of defendants and appellants. Robert E. Cartwright, San Francisco, Robert G. Beloud, Upland, LeRoy Hersh, David B. Baum, San Francisco, Stephen I. Zetterberg, Claremont, Ned Good, Los Angeles, Arne Werchick, San Francisco, Sanford M. Gage, Beverly Hills, Roger H. Hedrick, Daly City, Leonard Sacks, Encino, amici curiae in support of plaintiff and respondent.

Plaintiff Michael Egan sought damages for tortious breach of contract from defendants Mutual of Omaha Insurance Company, claims adjuster Jon M. Segal, and claims manager Andrew Thomas McEachen. The complaint filed was later amended, increasing the various amounts sought as compensatory damages, general damages for emotional distress, and punitive—or exemplary—damages.

Trial was by jury. The following verdicts were returned in favor of plaintiff: the sum of $500 as general damages for emotional distress and the sum of $400 as punitive damages against defendant Segal; the sum of $1000 as general damages for emotional distress and the sum of $500 as punitive damages against defendant McEachen; the sum of $45,600 as compensatory damages and the sum of $78,000 as general damages for emotional distress against defendant Mutual of Omaha. The jury also awarded plaintiff the sum of $5,000,000 as punitive damages against defendant Mutual of Omaha. All the defendants have appealed from the judgments entered on the jury verdicts.

The dispute arose over a disability insurance policy purchased by plaintiff Egan from defendant Mutual of Omaha in 1962, for an annual premium of $200. Egan, an Irish immigrant with a grade school education, was regularly employed as a roofer, and had acquired several disability policies issued by Mutual of Omaha to obtain economic protection for himself, his totally disabled wife, and his daughter, their only child. The policy with which this dispute is concerned provided for monthly benefits of $200 for life in the event Egan became totally disabled as the result of an accidental injury, or a ‘confining’ sickness (i. e., one which confined the policyholder to his residence). Pursuant to the policy terms, limited benefits, for only three months, were available for a ‘nonconfining’ sickness.

We approach our discussion of what happened when Egan tried to collect from defendant Mutual of Omaha, the disability benefits promised by the policy, with the observation that we apply the following well-established legal principle of appellate review: ‘[T]hat all factual matters will be viewed most favorably to the prevailing party [citations] and in support of the judgment [citation]. All issues of credibility are likewise within the province of the trier of fact. [Citation.]’ (Nestle v. City of Santa Monica (1972) 6 Cal.3d 920, 925, 101 Cal.Rptr. 568, 571, 496 P.2d 480, 483; see also Stevens v. Parke, Davis & Co. (1973) 9 Cal.3d 51, 63–64, 107 Cal.Rptr. 45, 507 P.2d 653.)

During the period from 1962 to 1970, plaintiff injured his back several times while within the course of his employment, and received small amounts of benefit payments pursuant to this disability policy. However, plaintiff returned to his employment despite these injuries, and his annual earnings sometimes reached as much as $10,000 per year. The Egans were able to acquire a home, an automobile and a savings account.

On May 11, 1970, plaintiff, 55 years of age at the time, attempted to descend from the roof of a one-story building where he was working and, as he stepped on a ladder, the ladder broke. Plaintiff fell twelve feet to the ground, thereby re-injuring his back. He saw his regular physician, Dr. Odgers, the same day.

At that time, claims on disability policies issued by defendant Mutual of Omaha were handled by the Hall-Worthing Agency in Los Angeles, although the employees with whom plaintiff Egan had dealings after his accident were clearly identified by their business cards as representatives of defendant Mutual of Omaha. Egan requested a claim from from the Los Angeles office about May 20, 1970, and gave it to his treating physician for completion. The form subsequently reached the Los Angeles office in July, 1970, and was processed there in August of that year. A file was opened and verification was made as to the accidental cause of plaintiff's injury. It is to be noted that the home office of defendant Mutual of Omaha, located in Omaha, Nebraska, also maintained a file.

The first payment on the claim was made pursuant to the accident provision of the policy in late September—a payment of $600 (covering the period 5–11–70 to 8–11–70)—made to Egan by adjuster Segal after Egan visited Segal at the Los Angeles office. While there was some question as to the extent and duration of plaintiff's disability, inasmuch as physician Odgers had indicated that plaintiff might soon be returning to work, Segal promised Egan that future benefits would be paid more promptly.

However, Egan continued to experience disability, remained under medical treatment, and did not return to his usual employment as a roofer. He did feel able enough at one point to attempt to secure lighter work from his former employer, but was told that there was none available.

In November, 1970, apparently in response to his request for further benefit payments, Egan was visited at home by Segal's superior, claims manager McEachen. McEachen advised Egan that he would receive no more benefit payments from Mutual of Omaha, that Egan was not really disabled but was merely having difficulty finding work. Egan denied this charge and expressed his concern to McEachen about finances as Christmas was approaching. McEachen laughed at Egan's response and called Egan a fraud, causing Egan to cry. Both Egan's wife and daughter heard this conversation between Egan and McEachen. The Egans were terribly upset as a result of this conversation.

On February 5, 1971, McEachen wrote Egan a letter, enclosing a check for $626.66. The letter stated that this was the final payment; that it constituted full payment of benefits due. By this date, Egan's condition had worsened. He had also filed a claim for workmen's compensation benefits, and, as a result, was receiving medical treatment for his injury. In January, 1971, prior to receipt of McEachen's letter, Egan was sent to Dr. Carpenter of Riverside who ordered a myelogram. In March, 1971, Dr. Carpenter performed surgery on plaintiff's back. Egan thereafter again contacted defendant Mutual of Omaha's Los Angeles office, requesting a claim form for continuing disability. This form was completed and sent to the same office.

In May, 1971, claims adjuster Segal, who had seven years of experience with defendant company, was spending a substantial amount of time conducting field investigations. Early in the month he was accompanied in his work by claims analyst Romano from the Omaha home office of defendant Mutual of Omaha. The record is unclear as to why Romano was accompanying Segal; Romano testified at the trial that he was not superior to Segal in the company, and made no recommendations to Segal about his cases, although he might have discussed various situations with Segal. Segal testified that he could not remember whether Romano made any suggestions about the Egan matter, but was certain that he, Segal, had, in May, 1971, been acting as the result of directions from someone of higher authority than himself while investigating the Egan claim. However, no written directives to Segal of any kind could be located in the Egan file maintained by defendant Mutual of Omaha and made available to plaintiff Egan at the time of trial.

As part of their field work, Segal and Romano did visit the office handling Egan's workmen's compensation claim, and discussed his situation with a claims supervisor there. Segal and Romano saw, or had read to them, various parts of the Egan workmen's compensation claim file which included the medical reports from the various specialists who had examined Egan's back. The medical reports made similar observations about Egan's condition with respect to the severity of his disability, apportioning the cause to previous accidents to his back, the precipitating accident of May, 1970, and wear and tear. One of the doctors in his report referred to osteoarthritis, and Dr. Carpenter employed the term ‘discogenic disease.’

Segal and Romano also secured medical records from the hospital in Riverside where Egan had had his back surgery. No effort was made by Segal and Romano, however, to contact either Egan's present or former treating physicians, nor was acquisition of a report by an independent medical examiner considered. Segal made a report to the home office of Mutual of Omaha that he needed to obtain information about Egan from Retail Credit of Pomona; in his report, he wrote: ‘best to handle on basis of sickness, allow three months limit of confining . . ..’ In another report to the home office, dated May 10, 1971, Segal indicated that a credit report would be forthcoming (which was ultimately placed in the file and contained, among other things, the reports of interviews with Egan's neighbors) and stated that ‘[w]hen this is received, further contact will be made with the policyholder to settle and close on basis of sickness.’ This communication was received in the home office at Omaha according to a stamp upon it.

In late May, 1971, Segal visited Egan at home. Segal stated to Egan that he, Egan, had not been accidentally injured but was sick. Segal could not remember at the trial what sickness he told Egan that Egan had, nor could Segal remember who had instructed him to contact Egan, but Segal was certain that someone higher in the company had so instructed him. Segal informed Egan he was entitled to one more check, but that was all. He told Egan that if Egan would surrender the policy to him a larger check would be forthcoming. He explained to Egan that he, Segal, was following orders. Egan refused to surrender his policy. Egan testified that he told Segal to go to hell. Nevertheless, Segal left a check of about $700, but Egan did not cash it.

Egan consulted with Dr. Carpenter about Mutual of Omaha's reclassification of his injury as ‘sickness,’ and, in June, 1971, wrote to Segal at the Los Angeles office, requesting further payments of disability benefits. Neither Segal nor McEachen remembered receiving this letter; the original was not in Mutual of Omaha's file, although Egan had a copy. No response to the letter was made.

Subsequently, Egan received a 73 percent disability rating on his workmen's compensation claim, and the Egans lived on the settlement funds ($11,000), and also exhausted their personal savings ($4000). The subsequent family income of the Egans consisted of social security disability benefits, private union pension benefits, and sporadic payment by defendant Mutual of Omaha of Mrs. Egan's $100 per month total disability benefits.

Egan did not return to work and continued under regular medical care. He was referred to a rehabilitation program, but, after tests, was advised that rehabilitation efforts were not possible. The Egans experienced continual financial stress, and eventually had to borrow in order to live. Mrs. Egan was unable to afford physical therapy treatments that she needed, and the Egans received used clothing for their daughter to wear.

In July and August, 1972, the Insurance Commissioner of the State of California made inquiries of Mutual of Omaha concerning the Egan matter. The nature of the company's response is not clear; it was not produced at trial. At any rate, no payments were made by Mutual of Omaha to Egan. During the latter months of 1972, Egan's attorneys discussed settlement of the matter with Mutual of Omaha's employees and attorneys, but no agreement was reached. Suit was filed in 1973.

At the trial, defendant Mutual of Omaha's employees McEachen, Romano and Gustin (the then head of the Continuing Disability Department, Claims Division, of Mutual of Omaha) all disclaimed any knowledge of the decision to reclassify Egan's injury to sickness status, and to terminate his benefits. None of these witnesses could identify any particular person in the home office of the corporate defendant who had made the decision, or would have had the authority to make the decision. Both McEachen and Romano testified that it was Segal who had the authority to make the decision; Segal denied that he had such authority. Segal testified that he could not remember who it was that had told him to take the reclassification action. It was indicted that, at the time of trial, Segal had continued to be an employee of Mutual of Omaha.

Segal and Romano admitted at the trial that the Egan matter should have been investigated more thoroughly before reclassification from injury to sickness status and termination of benefits were effected. McEachen admitted that, in retrospect, the claim might have been handled differently. Gustin, attempting to explain the absence at the home office in Omaha of any identifiable person in authority who had received Segal's reports, testified that Egan's file had not been in his department after December, 1970, and that what had happened to it thereafter was a mystery; he opined that the file had ‘fallen . . . into a crack.’

At the outset of the trial, plaintiff's counsel had been provided by the defense with what was described as the complete Egan file as maintained at the home office. During Gustin's testimony, reference was made to the file jacket, which showed the time of review, and by whom review was undertaken at the home office, from the time the file was opened in 1970 until the time of trial. The file jacket was then produced. It indicated that it had last been in witness Gustin's department in March, 1971. It also showed at least ten receipt stamps on it with initials, but no employee of Mutual of Omaha was able to identify any person in authority who handled the file. Defendants did produce at the trial a clerical employee, June Bush, who had initialed the file jacket on one occasion while she was performing some minor clerical function in connection with it.

We make the preliminary observation that plaintiff's cause of action against the defendants is based upon the premise that an insurer's breach of the covenant of good faith and fair dealing, contained by implication in the policy of insurance, constitutes a tort as well as a breach of contract pursuant to California law. (See Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 328 P.2d 198.) The essence of the duty imposed by good faith and fair dealing is that ‘neither party will do anything which will injure the right of the other to receive the benefits of the agreement.’ (Comunale, supra, 50 Cal.2d 654, at p. 658, 328 P.2d 198, at p. 200.) Breach of that duty has resulted in an insurer's liability in a variety of situations involving the insurer's conduct toward third parties' dealings with the insured (Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 58 Cal.Rptr. 13, 426 P.2d 173) and also the insurer's conduct toward its own insured (Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 113 Cal.Rptr. 711, 521 P.2d 1103).

One underlying policy expressed in imposing a tortious-type liability on insurers who fail to produce the protection bargained for by the insured at the time it is needed is that of deterrence, i. e., of making it economically unfeasible for the insurance industry to engage in unfair practices in settling insurance claims. ‘Violation of the duty of the insurer sounds in tort, . . . and an insured may recover for all detriment resulting from such violation, including mental distress.’ (Silberg, supra, 11 Cal.3d 452, at pp. 460–461, 113 Cal.Rptr. 711, at p. 717, 521 P.2d 1103, at p. 1109; see also, Comunale, supra, 50 Cal.2d 654, at pp. 658–660, 328 P.2d 198; crisci, supra, 66 Cal.2d 425, at pp. 429–433, 58 Cal.Rptr. 13, 426 P.2d 173; and Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 575, 108 Cal.Rptr. 480, 510 P.2d 1032.)

The cause of action draws upon principles both of contract and tort law, as it constitutes an action derived from both. As explained in Johansen v. California State Auto. Ass'n Inter-Ins. Bureau (1975), 15 Cal.3d 9, 18, 123 Cal.Rptr. 288, 294, 538 P.2d 744, 750, ‘[the] breach of . . . duty . . . ‘sound[s] in both contract and tort.’ [Citations.] . . . the scope of the duty imposed upon the insurer by the covenant of good faith and fair dealing does not turn on whether we characterize its breach as contractual or tortious, since, in either case, the duty itself springs from the contractual relationship between the parties.'

Defendants first argue on this appeal that the trial judge committed reversible error when he took from the jury the issue of defendant Mutual of Omaha's breach of the covenant of good faith and fair dealing, determining as a matter of law that the evidence established a breach for which there was no justification. Plaintiff's motion for a directed verdict on this issue was granted after plaintiff's evidence was in and defendants had presented all of their evidence except financial information about defendant insurer.

In granting plaintiff's motion for a directed verdict on the issue of breach of the covenant of good faith and fair dealing, the trial court relied, in great measure, upon Silberg, which interpreted the provisions of an insurance policy promising to pay hospitalization costs. The policy specifically excluded such costs if covered by workmen's compensation insurance. Silberg, the policyholder, was injured in an accident under circumstances wherein workmen's compensation coverage was in dispute, a dispute eventually determined by compromise and settlement of the workmen's compensation claim. In the meantime, however, the insurer had refused to pay for Silberg's hospital care, on the ground that it had the right to adopt a ‘wait and see’ attitude concerning its liability until the exclusion issue had been resolved. The result was that the policyholder was deprived of a source of payment for necessary hospital expenses at the time he needed them the most.

In Silberg, the California Supreme Court held that defendant insurer's failure to pay Silberg's hospitalization costs was a breach of the implied covenant of good faith and fair dealing, regardless of the insurer's reason for withholding payment, pointing out that the insurer could have effectively protected its interest by placing a lien on any possible workmen's compensation award to the policyholder. Implicit, although not clearly expressed in the Silberg decision, is the premise that intent to harm the insured is not a prerequisite to establishing breach of the covenant; the actionable conduct is that of the failure of an insurer to pay what is due.

Any doubt as to the meaning of Silberg, which was decided with reference to the particular factual situation involved, was removed in Johansen, where it was held that an erroneous denial of coverage required by the policy, regardless of intent, will result in liability by the insurer for the consequences of the breach. In short, when an insurer decides to withhold payment on a policy of insurance, it proceeds at its own risk. Johansen approves of the statement in Comunale that ‘[a]n insurer who denies coverage does so at its own risk, and, although its position may not have been entirely groundless, if the denial is found to be wrongful it is liable for the full amount which will compensate the insured for all the detriment caused by the insurer's breach of the express and implied obligations of the contract.’ (Johansen, supra, 15 Cal.3d 9, at p. 15, 123 Cal.Rptr. 288, at p. 292, 538 P.2d 744, at p. 748.) (Emphasis in original.) In Johansen, defendant sought to have the court equate the term ‘wrongful,’ used in Comunale, with the term ‘culpable.’ Johansen, however, rejected the contention and stated that ‘it becomes apparent that a ‘wrongful’ denial of coverage as used in Comunale means merely an erroneous denial of coverage required by the policy.' (Johansen, supra, 15 Cal.3d 9, at p. 16, fn. 4, 123 Cal.Rptr. 288, at p. 292, 538 P.2d 744, at p. 748.) (Emphasis added.) Such a breach, however, without more, only establishes the basis for compensatory, as opposed to punitive, damages. (See Silberg, supra, 11 Cal.3d 452, 113 Cal.Rptr. 711, 521 P.2d 1103.)

Defendants did not discuss Johansen in their opening brief, but, in their closing brief, attempt to distinguish its holding on the ground that the case involved a third-party situation, where the insurer was acting in a fiduciary capacity on behalf of its insured, and that the underlying policy considerations imposing liability under these circumstances are distinct from, and do not apply to, situations where the insurer is dealing directly with its own insured. Amici also develop this point, arguing that there should be a legally recognized distinction between the third party and the direct situation.

However, we are unable to see any logical reason why an insurer should owe a greater duty to third persons dealing with the insured than it owes to its own insured, the party with whom it contracted and from whom it accepted premiums for protection. The duty imposed upon insurers is based in major part upon the reasonable expectations of the policyholder and should be deemed to be owed in the first instance to the policyholder. The argument advanced for a distinction between the insurer's duty with respect to its insured and with respect to claimants against its insured has been made before, and rejected (see Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 575, 108 Cal.Rptr. 480, 510 P.2d 1032), and we reject it here.

Amici also argue that Silberg and Johansen have adopted a ‘strict liability’ standard with respect to the breach of the implied covenant of good faith and fair dealing, with the result that an insurer acting in complete good faith or, as the result of an innocent mistake, may be held liable for failure to pay. It is contended that imposition of such a standard removes from insurers the ‘right’ guaranteed to them by common and constitutional law to decide not to pay a claim until some judicial tribunal tells them they must. Amici point out that, under traditional contract principles, a party to the contract has the right to breach the contract and await his day in court. The failure to be able to show justification for breach by evidence of innocent intent is also equated by amici to deprivation of due process rights guaranteed by the United States Constitution.

As indicated previously herein, the plaintiff's cause of action in the case before us is not controlled by the application of contract law alone. The present law, as expressed in Silberg and Johansen, is that an insurer who fails to pay what is due to an insured, or on behalf of an insured, breaches its duty to the insured—a breach that sounds in tort as well as in contract—and is liable for consequential damages. Present law does not preclude an insurer from successfully defending this type of tort action on the basis that nothing was owed. We hold that no violence is done thereby to either common law or constitutional concepts; it does have the effect, hopefully, of encouraging a more careful consideration by insurers of insurance claims.

In the instant case, defense witnesses admitted that the decision not to pay Egan was erroneous. They claimed that the mistake made was a good-faith mistake, based upon adjuster Segal's reliance on certain descriptions of Egan's condition contained in the workmen's compensation records. Defendants also argue on this appeal that the evidence showed that Egan would not have been entitled to benefits after payments had been made for one year because he was no longer ‘totally disabled’ within the meaning of policy provisions.

The standard of review applicable to the trial court's direction of a verdict on the issue of breach is whether there was any substantial evidence supporting defendants' position of nonbreach which should have been presented to the jury. (See, e. g., Estate of Lances (1932) 216 Cal. 397, 14 P.2d 768; Dailey v. Los Angeles Unified Sch. Dist. (1970) 2 Cal.3d 741, 87 Cal.Rptr. 376, 470 P.2d 360.) The evidentiary record tells us that Segal relied upon what he termed ‘medical jargon,’ which he testified was unintelligible to him, in terminating payments to Egan due to ‘sickness' rather than because Egan was no longer totally disabled within the meaning of the policy. It is also clear from the evidence that Segal appeared to be more interested in Egan's then existing financial condition than in Egan's medical condition, since Segal failed to investigate Egan's medical condition in any productive way. Part of fair dealing on the part of a disability insurer includes undertaking adequate investigation before terminating disability payments, particularly when the insurer knows, as Mutual of Omaha did in the instant case, that Egan, its insured, had recently undergone surgery in connection with his claimed back injury. Defendants' argument that the evidence could have been interpreted as showing that, at the time of Egan's termination, he was no longer eligible for benefits under the policy because of the one-year limitation, is without merit because, in the absence of meaningful investigation, no such inference from the evidence reasonably could have been made by the jury.

Furthermore, the decisional law is clearly to the effect that, had Segal entertained, as is claimed, a good faith but erroneous belief that, as a result of his twelve-foot fall, Egan was ‘sick’ within the meaning of his disability policy, such belief does not insulate defendant insurer Mutual of Omaha from the determination that a breach, i. e., erroneous refusal to pay benefits, did in fact occur. We conclude that the trial court correctly ruled, on the evidence before it, that, as a matter of law, the breach was established. We hold that there was no substantial evidence supporting defendants' position of nonbreach. Hence, no error occurred when this issue was removed from jury consideration.

Defendants also contend that the trial court erred in instructing the jury on fraud because it failed to include a recital of the various carefully defined elements which are required to prove a classical cause of action in fraud, i. e., misrepresentations, reliance, etc. What defendants apparently are proposing is that these carefully defined elements be grafted onto provisions for punitive damages found in section 3294 of the Civil Code.

Plaintiff tried the case as a tortious breach of contract—a breach of the covenant of good faith and fair dealing that is implied or imposed by law—rather than as a cause of action for fraud. While some reference was made to fraud in the amendment to the complaint, no evidence concerning misrepresentation or concealment was presented to the jury. Fraud was defined for the jury by the trial court with reference to punitive damages only, not with reference to a cause of action for fraud.

Civil Code section 3294 provides: ‘In an action for the breach of an obligation not arising from contract, where the 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.’

The trial court properly instructed the jury that if it found that the plaintiff had suffered actual damage, as the result of defendants' conduct, it could award additional damages, known as punitive or exemplary damages, if the conduct constituted ‘oppression or fraud, or actual malice.’ The trial court defined these three terms. In defining fraud, the trial court instructed the jury that: “Fraud' means acts whereby one person gains an advantage over another by means of dishonesty, bad faith, or overreaching. The causing or bringing about of false impressions may constitute fraud. No definite and invariable rule can be laid down as a general proposittion defining fraud, as it includes all surprise, trick, cunning, dissembling, and unfair ways by which another may be cheated or misled to his disadvantage.'

As was said in Fletcher v. Western National Life Ins, Co. (1970), 10 Cal.App.3d 376, 405, 89 Cal.Rptr. 78, 96, ‘[t]he word ‘fraud’ may technically refer to a number of different legal problems. It is, however, a word of common usage and has a commonly accepted meaning . . ..'

We see nothing erroneous about the instruction given. Insofar as we have been able to discover, section 3294 of the Civil Code has not been interpreted to require a trial court to instruct on its meaning by employing a statement of the elements of the cause of action for fraud. Section 3294 was not intended to create a separate cause of action for fraud, malice or oppression. The section simply authorizes punitive damages to be added under the three circumstances mentioned when plaintiff's cause of action sounds in tort rather than in contract.

Defendants make the contention that the jury should have been instructed that punitive damages may be awarded only if plaintiff proves the elements involved by the burden-of-proof standard of ‘clear and convincing’ evidence rather than by the standard of a ‘preponderance of the evidence,’ which latter standard the trial court used in its instruction. Defendants are met by the doctrine that a party may not complain on appeal about a trial court's action requested by such party. Defendants at the trial requested the trial court to give an instruction that, in order to obtain punitive damages, plaintiff had to prove, by a preponderance of the evidence, the elements of fraud, oppression or actual malice. There were other elements of the requested instruction that did not pertain to the burden-of-proof standard. The trial court refused to give the requested instruction because it contained several incorrect elements, but did give an instruction that required proof of punitive damages by the preponderance-of-the-evidence standard. It is an established principle that a party may not complain of the propriety of an instruction where such party has requested an instruction substantially similar to the one given by the trial court. (Smith v. Americania Motor Lodge (1974) 39 Cal.App.3d 1, 7, 113 Cal.Rptr. 771; Devincenzi v. Faulkner (1959) 174 Cal.App.2d 250, 253, 344 P.2d 322.)1

Defendants next urge reversal of the punitive damages award against defendant Mutual of Omaha on several grounds. One contention is that there was no substantial evidence adduced below establishing corporate responsibility for the tort involved.

‘California follows the rule laid down in Restatement of Torts, section 909, which provides punitive damages can properly be awarded against a principal because of an act by an agent if, but only if ‘(a) the principal authorized the doing and the manner of the act, or (b) the agent was unfit and the principal was reckless in employing him, or (c) the agent was employed in a managerial capacity and was acting within the scope of employment, or (d) the employer or a manager of the employer ratified or approved the act.’' (Hale v. Farmers Ins. Exch. (1974) 42 Cal.App.3d 681, 691, 117 Cal.Rptr. 146, 153.) Defendants claim that there was no substantial evidence of authorization, ratification, or that plaintiff was damaged by the conduct of any employee of defendant corporation with sufficiently high status to be termed a ‘managerial’ employee. We disagree.

The record before us shows that defendant Mutual of Omaha's employees Romano and McEachen testified that Segal, the adjuster, had the authority to reclassify plaintiff's status from injury to sickness and thus terminate his benefits. McEachen, Romano and Gustin were uniformly vague and unknowledgeable about defendant insurer's actual chain of command employed in the Egan matter, and about the identity of employees with the claimed appropriate amount of ‘managerial’ authority to supervise Segal's conduct. All of the defense witnesses disclaimed any specific knowledge of the acts of Segal in the handling of the Egan claim. But Segal, on the other hand, testified unequivocally that he had acted only upon the orders of some higher authority in the defendant corporation, although he could not remember specifically the identity of the employee of higher authority upon whose orders he acted.

These defense witnesses were all still employed by Mutual of Omaha at the time of trial, and were represented by the same counsel. Their testimony conveyed the strong impression, if such testimony was to be believed—apart from the testimony of Segal himself—that no identifiable person high enough to be termed ‘managerial’ in defendant corporation had the requisite knowledge from which corporate responsibility could be inferred. Segal was made the focal point in terms of responsibility by the testimony of employees other than Segal himself. The argument is made on appeal that Segal, as a mere claims adjuster, was not a ‘managerial’ employee within the meaning of California law.

It is essential that we pay heed to the nature of plaintiff's cause of action in the instant case: an erroneous and tortious breach of an insurance contract by the insurer, Mutual of Omaha. Obviously, if liability of a corporate insurer for such a breach can be limited to an insured's actual damages by the insurer's following a policy of allowing low level employees to terminate disability insurance contracts without legal cause—thereby permitting the corporate employer to take refuge under the ‘managerial’ umbrella by carefully insulating its ‘managers' from these decisions—insurance industry practices with respect to treatment of the claims of insureds, will not noticeably improve. Yet, improvement of industry conduct is a major reason for imposing punitive damages. The cause of action for tortious breach of an insurance contract by an insurer will provide a meaningless remedy if a corporate defendant is permitted to shroud its claims-handling operations from discovery through lack-of-knowledge testimony by employees connected with claims-handling operations.

We hold that, in the case before us, the jury reasonably was entitled to infer from the testimony of Segal and other employees of Mutual of Omaha that Segal's wrongful act of terminating Egan's benefits was approved by an employee of Mutual of Omaha of managerial rank, or, that Segal, as a claims adjuster, was given the authority by the corporate principal, Mutual of Omaha, to exercise his uncontrolled discretion to decide to terminate an insured's contractual benefits. The title conferred by a principal upon the agent is unimportant. It is the nature of the authority conferred upon an agent that determines whether the agent is employed in a managerial capacity.

It is our view that when an insurer gives a claims adjuster the authority to deprive an insured of the benefit of the latter's bargain contained in the insurance contract, such claims adjuster has been employed in a managerial capacity by the insurer. Thus, substantial evidence supported the jury's determination of corporate responsibility of defendant Mutual of Omaha for the law of punitive damages on two theories: (1) that Segal's actions with reference to Egan's claim were authorized by an employee of defendant Mutual of Omaha of managerial rank; or (2) that Segal, even though his formal title is as that of a claims adjuster, was employed in a managerial capacity by Mutual of Omaha insofar as the handling of insureds' claims was concerned.

Defendants also assert that the evidence presented below was insufficient to establish the element of oppression, fraud or malice by any employee of Mutual of Omaha—an element that is essential for an award of punitive damages. Defendants rely upon Beck v. State Farm Mut. Auto. Ins. Co. (1976), 54 Cal.App.3d 347, 126 Cal.Rptr. 602 as being dispositive of the issue of nonliability of defendant Omaha for punitive damages because of the absence of proof of the element of fraud, malice or oppression. Beck relies upon Silberg in the Beck court's statement that ‘[p]roof of a violation of the duty of good faith and fair dealing does not establish that the defendant acted with the requisite intent to injure the plaintiff.’ (Beck, supra, 54 Cal.App.3d 347, at p. 355, 126 Cal.Rptr. 602, at p. 607.)

In accepting the Beck defendant's assertion that the evidence was insufficient to support an award of punitive damages, Beck makes the following statement: ‘The law does not favor punitive damages and they should be granted with the greatest caution. (Ferraro v. Pacific Finance Corp., 8 Cal.App.3d 339, 351, 87 Cal.Rptr. 226.) To justify an award of punitive damages, the defendant must be guilty of oppresion, fraud, or malice. It must act with intent to vex, injure or annoy, or with a conscious disregard of plaintiff's rights. (Civ. Code, § 3294.)’ (Beck, supra, 34 Cal.App.3d 347, at p. 355, 126 Cal.Rptr. 602, at p. 607.) The Beck court concluded that there the plaintiff's evidence sufficiently established defendant's liability for breach of an insurer's obligation to act in good faith and deal fairly with its insured on the theory that the defendant had no reasonable ground for refusal to pay or offer to settle the Beck plaintiff's uninsured motorist claim and that the defendant's refusal to pay was predicated upon a defense which was patently untenable. Nevertheless, said the Beck court, it did not follow that because the defendant took an unreasonable position on the validity of a defense to coverage under the insurance policy, the defendant acted with intent to harm the plaintiff.

Defendant Mutual of Omaha's position in the case at bench is that, as in Beck, the evidence establishes only that the insurer made an erroneous decision to classify plaintiff Egan's condition as one of illness rather than as one of injury, and that, even if it be considered that the making of such a change in classification was patently untenable, such an act cannot be considered to be an act of oppression, fraud or malice to entitle the plaintiff to punitive damages; that this result ensues regardless of what department of defendant Mutual of Omaha received the information from Segal of the change in Egan's classification from injury to sickness, and regardless of the management level of such department or the employee, or of the position of such employee. Mutual of Omaha argues that, at best, the acquisition by its various employees of knowledge of Segal's act with respect to plaintiff Egan may be considered only as an act of bad faith, making Mutual of Omaha liable for compensatory damages only. It is Mutual of Omaha's contention that no conduct by McEachen, Segal or any other employee rises to that dignity of oppressive, fraudulent or malicious conduct which would entitle plaintiff to punitive damages under the standard set forth in Beck.

But this contention of Mutual of Omaha lacks any real substance. The factual situation presented in the case before us is not at all like that presented in Beck. We have previously herein referred to the evidence relating to the conduct of the employees of Mutual of Omaha with reference to the Egan matter. We need only refer again to some of this evidence—the conduct of Segal's immediate superior, claims manager McEachen, i. e., McEachen's advice to Egan that he would receive no more benefits from his insurance policy because Egan was not really disabled but merely having difficulty in finding work, and stating to Egan that he, Egan, was a fraud, and thus causing Egan to cry as a result of this invalid charge. That this evidence, together with other evidence previously discussed herein relating to the conduct of Segal and other employees of Mutual of Omaha fully justified the jury in finding an intent on the part of defendant Mutual of Omaha to vex, injure and annoy Egan, and that such conduct constituted fraud, malice, oppression, and a complete disregard of plaintiff Egan's rights, is simply not open to question. In view of the substantial differences between the factual situation presented in Beck and that presented in the case at bench, defendants' reliance upon Beck is without credible support in the evidence, and, therefore, must be rejected.

In connection with the issue of punitive damages, defendants also make an attack upon the trial court's instructions to the jury. Defendants call our attention to Merlo v. Standard Life & Acc. Ins. Co. (1976), 59 Cal.App.3d 5, 130 Cal.Rptr. 416 for their assertion that the instructions given on punitive damages in the instant case constituted prejudicial error. Defendants contend that the instructions in the case before us were essentially the same as those given and held to be erroneous in Merlo. The Merlo instruction was as follows: ‘A corporation is subject to liability for an award of exemplary damages by the acts of those whom it has placed in charge of its affairs, and who constitute for the purpose of dealing with other parties the corporation itself.’ (Merlo, supra, 59 Cal.App.3d 5, at p. 17, 130 Cal.Rptr. 416, at p. 424.) Merlo agreed with the defendants' contention made in Merlo that the above quoted instruction informed the jury that the defendant could be held liable for punitive damages for conduct of any employee under the doctrine of respondeat superior.

The principle of law that the doctine of respondeat superior will not, in and of itself, support an award of punitive damages against a defendant is well established. The issue with respect to the correctness of an instruction regarding liability of a principal for punitive damages for the act of an agent or employee is whether the instructions given state correctly the principle of the additional elements that must be shown over and above the facts required for the normal tort liability of a principal for the acts of an agent or employee. The rule of law for determining punitive-damage liability of a principal for the act of an employee or agent has been set forth in Hale, supra, 42 Cal.App.3d 681, at page 691, 117 Cal.Rptr. 146, previously quoted herein. A review of the instructions given in the case at bench indicates clearly that they were not at all similar to the Merlo instruction held to be erroneous, but, on the contrary, set forth the principles stated to be necessary in Hale.

Finally, defendants and amici, especially, make an attack on the constitutionality of section 3294 of the Civil Code which authorizes the awarding of punitive damages. The argument is advanced that section 3294 is constitutionally defective because of its failure to set forth standards for the guidance of the jury; that this failure renders the statute too vague to meet the test of constitutionality required by the due process clause of the Fourteenth Amendment to the United States Constitution. The ‘void-for-vagueness' attack upon Civil Code section 3294 has been made before and rejected. (See Fletcher, supra, 10 Cal.App.3d 376, 404–405, 89 Cal.Rptr. 78; Toole v. Richardson-Merrell Inc. (1967) 251 Cal.App.2d 689, 719, 60 Cal.Rptr. 398.)

Defendants and amici argue that these state decisions are not definitive in interpreting the requirements of the United States Constitution. We agree that if Fletcher and Toole, in interpreting a provision of the United States Constitution, were contrary to a decision of the United States Superme Court, Fletcher and Toole would fall by reason of the supremacy clause of the United States Constitution. (See Cooper v. Aaron (1958) 358 U.S. 1, 78 S.Ct. 1401, 3 L.Ed.2d 5). Defendants and amici concede, however, that no decision of the United States Supreme Court has held that a state statute, which authorized punitive damages, was invalid as a violation of federal due process. We reject, therefore, the contention that Fletcher and Toole have been incorrectly decided.

Defendants make an attack upon the award of $45,600 in compensatory damages to plaintiff, claiming that the trial court improperly instructed the jury on this subject and, in effect, directed the jury to enter this amount in its verdict. Defendants refer us to the California Supreme Court's decisions in two early cases, Cobb v. Pacific Mutual Life Ins. Co. (1935), 4 Cal.2d 565, 51 P.2d 84 and Erreca v. West. States Life Ins. Co. (1942), 19 Cal.2d 388, 121 P.2d 689, for the proposition that a disabled insured may only receive an award of contract benefits due up to the time of trial, rather than a total amount representing all payments due under the policy up to the time of trial and also payments that might fall due in the future, when the insrurer has breached the policy. These cases do so hold and have not been overruled. But in these two cases the insureds were seeking to recover on the contracts of insurance and were relying on causes of action stated under contract law. Neither Cobb nor Erreca dealt with a plaintiff's cause of action for breach of an insurer's covenant of good faith and fair dealing which sounds in tort. Thus, Cobb and Erreca do not constitute authority for limiting an insured's recovery in a tort form of action to the contract benefits due at the time of trial under the policy of insurance.

Civil Code section 3333 states: ‘For the breach of an obligation not arising from contract, the measure of damages, except where otherwise expressly provided by this Code, is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.’ Pursuant to this section, as defendants concede, injured persons in tort actions based on negligence or strict liability in tort for a defective product often receive a total award that includes earning loss to the date of trial and future earnings which they are likely to lose, due to their injury.

We again point out that an action for the breach of the covenant of good faith and fair dealing is an action in tort. A plaintiff in such an action is entitled to recover compensatory damages under the tort standard rather than under the breach-of-contract standard. It follows, therefore, that ‘in an action for tortious breach of the covenant of good faith and fair dealing, the plaintiff is entitled to recover compensatory damages for all detriment proximately resuiting from the tortious breach of the covenant, including economic loss as well as emotional distress. [Citation.]’ (Merlo, supra, 59 Cal.App.3d 5, at p. 16, 130 Cal.Rptr. 416, at p. 423.) (Emphasis added.) The elements of compensatory damages for the tort of breach of a covenant of good faith and fair dealing by an insurer to its insured were described in Fletcher in language similar to that used in Merlo, as entitling the insured to compensation ‘for all detriment proximately resulting therefrom, including economic loss as well as emotional distress resulting from the conduct or from the economic losses caused by the conduct . . ..’ (Fletcher, supra, 10 Cal.App.3d 376, at pp. 401–402, 89 Cal.Rptr. 78, at p. 94.)

The language used in Fletcher and Merlo follows the tort theory in defining the nature of damages to be recovered as compensatory damages in an action by an insured for an insurer's breach of the duty of good faith and fair dealing. This is the tort law of damages set forth in Civil Code section 3333. We hold, therefore, that compensatory damages awarded in a case such as the one before us may include, as in any other tort action, future benefits payable pursuant to the policy, the amount of which the jury reasonably determines, by examination of the policy's provisions and the evidence before it that the policyholder would be entitled to, had the contract been honored by the insurer.

In addition, defendants argue that the jury was not sufficiently instructed that if it found that plaintiff Egan was not totally disabled at the time of trial within the meaning of the policy, or might not be disabled at all in the future, and, therefore, not entitled to receive benefits in the future, it should then limit the award of compensatory damages to that amount due to him under the policy at time of trial, or some other amount based upon a certain projected period of future disability. Defendants offered an instruction that would have limited Egan's compensatory damage recovery to approximately $9000, which would have been those benefits due and payable as of the time of trial. This instruction was properly refused by the trial judge, since the evidence presented did not justify such a limiting instruction. The trial judge did, however, give an instruction proposed by the defendants which stated: ‘No definite standard or method of calculation is prescribed by law by which to fix reasonable compensation for mental and emotional distress. Nor is the opinion of any witness required as to the amount of such reasonable compensation. In making an award for mental and emotional distress you shall exercise your authority with calm and reasonable judgment and the damages you fix shall be just and reasonable in the light of the evidence. [¶] Further, compensation to the Plaintiff consisting of the total amount of benefits to which you determine he is entitled under the provisions of his Mutual of Omaha disability insurance policy.’ (Emphasis added.)

Plaintiff also requested an instruction relating to his life expectancy, which was properly given by the trial judge. No instruction was given, however, advising that future benefits to which the jury might find plaintiff was entitled should be discounted to present value. Had such an instruction been requested, it should have been given. But in the absence of a request, the trial judge was under no duty to give such an instruction.

Defendants requested an instruction, which was refused, setting forth the pertinent policy provisions concerning total disability as set forth in the insurance policy itself. Defendants' counsel, however, argued to the jury with respect to the figure of $45,600, an amount calculated at the rate of $200 per month in terms of plaintiff's life expectancy.

We conclude that the evidence, and the instructions given, were adequate to tell the jury that it could select a figure for compensatory damages that reflected the jury's conclusion as to plaintiff's disability up to the time of trial and in the future. Had the jury determined from the evidence that Egan's disability had ended by the time of trial, it could have limited his recovery to those benefits due him up to the time of trial. The jury obviously concluded that Egan's disability was total and would continue to be total during his life expectancy, within the meaning of the insurance policy which was in evidence and to which the jury could refer. It was not error for the trial judge to refuse to read to the jury as an instruction the provisions of the insurance policy which were already available to the jury as an exhibit. (See Nash v. Prudential Ins. Co. of America (1974) 39 Cal.App.3d 594, 602, 114 Cal.Rptr. 299.)

Defendants next attack the jury verdict against Mutual of Omaha which awarded, as an element of compensatory damages, compensation for emotional distress suffered by plaintiff Egan, in the sum of $78,000. Defendants contend that the award for emotional distress should have been limited, if made at all, to the sums of $400 and $500 awarded for this item of detriment by the jury against Segal and McEachen, respectively, the agents of defendant corporation. It is reasoned that, since Mutual of Omaha's liability is based on the doctrine of respondeat superior, it cannot be held liable for an amount in excess of that awarded against the actual actors—the employees—and also that the larger award indicates that the jury was really interested in punishment of defendant Mutual of Omaha rather than in compensation to plaintiff for his loss. Defendants argue that the evidence shows that Egan actually suffered minimal damage in terms of emotional distress; that the distress of his wife and child could not be imputed to him for the purpose of awarding damage for his emotional distress; and finally, that the trial court erred in instructing the jury on the subject of emotional distress damages because it did not tell the jury that it could only award damages for emotional distress if the jury found that plaintiff Egan had sustained substantial damages other than emotional distress itself.

We agree with the position of defendant Mutual of Omaha that, apart from the issue of punitive damages, a principal's liability in damages that is dependent upon the principle of resondeat superior, can be no greater than that imposed by the jury on the agent. This liability generally is a joint and several liability. (See Winzler & Kelly v. Superior Court (1975) 48 Cal.App.3d 385, 122 Cal.Rptr. 259.) But this principle cannot be of assistance to defendant Mutual of Omaha in the instant case. Under California's decisional law, the employees of an insurer may not be held liable for tortious breach of the insurance contract, despite their personal participation in the wrongful termination of contract benefits. This principle of nonliability applies to both compensatory and punitive damages. The controlling principle of law is stated in Gruenberg, where the Supreme Court held that certain non-insurer defendants who were alleged by the pleading to be agents of other insurer defendants ‘were not parties to the agreements for insurance; therefore, they are not, as such, subject to an implied duty of good faith and fair dealing. Moreover, as agents and employees of the defendant insurers, they cannot be held accountable on a theory of conspiracy. [Citation.] This rule, as was explained in Wise (at pp. 72–73, 35 Cal.Rptr. at p. 665) [Wise v. Southern Pacific Co. (1963) 223 Cal.App.2d 50, 35 Cal.Rptr. 652] ‘derives from the principle that ordinarily corporate agents and employees acting for and on behalf of the corporation cannot be held liable for inducing a breach of the corporation's contract since being in a confidential relationship to the corporation their action in this respect is privileged.’' (Gruenberg, supra, 9 Cal.3d 566, at p. 576, 108 Cal.Rptr. 480, at p. 487, 510 P.2d 1032, at p. 1039.) Gruenberg specifically notes that none of the non-insurer defendants, according to the pleading, had committed any tort other than the breach of good faith and fair dealing. Consequently, it was unnecessary to decide in that case what the outcome would be had other tortious conduct been alleged.

The principle of nonliability stated in Gruenberg with respect to agents of an insurer was applied in Hale, with the result that two employees of the defendant insurer who had directly participated in the decision not to honor the insurance contract escaped liability. Gruenberg was also followed on this point in Iversen v. Superior Court (1976), 57 Cal.App.3d 168, 127 Cal.Rptr. 49. In Iversen, the court directed the entry of a summary judgment for petitioner, a claims supervisor of the codefendant insurer, despite the fact that it was argued that an employee is always liable for his own torts regardless of whether his employer is also liable. (See Civ.Code, § 2343, subd. 3.) The Iversen court was careful to point out that the only tort involved was that of breach of duty imposed on an insurer by reason of its contract with the insured, and the claims supervisor was not a party to the contract and, hence, had no duty which he could breach.

In light of Gruenberg, Iversen and Hale, we must reverse the judgments entered against defendants Segal and McEachen on both the general damage verdicts and the punitive damage verdicts. Since the jury awards against defendants Segal and McEachen cannot stand, defendant Mutual of Omaha is unable to rely on the rule of law that the principal's liability is joint and several with its agent and can be no greater in amount than that determined for the agent. Although the nature of the tortious breach by an insurer of the insurance policy contract with the insured precludes personal liability of the agent, it does not protect the insurer, since the latter is held liable because the conduct of the agent is authorized by the principal and is committed on behalf of and in the interest of the principal.

The amount of damages for emotional distress suffered by an insured is to be determined by the sound discretion of the jury, and an award may not be set aside unless an appellate court is convinced that the verdict was the result of passion or prejudice. (See Fletcher, supra, 10 Cal.App.3d 376, 408, 89 Cal.Rptr. 78.)

Defendants point to other decided cases involving tortious breach of an insurance contract in an effort to minimize the value of plaintiff's distress in the case at bench in light of awards made in other cases. It is true that the case law in this area has arisen primarily from the experience of plaintiffs who were uneducated, or old, or needy at the time they paid the premiums for protection, and that these conditions contributed to their unpleasant subsequent experiences with their insurance carriers. By implication, defendants argue that plaintiff Egan, by contrast, should not have suffered as much emotional distress due to his relatively stable financial situation. We know of no requirement that a plaintiff in a tort action must become totally destitute in order to qualify for recovery of damages for emotional distress. The evidence in the case before us established that, up to the time of the 1970 accident, the Egans had, despite Mrs. Egan's condition, managed to maintain a modest but stable financial situation for themselves. It is not unreasonable to conclude that the prospect of losing what they had acquired would occasion emotional distress of a more severe nature than that experienced by persons who had never acquired much in the way of material possessions.

We are thus not persuaded that the sum of $78,000 was excessive in view of the evidence of continual financial strain for a period of several years' duration, accompanied by the pain occasioned by the injury and the sense of injustice resulting from defendant corporation's conduct.

Defendants correctly state the rule of law that damages for emotional distress may only be awarded where the evidence shows damages to the plaintiff other than pain and suffering from emotional distress. As was explained in Gruenberg, “[t]he general rule of damages in tort is that the injured party may recover for all detriment caused whether it could have been anticipated or not. (Civ.Code, § 3333 . . .) In accordance with the general rule, it is settled in this state that mental suffering constitutes an aggravation of damages when it naturally ensues from the act complained of . . . Such awards are not confined to cases where the mental suffering award was in addition to an award for personal injuries; damages for mental distress have also been awarded in cases where the tortious conduct was an interference with property rights without any personal injuries apart from the mental distress. [Citations.]” (Gruenberg, supra, 9 Cal.3d 566, at p. 579, 108 Cal.Rptr. 480, at p. 489, 510 P.2d 1032, at p. 1041.)

‘Recovery of damages for mental suffering in the instant case does not mean that in every case of breach of contract the injured party may recover such damages. Here the breach also constitutes a tort.’ (Crisci, supra, 66 Cal.2d 425, at p. 434, 58 Cal.Rptr. 13, at p. 19, 426 P.2d 173, at p. 179.) (Emphasis added.) The teaching of Crisci and Gruenberg is that an insurer's breach of its insurance contract covenant of good faith and fair dealing constitutes ‘an interference with property rights' sustaining an award of damages for mental distress. (See, also, Jarchow v. Transamerica Title Ins. Co. (1975) 48 Cal.App.3d 917, 936, 122 Cal.Rptr. 470.)

Finally, defendant Mutual of Omaha argues that the punitive damages award of $5,000,000 is a massive award and was clearly the result of ‘passion and prejudice’ on the part of an overwrought jury. Defendant Mutual of Omaha seeks reversal of the judgment on that ground.

Defendant Mutual of Omaha suggests that the conduct of the trial left much to be desired and specifically refers to portions of the argument made by plaintiff's counsel to the jury, and some minor incidents which occurred during trial, as the explanation for such defendant's present plight: i. e., an obligation to pay a five million dollar punitive damages award. We note, in passing, that no complaints were made concerning these specified improprieties at the trial level, and defendant Mutual of Omaha cannot now complain of them. But a review of the record does not reveal that the proceedings were conducted in an atmosphere of hysteria, as the result of misconduct by any counsel or intemperance on the part of the trial judge, as contended by Mutual of Omaha. What the record does suggest is that the evidence presented by the defense, with its witnesses disclaiming knowledge of the identity of various employees who were connected with the Egan claim and the various inconsistencies in the testimony of the defense witnesses, could well have given the jury the indication of a deliberate coverup by the corporate defendant and caused the jury to be somewhat enraged by the stance of defendant Mutual of Omaha.

Although we hold that the evidence presented was sufficient to justify an award for punitive damages based on proof of malice, fraud and oppression, a survey of the entire record, viewed in a light most favorable to the judgments, leads us to conclude, however, that the amount of the punitive damage award rendered against defendant Mutual of Omaha was excessive and was the result of passion and prejudice on the part of the jury.

As was stated in Cunningham v. Simpson (1969), 1 Cal.3d 301, 308–309, 81 Cal.Rptr. 855, 859, 461 P.2d 39, 43, “[i]n considering whether the [award was] excessive, we realize the very familiar rule that to the jury, to a very large extent, is committed the responsibility of awarding compensation for an injury sustained. When the award, as a matter of law appears excessive, or where the recovery is so grossly disproportionate as to raise a presumption that it is the result of passion or prejudice, the duty is then imposed upon the reviewing court to act.”

We find the principle stated in many cases that an award of punitive damages must bear a reasonable relationship to actual damage. However, this principle ‘finds application only in cases in which the award of punitive damages far exceeds any actual injury.’ (Schroeder v. Auto Driveaway Co. (1974) 11 Cal.3d 908, 922, 114 Cal.Rptr. 622, 632, 523 P.2d 662, 672; see also Cunningham, supra, 1 Cal.3d 301, 310–311, 81 Cal.Rptr. 855, 461 P.2d 39.)

The compensatory damages awarded to plaintiff Egan and against defendant Mutual of Omaha amounted to a total of $123,600. The punitive damages award of $5,000,000 in the present case was ‘so grossly disproportionate’ to the actual damages awarded as to clearly suggest passion or prejudice on the part of the jury. Whil the California Supreme Court has accepted the principle that ‘the wealthier the wrongdoing defendant, the larger the award of exemplary damages need be in order to accomplish the statutory [Civ.Code, § 3294] objective’ (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 65, 118 Cal.Rptr. 184, 200, 529 P.2d 608, 614), the jury's zeal in the case at bench appears to be that of responding to an invitation to award damages as a punishment for any wrongdoing by insurance companies everywhere by its award to plaintiff against defendant Mutual of Omaha. This part of the judgment, therefore, cannot be upheld.

We conclude that the award against defendant Mutual of Omaha of punitive damages should be reduced from $5,000,000 to $2,500,000. The latter figure is one that we feel is reasonable and does not bear an unreasonable relationship to the award of actual damages.

The Cunningham court sets forth the rule that when the appellate court concludes that the jury verdict is excessive, the court may ‘(1) remand for a new trial on all issues [citation] or on the issue of damages alone [citation], or (2) issue a remittitur conditioning affirmance of the judgment on plaintiff's agreement to remit part of the award [citations].’ (Cunningham, supra, 1 Cal.3d 301, at p. 310, 81 Cal.Rptr. 855, at p. 861, 461 P.2d 39, at p. 45.)

We believe that there is a third procedural alternative, not mentioned in Cunningham, when an appellate court makes a determination that a jury verdict is excessive. This third alternative is for the appellate court itself to modify the judgment and affirm the judgment as modified. In Beagle v. Vasold (1966) 65 Cal.2d 166, 178, 53 Cal.Rptr. 129, 135, 417 P.2d 673, 679 the court states that ‘both the trial and the appellate courts have the power and the duty to reduce verdicts which are unreasonably large.’ (Emphasis added.) This principle comports with the provisions of section 43 of the Code of Civil Procedure, which provides, in pertinent part, that ‘[t]he Supreme Court, and the courts of appeal, may affirm, reverse, or modify any judgment or order appealed from, and may direct the proper judgment or order to be entered, or direct a new trial or further proceedings to be had.’ (Emphasis added.) We do not interpret Cunningham as holding that, under Code of Civil Procedure section 43, the appellate court is without power to modify a judgment for excessive damages by simply reducing the amount to a reasonable figure.

In light of the foregoing, that portion of the judgment in favor of plaintiff and against defendants Jon M. Segal and T. McEachen is reversed with instructions to the trial court to enter judgment in favor of defendants Segal and McEachen and against plaintiff. That portion of the judgment in favor of plaintiff and against defendant Mutual of Omaha Insurance Company, a corporation, is modified by striking therefrom the figure $5,123,600 and inserting in its place the figure $2,623,600. As so modified, that portion of the judgment in favor of plaintiff and against defendant Mutual of Omaha Insurance Company, a corporation, is affirmed.

Defendants Segal and McEachen shall recover their costs on appeal. Plaintiff shall recover costs on appeal as against defendant Mutual of Omaha Insurance Company, a corporation.


1.  If proof of the punitive-damage elements of oppression, fraud, or malice—required by Civil Code section 3294—is to be by the burden-of-proof standard of ‘clear and convincing proof,’ rather than by a preponderance of the evidence, irrespective of the underlying tort cause of action and its burden-of-proof standard, that burden-of-proof standard for punitive damages should be determined by the California Supreme Court.

JEFFERSON, Associate Justice.

KINGSLEY, Acting P. J., and DUNN, J., concur.

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