Sahadi v. Liberty Mutual Insurance

Background

Fred Sahadi had an insurance policy issued by Liberty Mutual Fire Insurance Company that included $500,000 in underinsured-motorist coverage. After a January 2015 rear-end collision, the other driver’s insurer paid Sahadi $15,000. Sahadi then sought benefits under his Liberty policy, eventually demanding the remaining $485,000 and initiating the policy’s binding-arbitration process.

Liberty questioned whether Sahadi’s claimed injuries and need for surgery resulted from the accident or from preexisting medical conditions. The parties exchanged medical information and participated in arbitration. On February 8, 2017, they agreed to settle for the full $485,000 policy limit, which Liberty paid.

Sahadi sued, alleging breach of the covenant of good faith and fair dealing under California law, along with fraud and a claim under California Insurance Code section 790.03. The other claims were previously dismissed or stipulated away, leaving only the bad-faith claim. Liberty Mutual Fire Insurance Company moved for summary judgment. It also asserted that Liberty Mutual Insurance and Liberty Guard Insurance Company had never existed and had been improperly sued.

Arguments and legal standard

Sahadi claimed that Liberty acted in bad faith by delaying payment after May 27, 2016. He sought attorney’s fees and costs incurred in recovering the policy benefits, lost investment income, emotional-distress damages, and punitive damages.

Summary judgment is appropriate when the evidence shows no genuine dispute about a fact that could affect the result and the moving party is entitled to judgment under the law. The court viewed disputed evidence in the light most favorable to Sahadi, the nonmoving party.

Court’s analysis

Under California law, a claim for breach of the insurance covenant of good faith and fair dealing requires showing that policy benefits were wrongfully withheld and that the insurer’s reason was unreasonable or lacked proper cause. The court did not decide whether Liberty breached that duty because it concluded that Sahadi could not establish any recoverable damages.

Attorney’s fees, costs, and expenses. California law can allow recovery of certain attorney’s fees and related expenses incurred to obtain insurance benefits when those amounts were proximately caused by the insurer’s bad faith. These are commonly called Brandt damages. Sahadi claimed about $160,240.27 in attorney’s fees and about $3,279 in costs and expenses.

The court held that Sahadi did not show the required causal connection. He had retained attorneys before the date he identified as the beginning of Liberty’s alleged bad faith, and his contingency-fee agreement was already in place. The record also indicated that the fees he sought had been incurred before that alleged start date. The court found that Sahadi had not identified evidence showing that Liberty’s alleged misconduct caused either his decision to retain counsel or the fees and expenses he claimed.

Lost investment income. Sahadi argued that he lost potential investment earnings because Liberty did not pay the policy limit earlier. The court found this theory too speculative. His expert used returns from broad stock-market indexes but did not know whether Sahadi had invested in those indexes, whether Sahadi would have invested the insurance proceeds earlier, or what investment he would have chosen. There was also no evidence that Sahadi had actually invested the policy benefits or had a history of earning income from those investments.

Emotional-distress damages. Sahadi acknowledged that California law required financial loss before emotional-distress damages could be recovered in this type of insurance bad-faith case. Because the court found no genuine factual dispute supporting his claims for fees, costs, or lost investment income, it also rejected his emotional-distress damages theory at the summary-judgment stage.

Punitive damages. California law requires compensatory damages, even nominal damages, to support punitive damages. Because Sahadi had not shown a genuine factual dispute establishing any compensatory damages, the court also rejected his punitive-damages theory.

Disposition

The court GRANTED Liberty Mutual Fire Insurance Company’s motion for summary judgment. It also held that summary judgment was proper as to Liberty Mutual Insurance and Liberty Guard Insurance Company, the nonmoving entities that Liberty asserted had never existed. The court did not reach Liberty’s separate argument that it had not breached the covenant of good faith and fair dealing.