Royal Oakes

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Royal Oakes is a partner in the firm’s Los Angeles office. He has extensive trial and appellate experience in the fields of insurance and general business law, having litigated hundreds of cases in the areas of bad faith law and unfair business practices.
A substantial part of his practice is devoted to the defense of class actions.
Mr. Oakes has served as lead counsel in numerous appellate cases, including victories in the California Supreme Court and the federal Ninth Circuit Court of Appeals. He was lead counsel in Farmers Insurance Exchange v. Superior Court, 2 Cal. 4th 377 (1992), in which the California Supreme Court established the doctrine of primary jurisdiction.
Mr. Oakes’ most recent trials involved complex cases in both the property-casualty and life insurance fields. He won a bench trial involving a $1.5 million life insurance claim submitted by the heirs of an insured murder victim. He also won a jury trial involving a putative class action that alleged an automobile insurer’s “direct repair program” violated the rights of policyholders.
In addition to his work with Barger & Wolen LLP, Mr. Oakes is one of the nation’s best-known television and radio legal commentators. Nationally, he is an ABC News Legal Analyst, and airs a daily feature, “It’s The Law,” on Westwood One’s “Metro Networks.” In Los Angeles, he serves as the on-air legal commentator for KFWB All-News Radio.

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Reasoning Behind Punitive Damages Calculations Provided By California Appellate Court

Royal Oakes was quoted extensively in an Oct. 7, 2013, Claims Journal article, California Court Of Appeals Decision Provides Reasoning Behind Punitive Damages Calculations, about a significant insurance case where $19 million in punitive damages were awarded, then later shot down by the California Court of Appeals, which found the verdict excessive. The court capped the award at $350,000.

The case, Nickerson v. Stonebridge Life Ins. Co., involved a former Marine who sought payment for 109 days in the hospital due to a fall after his insurance company concluded that only 19 of the days were medically necessary. The jury awarded him $35,000 for emotional distress and $19 million in punitive damages.

Oakes told the publication that traditionally the way in which punitive damages have been calculated has varied.

“For years the appellate courts have been trying to interpret the various pronouncements by the U.S. Supreme Court about the issue of the size of punitive damages and specifically, the ratio of punitive damages to compensatory damages. The reason it has been a bit of a struggle on occasion is because of the high court and the appellate courts, in general, are not prepared to impose a strict bright line test, limiting punitive damages to a single digit ratio,” Oakes said.

“Having said that, this new case is one of many cases that have come very close to seeing that, in the absence of exceptionally reprehensible conduct, then it is a due process violation to exceed a ratio of 9 or 10 to 1. In fact, many appellate courts have suggested that far smaller ratios are appropriate in virtually all cases.”

Oakes also said that the decision is significant to insurers because it doesn’t include breach-of-contract damages.

“The significance of this decision is to reinforce the idea that though evidence of reprehensible conduct may have been found by a jury; nonetheless, it is almost impossible for an appellate court to find that a ratio of more than 10 to 1 between punitives and the compensatory damages satisfies constitutional due process requirements. There’s another very significant and separate aspect to this decision. When you figure out how much compensatory damages exist in order to come up with the punitives to compensatory ratio, do you have to decide what components of damages should be included in compensatory damages? This new Nickerson case reaffirms the idea that in computing compensatory damages, you do not include breach of contract damages. Instead, you only include damages for torts, such as bad faith and emotional distress,” he said.

According to Oakes, in Nickerson the court concluded that in determining compensatory damages, “for purposes of computing a ratio between punitive and compensatory, you do not include the breach of contract damages.

 “The reason for that is that punitive damages relate to tortuous conduct. You don’t get punitive for a breach of contract. You might get punitive for tort, depending on the tort and depending on whether the punitive damage standard is met, such as malice, oppression or fraud. And so, this case is an important reminder that in computing compensatory damages for purposes of arriving at a ratio between punitives and compensatory you exclude breach of contract damages and you include tort damages,” he said.

In general, if a contract is breached and the party who breached it is sued, damages are limited to contractor damages, the article notes.

“However, years ago, the courts decided that because of the special relationship between a policy holder and an insurance company that if a policyholder is suing for breach of contract and can also go beyond that and prove additional conduct such as bad faith or emotional distress then the policy holder is entitled to try to assert those causes of action,” Oakes said.

Oakes also told the Claims Journal that there have been several court decisions that have come close to saying it’s a due process violation to exceed the ratio of 9 or 10 to 1 between punitive and compensatory damages.

“I think that we have been moving in the direction of a bright line test limiting punitive damages to a single digit ratio. It may be that because every case is different and you occasionally see cases that suggest an extreme level of reprehensibility, there will continue to be a reluctance to impose a bright line test,” Oakes said.

Large "Bad Faith" Verdict Raises Two Intriguing Issues

The verdict by a Los Angeles jury last week awarding a health insurance claimant over $19 million raises a pair of issues of interest to health and disability insurers. 

In Thomas Nickerson v. Stonebridge Life Insurance Company, the plaintiff, an ex-Marine, sought payment for 109 days in the hospital after a fall. The insurance company believed expenses for only 19 of those days were medically necessary. A jury awarded Nickerson $35,000 in emotional distress damages, plus $19 million in punitive damages. 

As this case undoubtedly proceeds, first in a motion directed to the trial judge, and then likely on appeal, one issue that will be addressed is the appropriate amount of punitive damages that should be permitted (assuming any punitive damages survive). 

Case law in recent years has established that except in the most extraordinary circumstances, punitive damages should not exceed other compensatory damages by more than a single digit ratio. Some courts have even opined that a 4:1 ratio is the maximum amount to be awarded, and that a 2:1 or even 1:1 ratio would be more appropriate. 

Here, the ratio of punitive damages to compensatory damages somewhat exceeds the above guidelines -- it pencils out to 543:1. It's true that depending on the level of reprehensibility of a defendant's conduct, and where compensatory damages are nominal, the courts may be open to approving punitive awards in excess of a the above ratios, but those circumstances do not appear to apply in this case. 

The second issue raised by the Nickerson case is the alleged obligation by an insurer to accept or give great deference to the opinion of an insured's physician, with respect to the question of medical necessity under a health policy. 

Nickerson's lawyer, William Shernoff of the Claremont, California firm of Shernoff Bidart & Echeverria LLP, has expressed the hope that this case will lead to a recognition by the courts that the medical judgment of policyholders' treating physicians should be accepted by carriers. 

In fact, this case is unlikely to lead to such a result.  

Appellate courts have long recognized that the issue of medical necessity should not be one that is dictated by the view of any particular expert or practitioner, but instead should turn on which party presents the most compelling evidence on the coverage question. 

The notion that a policyholder's doctor has a monopoly on truth or good judgment, especially when that physician may hold a view based on a longstanding affinity for a patient, and an unquestioning acceptance of self-reported symptoms that may or may not be reliable in light of clinical or objective testing, is unlikely to find favor with the bench officers asked to decide coverage questions.

Court of Appeal Hands UCL Win to Plaintiffs, Shrinks Impact of Moradi-Shalal

A recent ruling by the California Court of Appeal in a UCL action will likely lead to a showdown in the California Supreme Court over the reach of Moradi-Shalal v. Fireman’s Fund Ins. Cos., 46 Cal. 3d 287 (1988), the ruling that barred private actions seeking to enforce California’s Unfair Insurance Practices Act, namely, Insurance Code Section 790.03, et seq. (“Section 790.03”). 

For years plaintiffs’ lawyers and insurers have grappled over the question of whether causes of action for violation of California’s “Unfair Competition Law” (Business and Professions Code Section 17200, et seq., or “UCL”) may allege conduct that violates Section 790.03. Insurers have generally prevailed in demonstrating that to allow a UCL suit to include thinly-disguised Section 790.03 violations would be an impermissible circumvention or end run around Moradi-Shalal. The California Court of Appeal supported the insurers’ position on this issue in Textron Financial Corp. v. National Union Fire Ins. Co., 118 Cal. App. 4th 1061 (2004).

Now, the Fourth Appellate District, in Zhang v. Superior Court (October 29, 2009), has rejected Textron, and held that because the UCL allows a plaintiff to allege unfair, unlawful, and misleading conduct against businesses generally (including insurers), the fact a plaintiff asserts what appear to be violations of Section 790.03 is not necessarily an end run around Moradi-Shalal.

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California Court of Appeal Issues Ruling on Class Certification: Conclusory Class Allegations Are Defeated

The pen is mightier than the sword, and a variation on that theme – the declaration is mightier than conclusory class action allegations – has just been embraced by the Fourth District California Court of Appeal in the case of Ali v. USA Cab Ltd. (August 24, 2009).

In Ali a putative class of drivers who leased taxis from USA Cab claimed the company wrongfully classified the drivers as independent contractors rather than employees.  As a result, plaintiffs claimed, USA Cab improperly withheld workers’ compensation insurance, minimum wages and meal/rest breaks.  Although the complaint asserted the drivers assumed no risk and provided no tools, USA Cab attacked plaintiffs’ motion for class certification by filing declarations showing the drivers were not subject to USA Cab’s control, that the drivers provided their own maps, cell phones, computers and GPS systems, and that they paid for their own advertising and business cards. 

The use of dozens of drivers’ declarations proved to be a powerful weapon against plaintiffs’ motion for class certification.  The trial court found common issues did not predominate, as putative class members presented a vast variety of factual circumstances not susceptible to class resolution.  Because proof of liability as to a sampling of class members would not establish proof of liability as to the class, the Court of Appeal affirmed the trial court’s denial of the certification motion.

The Court of Appeal also held the suit failed the superiority test, concluding plaintiffs failed to demonstrate class treatment would be superior to individual actions, because the putative class action would be “extremely difficult to manage.”  The opinion found that even if judgment were to be rendered for the class, the need to litigate each member’s right to recover would eliminate any efficiencies resulting from the class mechanism.

The lesson of the Ali case is clear:  The notion that common issues predominate is easy to assert, but if declarations can disprove commonality, they can be a devastating weapon in defeating a putative class action. 

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