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Nickerson v. Stonebridge Life Insurance Co.

California Court of Appeals, Second District, Third Division

August 29, 2013

THOMAS NICKERSON, Plaintiff and Appellant,

APPEALS from orders and a judgment of the Superior Court of Los Angeles County No. BC405280, Mary Ann Murphy, Judge.

Shernoff Bidart Echeverria Bentley, William M. Shernoff, Howard S. Shernoff, Travis M. Corby; The Ehrlich Law Firm and Jeffrey Isaac Ehrlich for Plaintiff and Appellant.

Baute Crochetiere & Wang, David P. Crochetiere, Henry C. Wang; Reed Smith and Margaret A. Grignon for Defendant and Appellant.

Amy Bach; Knapp & Roberts and David L. Abney for United Policyholders as Amicus Curiae on behalf of Defendant and Appellant.



The sole issue raised by both parties to this appeal concerns the punitive damage award, specifically, whether the trial court’s remittitur of that award from $19 million to $350, 000 based on a ratio of punitive to compensatory damages of 10:1 comports with due process. Thomas Nickerson sued Stonebridge Life Insurance Company (Stonebridge) challenging the insurer’s partial denial of his claim for hospitalization benefits. The trial court ruled that a policy provision limiting coverage was not conspicuous, plain, and clear and was therefore unenforceable, entitling Nickerson to $31, 500 in additional benefits under the policy. A jury then found that Stonebridge had breached the implied covenant of good faith and fair dealing and awarded Nickerson $35, 000 in compensatory damages for emotional distress. The jury found Stonebridge acted with fraud and fixed the punitive damage award at $19 million. The trial court conditionally granted Stonebridge’s new trial motion unless Nickerson consented to a reduction of the punitive damages to $350, 000.[1] Both parties appeal. After weighing all of the relevant factors and circumstances pursuant to State Farm Mut. Automobile Ins. Co. v. Campbell (2003) 538 U.S. 408 (State Farm) and Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159 (Simon), we hold the trial court’s remittitur of punitive damages was proper. Accordingly, we affirm.


1. The insurance policy

Stonebridge insured Nickerson under a policy (the policy) providing coverage for hospital confinement, intensive care unit confinement, and emergency room visits. Stonebridge agreed to pay indemnity in the amount of $350 per day for each day of confinement in a hospital for a covered injury, $350 per day for each day of confinement in a hospital intensive care unit, and $150 per visit to a hospital emergency room. Although payment of claims under this policy is related to healthcare services rendered to the insured, the policy is not healthcare insurance that pays for medical expenses. The insured is free to use the funds in any manner he or she wishes, i.e., for rent or a car payment.

The policy’s insuring clause for the “Accidental Daily Hospital Confinement Benefit” stated: “We will pay the Daily Hospital Confinement Benefit stated on the Schedule Page for each day of Confinement due to a covered injury, beginning with the first day of Confinement. A Covered Person must be under the professional care of a Physician, and such Confinement must begin within 90 days of the accident causing the injury.” (Capitalization omitted.)

A definitions section contained 10 definitions, including:

“HOSPITAL CONFINEMENT/CONFINEMENT/CONFINED means being an inpatient in a Hospital for the necessary care and treatment of an Injury. Such confinement must be prescribed by a Physician.

“Confinement does not include outpatient care and treatment, including outpatient surgery or outpatient observation received in a Hospital.

“[¶]... [¶]

“NECESSARY TREATMENT means medical treatment which is consistent with currently accepted medical practice. Any confinement, operation, treatment, or service not a valid course of treatment recognized by an established medical society in the United States is not considered ‘Necessary Treatment.’ No treatment or service or expense in connection therewith, which is experimental in nature, is considered ‘Necessary Treatment.’

“We may use Peer Review Organizations or other professional medical opinions to determine if health care services are:

“1. medically necessary; and

“2. consistent with professionally recognized standards of care with respect to quality, frequency, and duration; and

“3. provided in the most economical and medically appropriate site for treatment.

“If services do not meet these criteria, expenses related to those services will not be deemed ‘Necessary Treatment.’ ”

The policy defined a “Hospital” as an institution that, among other things, is engaged primarily in providing “medical, diagnostic, and major surgery facilities for medical care and treatment of sick and injured persons on an inpatient basis, ” excluding any institution or any part of an institution operated primarily as a “convalescent home, convalescent, rest, or nursing facility.”

The policy period began in October 2007, and the policy stated that coverage would continue as long as Nickerson continued to pay his monthly premium.

2. Nickerson’s injury and hospitalization

Nickerson served in the United States Marines and therefore is entitled to medical care at Veterans Administration (VA) hospitals at no cost. He was involved in a snowmobile accident in 1997 and became paralyzed from his chest down. He now relies on a wheelchair. Nickerson is single and has worked as a live-in caretaker for other veterans since 2000 in exchange for free rent. His only income is a very small military pension.

Nickerson was sitting in a motorized wheelchair on a lift about to be lowered from his van when he accidently struck the control, causing the wheelchair to lurch forward. He fell from the wheelchair on the lift down to the pavement. The accident occurred on February 11, 2008. He suffered a broken leg and was taken to a VA hospital in Long Beach, first to the emergency room and then to a spinal cord unit, that was equipped to treat paraplegics and quadriplegics. Nickerson’s primary care physician, Dr. Hung Nguyen, treated him there together with orthopedic physicians.

Nickerson suffered a comminuted, displaced fracture of his right tibia and fibula, meaning that the leg was broken, splintered, and out of place. A full-leg splint, a so-called Long Beach splint, was put in place extending from his upper thigh to the beginning of his toes. He soon experienced complications from the injury, including heterotopic ossification (formation of bone in a joint), bruising, swelling, blistering, infection, and a risk of gangrene. He remained at risk for blood clots. Nickerson was confined to a hospital bed and received intravenous fluids until around February 29, 2008, although he continued to have some blisters from an infection.

An orthopedic physician approved Nickerson’s sitting in a wheelchair again on March 24, 2008. He could tolerate two hours at a time in a wheelchair by May 9, 2008, and an orthopedic physician determined that he would be ready for discharge when he could tolerate three hours at a time in a wheelchair. Dr. Nguyen decided that Nickerson was stable and ready to return home on May 19, 2008, except that he was unable to maneuver into his bathroom without a particular part needed for his wheelchair. After obtaining the needed part, Dr. Nguyen discharged Nickerson from the hospital on May 30, 2008. In all, Nickerson was hospitalized under Dr. Nguyen’s care from February 11 until May 30, 2008, a total of 109 days.

3. Nickerson’s claim and Stonebridge’s handling of his claim

Nickerson submitted a claim to Stonebridge on June 2, 2008, together with a completed form that Stonebridge had provided to authorize the release of his medical records. Stonebridge sent him a letter dated June 18, 2008, stating that the Long Beach VA hospital required him to complete and sign a different authorization form. Rather than complete the form, Nickerson went to the hospital himself, obtained copies of his records and mailed them to Stonebridge. Nonetheless, Stonebridge sent him another letter enclosing the same authorization form along with an Explanation of Benefits form stating that his file was closed until the information requested of him was received. Nickerson completed and returned the form.

Nickerson sought assistance from the California Department of Insurance on July 22, 2008. He explained that he had been in the hospital for 109 days and could not use the bathroom or enter a bedroom because of the Long Beach splint on his leg. After he had sent his medical records to Stonebridge, Nickerson was notified that his file was closed until the insurer received additional information. On August 15, Stonebridge wrote to Nickerson to advise him it was ordering records from the Long Beach VA Hospital.

Stonebridge notified Nickerson in a letter dated August 28, 2008, that it had received the information requested from the Long Beach VA Hospital, and that it was requesting additional information from a medical peer review organization. Stonebridge sent Nickerson’s file to the Medical Review Institute of America and requested answers to three questions: (1) “Was the confinement medically necessary for inpatient treatment of the right tibia/fibula fracture? If so, for how many days?” (2) “Was treatment consistent with professionally recognized standards of care with respect to quality, frequency and duration?” and (3) “Was treatment provided in the most economical and medically appropriate site for treatment?” The Case Review Submittal Form included a box to check if Stonebridge required a phone consultation between the peer reviewer and the treating physician. Stonebridge did not check the box. Amy Hammer, Stonebridge’s technical claims specialist, testified that neither she nor anyone at Stonebridge had ever requested a reviewer contact the treating physician.

Stonebridge received a peer review report dated September 9, 2008 that concluded, “By 2/29/08 the fracture blebs and leg swelling was improved and there were no further signs of active leg infection, compartment syndrome or thromboembolic disease. His initial splint had been changed to a more stable Long Beach splint and was able to transfer from bed to gurney. At that point it was reasonable that a transfer to a less acute care environment such as a rehabilitation center or even back home with a care giver was possible. Visits to the orthopaedic clinic for further follow up could have been arranged and there was no evidence of additional need for acute hospitalization. On going care after that date was primarily directed to care of his chronic trophic ulcerations and physical therapy. Average length of stay for proximal tibial fractures according to ODG is 4.0 days, however Milliman indicates that hospitalization for complications for paraplegic treatment as in this case can result in extended stays. That extension based on the clinical situation as described in the progress notes should have been until Feb. 29. [¶]... [¶] After, Feb. 29, [sic] a more economical and medically appropriate facility could have been chosen.” (Italics added.)

Stonebridge notified Nickerson in a letter dated September 10, 2008, that it had completed the processing of his claim for benefits. The letter stated that an independent medical reviewer had determined that acute care hospitalization was medically necessary only from February 11 until February 29, 2008, and that his treatment after February 29 could have been done in a less acute care environment or at home with a caregiver. It stated that his hospitalization therefore was “Necessary Treatment, ” as defined in the policy, only from February 11 until February 29, 2008, and that he was entitled to benefits only for that period. Stonebridge sent Nickerson a check for $6, 450 shortly thereafter.

Nickerson turned to Dr. Nguyen for help by asking him to write a letter to Stonebridge explaining his extended hospitalization. Dr. Nguyen’s three-paragraph letter dated September 30, 2008, stated, in relevant part: “The fracture was complicated by extensive swelling, infection, blistering, and muscle damage that required acute hospitalization, intravenous fluids and antibiotics, and full staff support including consultation with an orthopedic surgeon. The infection and blistering subsided as Mr. Nickerson completed his antibiotics on March 1, 2008. During this time, the right leg was placed in a Long Beach Splint, kept elevated and fully extended.

“Mr. Nickerson was living alone and could not have been discharged safely at that time. The orthopedic consultants recommended that he remain supine in bed or gurney and did not clear him for wheelchair use until March 24, 2008. He did not have an available caregiver that could provide bedside care at home during this period. They also recommended that his fractured leg be kept fully extended in the splint (no flexion permitted) to allow healing. They did not lift this restriction until May 5, 2008. His home has narrow doorways and corners he could not have managed in his wheelchair if his leg was fully extended.” (Italics added.)

Stonebridge responded to Nickerson in a letter dated October 10, 2008, stating that Dr. Nguyen’s letter did not change its decision because Dr. Nguyen did not indicate that hospitalization in an “acute care setting” was required as of March 1, 2008. Continuing, the October 10 letter stated in relevant part: “Although you may have needed to be confined on an inpatient basis, there is no indication that you had any medical conditions [o]n March 1, 2008 or after that required inpatient acute care. Therefore, your confinement in an acute care setting as of March 1, 2008 was not provided in the most economical and medically appropriate site for treatment and was not consistent with professionally recognized standards of care.” (Italics added.) Hammer conceded there is no requirement in Nickerson’s policy that the care be acute to be covered.

Hammer did not know at the time she received the reviewer’s report that care at VA hospitals was free for veterans like Nickerson. She acknowledged that she did not believe that the Long Beach VA Hospital kept patients hospitalized unnecessarily. Hammer conceded that Nickerson’s claim fell within the policy’s grant of coverage and not within any of the policy’s stated exceptions. She also conceded that the Long Beach VA Hospital was the most economical site for Nickerson’s treatment. Hammer testified she would handle Nickerson’s claim the same way today. This was confirmed by Stonebridge’s vice president of claims at the time.

4. Trial court proceedings

Nickerson’s lawsuit against Stonebridge ensued. His complaint alleged Stonebridge breached the insurance contract by failing to pay him benefits for the full 109 days of his hospital stay and that Stonebridge breached the implied covenant of good faith and fair dealing by acting unreasonably and in bad faith in denying him the full policy benefits.

At the close of Nickerson’s case, the trial court granted his motion for a directed verdict on the cause of action for breach of contract, finding as a matter of law that the “Necessary Treatment” limitation was a limitation of coverage that was not conspicuous, plain and clear in the policy and therefore was unenforceable. The court found that Nickerson was entitled to $31, 500 in unpaid benefits for the breach of contract cause of action.

The jury returned a special verdict finding that Stonebridge’s failure to pay policy benefits was unreasonable or without proper cause and that Nickerson suffered $35, 000 in damages for emotional distress as a result. The jury also found ...

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