United States: Michael Mazik v. Geico General Insurance Company

Last Updated: September 20 2019
Article by Michael R. Velladao and Kayla Berlin

(September, 2019) - In Mazik v. GEICO General Ins. Co., 35 Cal.App. 5th 455 (May 17, 2019), the California Second District Court of Appeal affirmed a judgment in favor of Michael Mazik awarding punitive damages against GEICO in connection with its handling of an Underinsured Motorist claim (“UIM”). Mazik had been severely injured as a result of a head-on collision while driving on a highway in Riverside County. As a result of the collision, Mazik was diagnosed with a “grossly comminuted fracture of the left calcaneus,” i.e. heel bone. Subsequent medical records indicated that Mazik faced a lifetime of chronic pain and issues related to his heel injury. Essentially, as a result of the accident, his heel bone had exploded into numerous pieces preventing surgery to repair the bone. As such, Mazik was in constant pain.

Mazik received $50,000 from the insurer for the driver of the other car who was at fault in the accident. That sum amounted to the full value of the driver’s policy. On December 31, 2009, Mazik’s attorney submitted a claim to GEICO under Mazik’s UIM policy which had a policy limit of $100,000. The letter included medical records and Mazik’s treatment to date, along with other supporting documentation. In light of the severity of the damages and the residual effects of the injuries, the letter requested compensation of $50,000, representing the full policy amount with an offset of the $50,000 payment Mazik already received.

In response, GEICO initially offered $1,000 to settle Mazik’s UIM claim. However, GEICO’s evaluation of such claim omitted important information from the medical records that Mazik provided to GEICO. Subsequently, the adjuster who prepared the evaluation secured authority from the regional liability administrator, Lon Grothen, to reject Mazik’s $50,000 claim. Thereafter, in September 2010, GEICO increased its settlement offer to $13,800. Four months later, on January 22, 2011, GEICO increased its offer to $18,000. A note from Grothen approving an offer stated that he had “increased the general damage range to increase the possibility of settlement.” GEICO’s independent medical examiner found that Mazik did not need surgery and that his injuries did not restrict his occupation as a teacher, such that no further medical care was needed. Thereafter, GEICO served a statutory offer to compromise Mazik’s claim for $18,887. Mazik rejected the offer and reasserted his demand for policy limits. GEICO did not make any additional settlement offers. The regional liability administrator, Grothen explained that GEICO declined to do so, even though he had authorized payment of more money, because there was no negotiation from the other side. GEICO refused to “bid against itself” to settle the claim.

On August 31, 2012, notwithstanding receiving additional medical records in support of Mazik’s claim, GEICO authorized such claim to move to arbitration. Thereafter, in April 2013, the arbitration took place and Mazik was awarded the full policy limits of $50,000. Subsequently, he filed a bad faith action against GEICO. After a jury trial, an award of compensatory damages was made in favor of Mazik in the amount of $313,508. In addition, an award of punitive damages in the amount of $4 million (reduced to $1 million) was also imposed on GEICO.

In affirming the judgment against GEICO, the Court of Appeal held that regional liability administrator, Grothen, acted as a managing agent on behalf of GEICO, and ratified GEICO’s wrongful conduct of evaluating the claim based on a selective review of medical records. The Court of Appeal defined an employee as a managing agent “if he or she exercises substantial independent authority and judgment in his or her corporate decision-making such that his or her decisions ultimately determine corporate policy.” The Court of Appeal noted as follows in support of its determination:

“There is ample evidence in the record that Grothen met the definition of managing agent that the jury was given. Grothen had wide regional authority over the settlement of claims. He testified that he was regional liability administrator for Orange County, Los Angeles, San Bernardino, and Alaska. Over 100 claims adjusters are “funneled up” to him for approval of settlements within the range of his authority, which included claims up to at least $50,000. This responsibility affects a large number of claims. Grothen testified that he typically has 18 to 20 meetings per day with claims adjusters seeking his approval or direction for handling particular claims.

Grothen’s own testimony established that an important part of his job was to establish settlement standards within his region. He testified that it is “an extremely important part of [his] role” to “maintain consistency in settlement valuations.” He further explained that “consistency is also important so we can be profitable.” The jury reasonably could have concluded that this type of broad decision making responsibility for establishing GEICO’s settlement standards “ultimately determine[d] corporate policy.” (White, supra, 21 Cal.4th at pp. 566-567.)”

Based on the evidence establishing Grothen as a managing agent for GEICO, the Court of Appeal held that such evidence was sufficient to show that Grothen ratified conduct warranting the imposition of punitive damages. The Court of Appeal concluded as follows:

“An insurer is not permitted to rely selectively on facts that support its position and ignore those facts that support a claim. Doing so may constitute bad faith. (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713,721; Maslo v. Ameriprise Auto & Home In. (2014) 22 Cal.App.4th 626, 634.) When sufficiently egregious, an insurer’s intentional disregard of facts supporting a claim also meets the standard for punitive damages. (Egan v. Mutual of Omaha Ins. Co. (1976) 24 Cal.3d 89, 821-822 (Egan).) Viewing the record in light of the substantial evidence standard, the jury reasonably could have found that Grothen ratified such egregious conduct in approving settlement offers that ignored Mazik's serious and permanent injuries.”

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