Opposition Brief — Ohio Casualty Insurance v. Downey Savings & Loan Ass'n

Supreme Court, U.S.

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AUG 19 198)

No. 87-159 JOSEPH F. SPANIOL, UR,

CLERK

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1987

THE OHIO CASUALTY INSURANCE COMPANY,

Petitioner.

VS.

DOWNEY SAVINGS AND LOAN ASSOCIATION,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI

TO THE COURT OF APPEAL

OF THE STATE OF CALIFORNIA

BRIEF IN OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI

SAPHIER AND REIN

MICHAEL S. SAPHIER, Esq.

RICHARD A. WEISZ, Esq.

1801 Century Park East

Suite 1720

Los Angeles, California 90067

(213) 556-0100

Altorneys for Respondent

Downey Savings and Loan

Association

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TABLE OF CONTENTS

STATEMENT OF THE CASE...... oer rer

COUNTER-STATEMENT OF FACTS ...........

OHIO’S PETITION SHOULD BE DENIED

BECAUSE IT DOES NOT PRESENT ANY

IMPORTANT QUESTION OF FEDERAL LAW

A.

B.

The Law of Insurance Bad Faith in California

Wee Coeerey THOR 2g ce ccc nccaceaes

The Prerequisites for the Imposition of Puni-

tive Damages in California Were Well-Estab-

Ma aa ae hk es oe ean ea ees

There Were Reasonable Guidelines in Califor-

nia for Determining the Proper Amount of a

Punitive Damages Award .................

The Law in Mississippi Governing Insurance

Bad Faith and Punitive Damages is Substan-

tially Different Than the Law in California. .

The California Court of Appeal Properly Con-

eluded that Even if the Excessive Fines

Clause of the Eighth Amendment Were Appli-

eable to Civil Punitive Damages Awards, the

Instant Award is not Excessive............

The Punitive Damages Award Herein Does

Not Violate the Excessive Fines Clause of the

pe | eee

OHIO’s Argument That It Was Deprived of

Due Process of Law Because It Was Sub-

jected to Liability and Punitive Damages

Under a Standard That Did Not Exist at the

Time of OHIO’s Wrongful Conduct Is Not

Properly Before This Court ...............

11

12

14

18

19

li

TABLE OF CONTENTS

ie

H. OHIO’s Argument that Due Process Requires

that Defendants in Civil Tort Actions that

Involve Punitive Damages Are Entitled to the

Same Procedural Rights That Are Enjoyed by

Defendants in Criminal Cases is Frivolous.. 23

COSC MIIEES 6 05s ckceee ccd dn aud EA RRR 25

Rabat ot deka A i bd ae gah NSS i — Fas ™ Pe ee ho es

te nea

i Ng diet et 8m

ill

TABLE OF AUTHORITIES

Cases

Page

Aetna Life Insurance Company v. Lavoie, No. 84-1601

(April 22, 1966), 106 S.Ct. 1580 ................ 25

Bankers Life and Casualty Co. v. Crenshaw, No. 85-

1765 (prob. juris. noted March 9, 1987) ........

Be onl, A ia oR >a ee ae 7, 8, 14, 15, 16, 21

Bertero v. National General Corp., 13 Cal.3d 43, 118

Cal.Rptr. 184, 529 P.2d 608 (1974) ........... 11, 12

Cardinale v. Louisiana, 394 U.S. 437 (1969) ....... 22

Chodos v. Insurance Company of North America, 126

Cal.App.3d 86, 178 Cal.Rptr. 831 (1981) ........ 14

City of Cleburne v. Cleburne Living Center, 473 U.S.

Naa Va cir on we cceecevccwncesers 24

CNA Casualty of Califorma v. Seaboard Surety Com-

pany, 176 Cal.App.3d 598, 222 Cal.Rptr. 276

A VS, Sr 9

Comunale*v. Traders & General Ins. Co., 50 Cal.2d

Ge 8) ~

Curts Publishing Company v. Butts, 388 U.S. 130

Sa ht 23

~ Day v. Woodworth, 54 U.S. (13 How.) 363 (1851).. 18

Delos v. Farmers Group, Inc., 93 Cal.App.3d 642, 155

RAS TC RUPOUD ocho cc cece w ewe secccscces 14

Devlin v. Kearny Mesa AMC/Jeep/Renault, Inc., 155

Cal.App.3d 381, 202 Cal.Rptr. 204 (1984) ...... 12, 13

Dewey v. Des Moines, 173 U.S. 193 (1899)......... 22

District of Columbia Court of Appeals v. Feldman, 460

ee ea dss by a 6 aus oe ceo e 4 a8 22

iv

TABLE OF AUTHORITIES

CASES

Page

Egan v. Mutual of Omaha Ins. Co., 24 Cal.3d 809,

169 Cal.Rptr. 691, 620 P.2d 141 (1979)......... 8,11

Ellis v. Dizon, 348 U.S. 458 (1955) .............. 20

Ferguson v. Skrupa, 372 U.S. 726 (1963).......... 24

Finney v. Lockhart, 35 Cal.2d 161, 217 P.2d 19

CRE a Care cea es eaiee ea rete hens 14

Fletcher v. Western National Life Ins. Co., 10

Cal.App.3d 376, 89 Cal.Rptr. 78 (1970)......... 8

General Council v. Superior Court, 439 U.S. 1369

CRED 20's asec kde enks bide eR ewe whtoureers 8

Gray v. Zurich Insurance Co., 65 Cal.2d 263, 54

Cal.Rptr. 104, 419 P.2d 168 (1966) ......... 9, 21, 22

Gregory-Portland Independent School District v.

United States, 448 U.S. 1842 (1980) ............ 8

Grimshaw v. Ford Motor Co., 119 Cal.App.3d 757, 174

Ce ee Dv cen ccd ss eas ahennae’s 11

Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 108

Cal.Rptr. 480, 510 P.2d 1032 (1973) ........... 8

Hartford Accident & Indemnity Co. v. Civil Service,

33 Cal.App.3d 26, 198 Cal.Rptr. 737 (1973) ..... 9

Ingraham v. Wright, 430 U.S. 651 (1977) ......... 20

Kelly v. Robinson, 479 U.S. —__, 93 L.Ed.2d 216, 107

is Ce RU a cu yea vee Se eho e ne eR ERED 20

Lowell v. Maryland Casualty Co., 65 Cal.2d 298, 54

Cal.Rptr. 116, 419 P.2d 180 (1966) ............ 9

Malandris v. Merrill Lynch, Pierce, Fenner & Smith,

703 F.2d 1152 (10th Cir. 1981), cert. den. 464 U.S.

ee SUE oa wl areas eat Caer eae ase ae ens 23

Vv

TABLE OF AUTHORITIES

CASES

Page

Massachusetts Bonding & Insurance Co. v. United

Sia, Ge Ts Be CAO ov oa ccc cere recieves 18

Moore v. American Umited Life Ins. Co., 150

Cal.App.3d 610, 197 Cal.Rptr. 878, mod. 151

es ke ee | ee ere 12, 13, 14

Neal v. Farmers Ins. Exchange, 21 Cal.3d 910, 148

Cal.Rptr. 389, 582 P.2d 980 (1978) .......... 12,14

Pistorious v. Prudential Insurance Co., 123

Cal.App.3d 541, 179 Cal.Rptr. 660 (1981)....... 12

San Francisco Civil Service Ass’n. v. Superior Court

of Marin County, 16 Cal.3d 46, 127 Cal.Rptr. 131,

GG Fe Se OE ov once csteserecedeasasnes 20

Scott v. Donald, 165 U.S. 58 (1897) .............. 23

Silberg v. California Life Ins. Co., 11 Cal.3d 452,

113 Cal.Rptr. 711, 521 P.2d 1103 (1974)......... 5, 8

Silkwood v. Kerr-McGee, 464 U.S. 238 (1984) ...... 20

Smith v. Wade, 461 U.S. 30 (1983) ............... 23

Snelson v. Ondulando Highlands Corp., 5

Cal.App.3d 243, 85 Cal.Rptr. 806 (1970) ....... 20, 22

Solem v. Helm, 463 U.S. 277 (1983) ............. 18, 20

Toole v. Richardson-Merrell, Inc., 251 Cal.App.2d

688, GD Cal. Bote. 306 (1967) .... 2.0.2.2 20000s- 23

Walker v. Signal Companies, Inc., 84 Cal.App.3d

982, 149 Cal. Rptr. 119 (1978) ................. 12

Webb v. Webb, 451 U.S. 493 (1981) ............... 22

Wetherbee v. United Ins. Co. of America, 18

Cal.App.3d 266, 95 Cal.Rptr. 67 (1971) ......... 14

Williamson v. Lee Optical, 348 U.S. 483 (1955) .... 24

vi

TABLE OF AUTHORITIES

CASES

Page

Zhadan v. Downtown L.A. Motors, 66 Cal.App.3d

481, 196 Cal. Rotr. 183 (1976) ... cece cncens 11

United States Constitution

Eighth Amendment ................ 7, 18, 19, 20, 23, 24

Fourteenth Amendment.................0000- 7, 21, 23

California Statutes

California Civil Code section 3294 .............. 11, 24

California Insurance Code section 790.03(h)(3) ... 4

California Insurance Code section 790.03(h)(5) ... 18

California Insurance Code section 790.07 ......... 19

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Hasse, dips Nan tas

No. 87-159

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1987

THE OHIO CASUALTY INSURANCE COMPANY,

Petitioner,

VS.

DOWNEY SAVINGS AND LOAN ASSOCIATION,

Respondeni.

ON PETITION FOR WRIT OF CERTIORARI

TO THE COURT OF APPEAL

OF THE STATE OF CALIFORNIA

BRIEF IN OPPOSITION TO PETITION FOR

WRIT OF CERTIORARI

STATEMENT OF THE CASE

This is an action for bad faith denial of insurance

benefits brought by Downey Savings and Loan Associa-

tion (““DOWNEY’’) against The Ohio Casualty Insurance

Company (“OHIO”). OHIO’s obligations to DOWNEY

arose out of a savings and loan blanket bond that it sold

to DOWNEY. The bond, in pertinent part, insured

against any loss caused by the dishonest act of any

employee of DOWNEY (CT 7034-7051). The bond also

promised to defend or indemnify DOWNEY for any

attorney’s fees and costs incurred by DOWNEY in de-

fending any lawsuit brought by a third party that arose

2

out of the dishonest act of any employee of DOWNEY

(CT 7035).

DOWNEY claimed that one of its employees, a branch

manager named Dennis McGrew (“McGrew’’), partici-

pated in a conspiracy to bilk DOWNEY of hundreds vf

thousands of dollars. DOWNEY further claimed that the

dishonest and fraudulent scheme was partially successful

and directly resulted in a lawsuit against DOWNEY

brought by a company known as American Funding Cor-

poration (“AFC’’). In defending the AFC lawsuit, DOW-

NEY incurred and paid attorney’s fees and costs in the

sum of $68,779.65 (CT 5156-5159). DOWNEY also paid

AFC the sum of $55,000 to settle the AFC lawsuit (CT

5057-5110, 5367). DOWNEY claimed in the case at bar, in

pertinent part, that (1) OHIO was obligated to reimburse

DOWNEY for the attorney’s fees and costs of $68,779.65

and the settlement sum of $55,000, together with prejudg-

ment interest on said sums from the dates they were paid

by DOWNEY, and (2) OHIO acted maliciously and in

bad faith in connection with its handling and denial of

DOWNEY’s insurance claim.

The jury’s verdict awarded DOWNEY $152,983.43 in

compensatory damages and $5,000,000 in punitive dam-

ages (CT 4221, 4254-4255).

OHIO filed a motion for judgment notwithstanding the

verdict, a motion for new trial and a motion for remittitur

of the punitive damages award. On February 28, 1984,

after exhaustive briefing and oral argument, the trial

judge denied all three motions (CT 4548-4553).

OHIO appealed from the judgment against it. On Feb-

ruary 26, 1987, the Court of Appeal of the State of

California, Second Appellate District (“California Court

of Appeal’) filed its unanimous decision ‘1 which it

3

affirmed the jury’s verdict in its entirety (Petition, App.

A, at la-3la). OHIO filed a Petition for Rehearing in the

California Court of Appeal which was denied on

March 17, 1987 (Petition, App. B, at 32a). OHIO filed a

Petition for Review in the California Supreme Court

which was denied on May 27, 1987 (Petition, App. D, at

36a).

On May 29, 1987, OHIO filed in the California Court of

Appeal a Motion for Stay of Issuance of Remittitur

Pending Writ of Certiorari to the United States Supreme

Court. That motion was denied, without opinion, on

June 15, 1987. On June 17, 1987, OHIO filed an Applica-

tion for Stay in this Court. On June 19, 1987, that

Application was denied, without opinion, by Justice

O’Connor. Thereafter, OHIO satisfied the judgment that

was entered on the jury’s verdict.

COUNTER-STATEMENT OF FACTS

OHIO’s statement of facts repeatedly misstates and

distorts the evidence that supports the jury’s verdict and

award of punitive damages. An accurate summary of the

salient facts relating to both DOWNEY’s fidelity bond

claim based on its employee’s dishonesty and OHIO’s bad

faith and malicious handling of DOWNEY’s insurance

claim is set forth in the opinion of the California Court of

Appeal which is reproduced as Appendix A to the Petition

for Writ of Certiorari (See Petition, App. A, at 2a-8a and

23a-29a).

It must be emphasized, however, that the jury’s

$5,000,000 punitive damages award is firmly grounded in

‘ the evidence adduced at trial that established that OHIO

; knowingly and deliberately conceived and engaged in a

/ dishonest claims process that was designed to deny valid

i claims and take advantage of all policyholders. In this

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4

regard, OHIO did the following in order to cheat DOW-

NEY out of the benefits of its policy:

1. Failed to conduct a reasonable, adequate, complete

or good faith investigation. Though OHIO was thoroughly

familiar with the requirements for the proper handling of

insurance claims, including the requirements of Califor-

nia Insurance Code section 790.03(h) (3) that required

OHIO to handle all insurance claims in a prompt, fair and

equitable manner and the similar requirements of OHIO’s

own Ciaims Manual, OHIO: (a) did not conduct an

investigation upon or within a reasonable time after three

separate notices of the occurrence were given to it; (b)

conducted whatever investigation was made, once it

started, in a dilatory and haphazard manner that did not

conform to either the requirements of California Insur-

ance Code section 790.03(h)(3) or its own purported

policies and procedures; (c) did not attempt to establish

whether it was more likely than not that McGrew was

dishonest in connection with his conduct that was the

subject of DOWNEY’s insurance claim and, in this re-

gard, failed to interview McGrew or any of the other

persons involved in the transaction; and (d) systemati-

eally excluded from its investigation any facts and infor-

mation that could be of benefit to the insured and support

the insured’s claim;'

‘A striking example of such facts and information that were

deliberately ignored by OHIO was the sworn testimony of Steven

Duane Jones that was received by OHIO on or about October 31, 1977

(CT 4929-4950) that unequivocally fingered McGrew as the “inside

man” in the criminal conspiracy (CT 4919-4950; RT 1492:5-1494:10).

After reviewing a copy of the transcript of Jones’ sworn testimony,

OHIO took the ineredible position that it did not consider Jones’

sworn testimony to be “hard” evidence of dishonesty on MecGrew’s

part, and it did not have to conduct any further investigation or pay

the attorney’s fees incurred by DOWNEY in defending the AFC

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2. Conducted a dishonest and unfair investigation

with the express primary purpose of discovering facts

that would enable OHIO to defeat the insurance claim in

direct violation of OHIO’s duty as an insurer “‘to give the

interests of the insured at least as much consideration as

it gives to its own interests.” Silberg v. California Life Ins.

Co., 11 Cal.3d 452, 460, 113 Cal.Rptr. 711, 521 P.2d 1103

(1974). As the California Court of Appeal noted in its

opinion (Petition, App. A, at 27a), this conduct was part

of OHIO’s “standard procedure” for handling insurance

claims. In accordance with this claims handling policy

and procedure, and with the express knowledge that it

would be unreasonable for OHIO to conduct an investiga-

tion in a manner that was designed to discover facts to

defeat the claim of the insured, OHIO instructed, in

writing, its claims manager and claims adjuster to “keep

OHIO’s defenses against a claim that was or could be

asserted by DOWNEY in the forefront of OHIO’s investi-

gation” (CT 4864); :

3. Created false and fraudulent written documents

with the express intent of fabricating defenses to DOW-

NEY’s insurance claim. OHIO created two such fraudu-

lent documents upon forming the opinion that there was

the possibility that MeGrew was the “inside man’”’ in the

fraudulent scheme to defraud DOWNEY of $100,000 and

that there was the possibility of a loss that would be

covered by the bond, to wit: (a) a letter from OHIO to

DOWNEY dated May 29, 1975 that falsely stated that the

first notice OHIO received of the occurrence that could

lead to liability under the bond was on May 19, 1975 (CT

4858). The purpose of advising DOWNEY of the May 19,

1975 date was to set up OHIO’s defense of late notice to a

lawsuit because it didn’t “believe” Jones (CT 4951-4952; RT 1540:20-

1542:8, 1901:22-1902:20).

6

claim under the bond. OHIO knew the May 29, 1975 letter

contained false information but did nothing to correct it

(Petition, App. A, at 6a); and (b) a report dated Septem-

ber 16, 1975 prepared by OHIO’s claims adjuster that

falsely stated that an investigator for the District Attor-

ney’s office told him that he believed that McGrew was

innocent of any wrongdoing or complicity in the criminal

scheme (CT 6907-6910; RT 2613:12-24, 2616:12-2617:9).

This fraudulent report was prepared by the claims ad-

juster shortly after he received written instructions to

‘keep all possible defenses in the forefront of the investi-

gation” (RT 2612:24-2614:14; Petition, App. A, at 7a);

4. Used the right to notice and take depositions for the

improper purpose of “harassing, embarrassing, inconven-

iencing and causing expense” to insureds in order to

“create a climate for settlement” pursuant to the written

policy set forth in OHIO’s Claims Manual (CT 5530; RT

1602:2-1605:25, 1877:21-28; Petition, App. A, at 27a);

9. Knowingly and intentionally applied improper stan-

dards for proof of insurance claims. In this regard, OHIO

required DOWNEY to obtain a confession or admission of

guilt from MeGrew before it would pay DOWNEY’s

insurance claim (RT 1533:10-1540:11, 1833:1-28, 1837:22-

1839:3) even though OHIO knew that it was obligated to

pay DOWNEY’s fidelity loss once it was established that

it was more likely than not that McGrew had committed a

dishonest act that resulted in a loss to DOWNEY (RT

1286:17-1827:17; Petition, App. A, at 7a); and

“6.—Failed to indemnify DOWNEY for its attorney’s

fees incurred in defending the AFC lawsuit even after

OHIO knew there was a potential for liability under the

policy and had concluded that it had an absolute obliga-

tion to do so (RT 1285:26-1287:17, 1771:24-1773:10,

1850:20-24, 1856-A:12-22, 1921:12-21).

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It is respectfully submitted that th® record in this case

is replete with evidence that supports the jury’s verdict

and explains why (a) the trial court denied OHIO’s post

trial motions for judgment notwithstanding the verdict,

new trial and remittitur, (b) the California Court of

Appeal unanimously affirmed the judgment and (c) the

California Supreme Court denied OHIO’s Petition for

Review.

OHIO’S PETITION SHOULD BE DENIED

BECAUSE IT DOES NOT PRESENT ANY

IMPORTANT QUESTION OF FEDERAL LAW

In an effort to persuade this Court that its petition for

writ of certiorari presents an important question of fed-

eral law, OHIO has tried to make it appear that the

instant case raises the same constitutional issues that are

now before the Court in Bankers Life and Casualty Co. v.

Crenshaw, No. 85-1765 (prob. juris. noted March 9, 1987).

OHIO claims, in essence, that the law in California

regarding the tort of insurance bad faith and the award-

ing of punitive damages is virtually identical to the

petitioner’s version of Mississippi law in Bankers Life.

OHIO argues that California’s civil punitive damages law,

like Mississippi’s, violates the Eighth and Fourteenth

Amendments because it does not contain any standards

which limit such awards to reasonable amounts and does

not afford civil defendants the protections that are en-

joyed by defendants in criminal cases. OHIO also claims

that the defendant herein, like the defendant in Bankers

Life, was subjected to punitive damages on the basis of a

newly formulated and retrospectively applied legal stan-

dard that governs an insurer’s obligations to its insured.

DOWNEY submits that OHIO’s attempt to equate this

ease with Bankers Life rests on a distortion of the record,

8

a misrepresentation of relevant California law, and a

fabrication of the issue of the purported newly formulated

legal standard concerning the duty owed by an insurer to

its insured. The factual record, legal determinations and

California law at issue herein are fundamentally different

from those in the Bankers Life case.”

A. The Law of Insurance Bad Faith in California

Was Clearly Defined.

In California, an insurer may be subject to liability in

tort when it “unreasonably and in bad faith’ violates the

obligations it owes to an insured. Egan v. Mutual of

Omaha Ins. Co., 24 Cal.3d 809, 818-823, 169 Cal.Rptr. 691,

620 P.2d 141 (1979); Gruenberg v. Aetna Ins. Co., 9 Cal.3d

566, 573-574, 108 Cal.Rptr. 480, 510 P.2d 1032 (1973);

Fletcher v. Western National Life Ins. Co., 10 Cal.App.3d

376, 401-402, 89 Cal.Rptr. 78 (1970). Such tortious bad

faith has been found where, as here, an insurer (a) fails to

properly investigate its insured’s claim, Egan v. Mutual of

Omaha Ins. Co., supra; (b) fails to give as much consider-

ation to the welfare of its insured as it gives to its own

interests, Silberg v. California Life Ins. Co., supra;

Comunale v. Traders & General Ins. Co., 50 Cal.2d 654,

660-661, 328 P.2d 198 (1958); (c) unreasonably and in

bad faith withholds payment on a valid claim of its

insured, Egan v. Mutual of Omaha Ins. Co., supra;

Gruenberg v. Aetna Ins. Co., supra; Fletcher v. Western

National Life Ins. Co., supra; and (d) in bad faith,

breaches its duty to defend or indemnify an insured when

‘ =The denial of OHIO’s Application for Stay of execution on the

judgment reinforces the conclusion that OHIO’s petition does not

present any substantial federal question and should be denied.

General Council v. Superior Court, 439 U.S. 1369, 1373-1374 (1978);

Gregory-Portland Independent School District v. United States, 448

U.S. 1342 (1980).

9

there is a potential for liability under the insurance

policy, Gray v. Zurich Insurance Company, 65 Cal.2d 263,

275-276, 54 Cal.Rptr. 104, 419 P.2d 168 (1966); CNA

Casualty of California v. Seaboard Surety Company, 176

Cal.App.3d 598, 605-609, 222 Cai.Rptr. 276 (1986).

In California, an insurer’s duty to either defend or

indemnify an insured for its reasonable attorney’s fees

and costs ineurred in defending a lawsuit arises whenever

the insurer ascertains facts from any source which give

rise to the potential for liability under the insurance

policy. Gray v. Zurich Insurance Co., supra; Hartford

Accident & Indemnity Co. v. Civil Service, 33 Cal.App.3d

26, 34, 198 Cal.Rptr. 737 (1973); Lowell v. Maryland

Casualty Co., 65 Cal.2d 298, 300-302, 54 Cal.Rptr. 116, 419

P.2d 180 (1966); CNA Casualty of California v. Seaboard

Surety Company, supra. The law in this state has been

abundantly clear on this point since Gray v. Zurich was

decided in 1966. Further, and perhaps most significantly,

OHIO at all times had a clear and correct understanding

of the applicable California law (RT 1285:26-1287:17,

1771:24-1773:10, 1850:20-24, 1856-A:12-22, 1921:12-22).

OHIO’s contention that it was penalized pursuant to a

newly formulated legal standard that did not exist and to

which it could not reasonably have been expected to

eonform at the time the alleged wrongful conduct oc-

curred is a false and misleading statement of both perti-

nent California law and its express knowledge and

understanding of pertinent California law.”

’The trial court ruled on DOWNEY’s motion for summary adjudi-

eation of the issues that (a) on October 31, 1977, OHIO indisputably

was aware of facts which created a potential for liability under the

bond and (b) OHIO, therefore, was contractually obligated to indem-

nify DOWNEY for the attorney’s fees incurred in defending the AFC

10

Moreover, the duty to indemnify contained in the fidel-

ity bond’s defense clause required OHIO to either (a)

defend the AFC lawsuit for DOWNEY through attorneys

of OHIO’s choice or (b) indemnify DOWNEY for its

reasonable attorney’s fees and costs incurred in defend-

ing the AFC lawsuit (CT 7035; Petition, App. A, at 2a).

The defense clause did not relieve OHIO of its unequivo-

eal obligation to provide the insured with a defense at the

insurer’s expense once it became clear that there was a

potential for liability under the insurance policy. Nor did

it require the insurer to indemnify the insured for the

ultimate loss caused by the dishonest act of the insured’s

employee. The duty to indemnify contained in the defense

clause is thus part of the insurer’s duty to provide a

defense for the insured rather than part of the separate

duty to indemnify once the loss has been incurred and

liability has been established.

lawsuit from that date forward (CT 2709-2711). The compensatory

damages award was, in pertinent part, based on this ruling.

By éontrast, OHIO’s bad faith and malicious conduct upon which

the punitive damages award was based included (a) failing to

conduct a reasonable, adequate, complete or good faith investigation,

(b) conducting a dishonest and unfair investigation with the express

primary purpose of discovering facts that would enable OHIO to

defeat the insurance claim, (c) creating fraudulent documents in

order to fabricate defenses to DOWNEY’s insurance claim, (d) using

the right to notice and take depositions for the improper purpose of

harassing, embarrassing, inconveniencing and causing expense to

insureds in order to create a climate for settlement and (e) know-

ingly and intentionally applying improper standards for the proof of

insurance claims. Contrary to the unspoken assumption contained in

OHIO’s argument, there is no evidence or reason to believe that the

jury’s punitive damages award was based principally upon OHIO’s

failure to indemnify DOWNEY for its attorney’s fees.

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B. The Prerequisites for the Imposition of Punitive

Damages in California Were Well-Established.

Before punitive damages can be assessed in an insur-

ance bad faith case in California, there must be a determi-

nation, as there was in this case, that the insurer (a)

acted wrongfully in violation of a duty it owed to its

insured, (b) acted unreasonably (in bad faith) in violat-

ing the duty it owed to its insured, and (ce) acted with

oppression, fraud or malice when it violated the duty it

owed to its insured.’ Egan v. Mutual of Omaha Ins. Co.,

supra.

The statutory requirement that the defendant must be

found to have acted with oppression, fraud, or malice

before punitive damages may be awarded is designed to

limit the situations in which such damages may be im-

posed. California courts have consistently held that the

statutory standards set forth in California Civil Code

section 3294 are not unconstitutionally vague and provide

sufficient guidance for the trial courts charged with im-

plementing it. Bertero v. National General Corp., 13 Cal.3d

43, 66, fn. 13, 118 Cal.Rptr. 184, 529 P.2d 608 (1974);

Grimshaw v. Ford Motor Co., 119 Cal.App.3d 757, 811-812,

174 Cal.Rptr. 348 (1981); Zhadan v. Downtown L.A.

Motors, 66 Cal.App.3d 481, 501-502, 136 Cal.Rptr. 132

(1976); Egan v. Mutual of Omaha Ins. Co., supra, 24

Cal.3d at 819-820. In the ease at bar, the California Court

of Appeal expressly held that there was substantial evi-

dence from which the jury could reasonably have found

‘California Civil Code section 3294 provides: “In an action for the

breach of an obligation not arising from contract, where the defen-

dant 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.”

12

that OHIO acted maliciously with an intent to oppress

and in conscious disregard of the rights of its insured,

thus entitling DOWNEY to punitive damages (Petition,

App. A, at 25a).

C. There Were Reasonable Guidelines in California

for Determining the Proper Amount of a Punitive

Damages Award.

With respect to determining the amount and the propri-

ety of the amount of a punitive damag=s award, California

law provides that punitive damages must be free from

passion or prejudice, and that there is a range of reasona-

bleness for punitive damages that reflects the reprehensi-

bility of the defendant’s conduct, the financial condition

of the defendant, a reasonable relationship between the

actual damages suffered and the punitive damages award,

and the need to punish and deter the reoccurrence of the

wrongful conduct. Walker v. Signal Companies, Inc., 84

Cal.App.3d 982, 998, 149 Cal.Rptr. 119 (1978); Devlin v.

Kearny Mesa AMC/Jeep/Renault, Inc., 155 Cal.App.3d

381, 390, 202 Cal. Rptr. 204 (1984); Neal v. Farmers Ins.

Exchange, 21 Cal.3d 910, 927-929, 148 Cal.Rptr. 389, 582

P.2d 980 (1978); Bertero v. National General Corp., supra,

13 Cal.3d at 65; Moore v. American United Life Ins. Co.,

150 Cal.App.3d 610, 636-637, 197 Cal.Rptr. 878, mod. 151

Cal.App.3d 766a (1984); Pistorious v. Prudential Insur-

ance Co., 123 Cal.App.3d 541, 554, 179 Cal.Rptr. 660

(1981).

In the case at bar, the California Court of Appeal

emphasized that the critical factors to be considered in

accomplishing the purpose of punitive damages of punish-

ing the defendant and deterring the reoccurrence of the

wrongful conduct are (1) the reprehensibility of the

conduct of the defendant and (2) the wealth of the

defendant. The more reprehensible the conduct of the

13

defendant, the larger the amount of the punitive damages

award must be to accomplish the objectives of such

awards; similarly, the wealthier the defendant, the larger

the award must be. The California Court of Appeal cor-

rectly held that the jury’s award of punitive damages was

free from passion or prejudice and was justified by the

reprehensibility of OHIO’s conduct, the wealth of the

defendant, the fact that OHIO’s “invidious practices”

affected other insureds besides DOWNEY, and the need

to punish and deter the reoccurrence of the wrongful

conduct (Petition, App. A, at 23a-29a).

The evidence also established that the amount of the

punitive damages award in the case at bar is reasonably

related to the wealth and net worth of OHIO. The puni-

tive damages award represented (1) less than 1% of

OHIO’s net assets, (2) approximately 3/10ths of 1% of its

gross assets, and (3) 3.64 weeks of OHIO’s annual net

income after payment ef taxes (CT 5165-5284; Petition,

App. A, at 28a-29a). Moore v. American United Life Ins.

Co., supra, 150 Cal.App.3d at 642.

An examination of prior cases and the cases collected

in the appendix to the opinion in Devlin v. Kearny Mesa

AMC/Jeep/Renault, Inc., supra, demonstrate that the

present award, involving a ratio between punitive and

compensatory damages of approximately 32.7:1, is well

within the historical framework described in Devlin and

not excessive as a matter of law when compared to what

other California appellate courts have approved. In Moore

v. American United Life. Ins. Co., supra, for instance, the

court of appeal approved a jury award of $2,500,000 in

punitive damages and $30,000 in compensatory damages,

a ratio of 83:1. The Moore court reasoned that a substan-

tial punitive damages award is justified when the jury

hears evidence of fraudulent claims practices potentially

14

affecting numerous insureds other than the plaintiff.

Moore, supra, 150 Cal.App.3d at 636-637.°

OHIO cannot credibly deny that California has well-

developed principles and standards governing the tort of

insurance bad faith and the imposition of punitive dam-

ages. Indeed, the essence of OHIO’s arguments in its

motions for judgment notwithstanding the verdict, new

trial and remittitur, its appeal to the California Court of

Appeal and its Petition for Review to the California

Supreme Court was that the jury’s punitive damages

award violated the very standards it now claims did not

exist.

Nor does OHIO deny that the jury was instructed in

accordance with the above-described guidelines for when

punitive damages may be awardee and how the amount

shall be determined. In this regard, OHIO did not object

to any of the trial court’s proposed jury instructions that

concerned these matters (RT 3357:4-14, 3409:8-3413:25).

D. The Law in Mississippi Governing Insurance Bad

Faith and Punitive Damages is Substantially Differ-

ent Than the Law in California.

Sprinkled throughout OHIO’s petition are references

to this Court’s note of probable jurisdiction in Bankers

*For additional California cases with ratios between punitive and

compensatory damages in excess of 32.7:1 in which the appellate

courts have affirmed the punitive damages awards as falling within

the “range of reasonableness,” please see Neal v. Farmers Ins.

Exchange, supra; Wetherbee v. United Ins. Co. of America, 18

Cal.App.3d 266, 95 Cal.Rptr. 67 (1971); Chodos v. Insurance Com-

pany of North America, 126 Cal.App.3d 86, 178 Cal. Rptr. 831 (1981);

Delos v. Farmers Group, Inc., 93 Cal.App.3d 642, 663-668, 155

Cal.Rptr. 843 (1979); Finney v. Lockhart, 35 Cal.2d 161,217 P.2d 19

(1950).

15

Life and Casualty Co. v. Crenshaw, supra, and the notion

that the instant case raises the same federal questions

that are asserted in the Bankers Life case. This simply is

not true.

The threshold question presented in Bankers Life con-

cerns the constitutionality of a Mississippi statute which

automatically imposed a mandatory penalty of 15% of the

money judgment upon the unsuccessful defendant-appel-

lant, Bankers Life, irrespective of the merit of the appeal

and whether or not the appeal was frivolous (See Juris-

dictional Statement filed by Bankers Life, App. A, at i).

The case at bar does not involve any comparable or

similar statute.

Moreover, in Mississippi, in order to assess punitive

damages, there need only be a finding that the insurer

wrongfully failed to pay a valid insurance claim. By

contrast, before punitive damages can be assessed in

California there must be findings that (a) the insurer

acted wrongfully in violating a duty it owed to its insured,

(b) the insurer acted unreasonably (in bad faith) in

violating a duty it owed to its insured, and (c) the insurer

acted with oppression, fraud or malice when it violated a

duty it owed to its insured. Indeed, the absence of a

requirement that the insured prove that the insurer's

wrongful conduct was grossly negligent, reckless, mali-

cious or intentional generated the argument that a differ-

ent and lesser standard for the imposition of punitive

damages was created and applied in the Bankers Life bad

faith insurance case than was required generally in other

civil eases in Mississipp:. Unlike the undeveloped and

unsettled law of bad faith insurance in Mississippi, the

law in California was clearly defined, fair and specific at

all material times.

16

In the instant case, substantial evidence supports the

jury’s verdict, the trial judge’s denial of OHIO’s motion

for remittitur and the opinion of the California Court of

Appeal to the effect that “OHIO acted maliciously, with

an intent to oppress, and in conscious disregard of the

rights of its insured” (Petition, App. A, at 23a-29a). On

the other hand, in the Bankers Life case, the jury and the

Mississippi Supreme Court only found that Bankers Life

acted wrongfully in failing to pay Crenshaw’s insurance

claim. The jury did not find, nor was it required to find

under Mississippi law, that Bankers Life acted unreason-

ably (in bad faith), oppressively or maliciously when it

handled and failed to pay Crenshaw’s insurance claim.

In addition, once it was determined in Bankers Life that

the imposition of punitive damages was appropriate, the

wealth of the defendant was the only criterion the jury

was required to consider in determining the amount of the

punitive damages award. By contrast, in California the

specific guidelines for determining the amount of the

punitive damges award included (a) the nature and

extent of the reprehensible conduct of the defendant, (b)

the financial condition of the defendant, and (c) the ratio

between punitive and compensatory damages had to be

within a “range of reasonableness.” In this regard, the

evidence in the instant case established that OHIO

adopted and implemented a systematic company and

nationwide policy and procedure of denying valid insur-

ance claims. Thus, the case at bar does not involve a

mistake, gross negligence or mere reckless decision mak-

ing in failing to pay an insurance claim. Rather, it in-

volves actual, insidious fraud that permeated the entire

claims handling process of the insurance carrier.

Finally, in the Bankers Life case, the trial judge errone-

ously believed and ruled that he did not have the power to

17

reduce the jury’s punitive damages award. Bankers Life

argued on appeal that it was denied the right to have the

trial judge who was familiar with the evidence dispassion-

ately evaluate the jury’s verdict to determine if it was the

result of passion or prejudice. In the instant case, the

trial judge did dispassionately review the evidence on the

defendant’s motions for remittitur, judgment notwith-

standing the verdict and new trial. He concluded that the

punitive damages award was not excessive, was supported

by the evidence, was not the product of passion or

prejudice and was the product of a “sober” jury (CT

4548-4563; Petition, App. A, at 28a-29a).

In the ease at bar, the California Court of Appeal

unquestionably recognized its power and duty to reduce

excessive punitive damages awards. However, after con-

ducting its own independent review of the record and

applying the guidelines for the imposition of punitive

damages to the extraordinary facts of this case, the

California Court of Appeal determined that the punitive

damages award was neither excessive nor the result of

passion or prejudice (Petition, App. A, at 23a-29a).

It is ironie that OHIO claims that there were insuffi-

cient standards for the imposition of punitive damages in

California and that it was denied meaningful appellate

review of the punitive damages award. In the Brief of

Appellant filed in the Mississippi Supreme Court, Bank-

ers Life cited California as a model of a state that

properly defined both the role of an appellate court in

reviewing a punitive damages award and the factors to be

considered in determining the amount of a punitive dam-

ages award (See Jurisdictional Statement filed by Bank-

ers Life, App. A, at 128a and 132a). It is California’s well-

developed, clearly defined, fair and understandable guide-

lines for the imposition of punitive damages that sets it

18

apart from states like Mississippi where the development

of bad faith insurance law is in its incipient stages.

E. The California Court of Appeal Properly Con-

cluded that Even if the Excessive Fines Clause of

the Eighth Amendment Were Applicable to Civil

Punitive Damages Awards, the Instant Award is Not

Excessive.

OHIO’s argument that the Eighth Amendment applies

to civil punitive damages ignores the conclusion of the

California Court of Appeal that, even if that were the

ease, the instant award is not excessive:

“OHIO elaims the punitive damage award violates

the Eighth Amendment’s prohibition against the im-

position of excessive fines. We have already con-

cluded the award is not excessive as a matter of law.”

Petition, App. A, at 30a.

OHIO’s foeus on the mathematical ratio between the

size of the punitive damages award and the compensatory

damages award is, for the purposes of the Eighth Amend-

ment, irrelevant. The sole concern of the Eighth Amend-

ment is whether the penalty is disproportionate to the

severity of the misconduct. Solem v. Helm, 463 U.S. 277,

284 (1983); Day v. Woodworth, 54 U.S. (13 How.) 363,

371 (1851). In Massachusetts Bonding & Insurance Co. v.

United States, 352 U.S. 128, 133 (1956), the Court empha-

sized that “[b]y definition, punitive damages are based

upon the degree of the defendant’s culpability,’ and

specifically recognized the propriety of large punitive

damages awards “‘[w]here the degree of fault is high, but

the peeuniary injury slight.”

OHIO’s argument that the award herein is excessive

because violations of California Insurance Code section

790.03 (h) (5) are punishable by a maximum monetary fine

; 19

of $500 under section 790.07 fails to mention that the fine

only applies to proceedings brought by the insurance

commissioner for a violation of a cease and desist order.

California Insurance Code section 790.07 does not pro-

hibit or limit a victimized insured from recovering his

provable compensatory damages (as well as punitive dam-

ages) in a bad faith tort action where, as here, the

evidence of the insurer’s tortious bad faith reveals a scope

and pattern of outrageous and flagrant acts that extends

well beyond the mere violation of a regulatory statute or

breach of an express or implied covenant of an insurance

contract.

The punitive damages award in the case at bar was

imposed under California’s well-established, clearly de-

fined, and reasonable principles and standards that gov-

ern (a) the obligations owed by an insurer to its insured,

(b) the circumstances under which punitive damages may

be awarded, and (c) the determination of the amount of

such awards. The instant award was set at an amount

which plainly serves to punish OHIO for the manner in

which it handled DOWNEY’s insurance claim and to

discourage the continuation of its invidious claims prac-

tices. DOWNEY, therefore, submits that the lower courts

properly determined that the punitive damages award

herein is not “excessive” under the Eighth Amendment

even if it did apply to civil tort actions.

F. The Punitive Damages Award Herein Does Not

Violate the Excessive Fines Clause of the Eighth

Amendment.

OHIO’s broad contention that punitive damages

awards in civil tort actions are subject to the Excessive

Fines Clause of the Eighth Amendment misconstrues the

reach of the Amendment and is unsupported by either

20

history or judicial precedent.® This Court has already

examined the history of the Eighth Amendment and

concluded that its prohibitions were intended to apply

only to criminal proceedings. Ingraham v. Wright, 430

U.S. 651, 664-666 (1977); Solem v. Helm, supra, 463 U.S.

at 284, fn. 8.

Punitive damages awards in civil tort actions are part

of the state’s remedial system for the enforcement of

important rights. San Francisco Civil Service Ass’n. v.

Superior Court of Marin County, 16 Cal.3d 46, 49-50, 127

Cal.Rptr. 131, 544 P.2d 1331 (1976). As this Court has

recognized, “[p]unitive damages have long been a part of

traditional state tort law” (Silkwood v. Kerr-McGee, 464

U.S. 238, 255 (1984) ), and are a system of “wholly private

penalties....” that are designed and intended to remedy

purely private wrongs. Kelly v. Robinson, 479 U.S. —__,

93 L.Ed.2d 216, 229, fn. 13, 107 S.Ct. 353, 361-362, fn. 13

(1986). Because punitive damages have historically been

regarded as a civil penalty, and are not imposed in

proceedings which bear the attributes of criminal law or

which subject the wrongdoer to possible imprisonment or

stigmatization associated with a conviction, they do not

constitute a criminal penalty subject to the Eighth

Amendment. Ingraham v. Wright, supra.

*It should also be pointed out that while OHIO asserted numerous

affirmative defenses to the Complaint in its Answer (CT 126-143),

OHIO did not assert any defense based on Eighth Amendment

grounds. OHIO urged this position for the first time on appeal,

notwithstanding California’s well-established rule against such prac-

tice. Snelson v. Ondulando Highlands Corp., 5 Cal.App.3d 243, 259, 85

Cal.Rptr. 806 (1970). Consequently, OHIO’s Eighth Amendment

argument was not properly raised or decided in accordance with

California law and is not properly before this Court. Ellis v. Dizon,

348 U.S. 458, 459-464 (1955).

21

G. OHIO’s Argument that It Was Deprived of Due

Process of Law Becaue It Was Subjected to Liabil-

ity and Punitive Damages Under a Standard That

Did Not Exist at the Time of OHIO’s Wrongful

Conduct Is Not Properly Before This Court.

OHIO never relied in the trial court or the California

Court of Appeal on the Due Process Clause of the Four-

teenth Amendment or any other constitutional provision

in support of its claim that an insurer’s obligation to

indemnify its insured for defense costs is governed under

a different or lower standard than the one set forth in

Gray v. Zurich, supra, and its progeny, and that the

application of the Gray v. Zurich standard to the obliga-

tions OHIO owed to DOWNEY constitutes a new stan-

dard that did not previously exist. This argument was

made on the basis of and limited to matters of contractual

interpretation and state law. OHIO has attempted to

recast this argument in constitutional terms in this Court

in an effort to force it into the formula used in Bankers

Life and manufacture a “substantial federal question.”

While OHIO did raise a Fourteenth Amendment argu-

ment in its trial court pleadings and briefs to the Califor-

nia Court of Appeal, that argument was confined to the

claim that OHIO was not afforded the protections availa-

ble to defendants in criminal proceedings (Petition, App.

A, at 30a). Otherwise, OHIO did not identify a single

procedural safeguard which it now contends it was de-

nied. In this regard, OHIO did not claim that it was

denied constitutionally required fair notice of the rules of

procedure or standards of adjudication that governed the

obligations it owed to its insureds.

OHIO had ample opportunity to assert its claim in the

trial court and before the California Court of Appeal that

the application of the standard first enunciated in Gray v.

22

Zurich to its conduct in this case deprived it of Due

Process of law. However, OHIO did not object to the trial

court's proposed jury instructions on constitutional

grounds (CT 4179-4183; RT 3357:4-14, 3409:8-3413:25)

and, similarly, did not raise any constitutional complaint

about this matter before the California Court of Appeal.’

Having failed to raise this jury trial issue either at the

trial level or in its briefs filed in the California Court of

Appeal, OHIO is barred and foreclosed from raising it at

this late date. Snelson v. Ondulando Highlands Corp.,

supra, 5 Cal.App.3d at 259.

This Court has repeatedly ruled that it cannot and will

not “decide federal constitutional issues raised here for

the first time on review of state court decisions.”

Cardinale v. Louisiana, 394 U.S. 437, 438 (1969); District

of Columbia Court of Appeals v. Feldman, 460 U.S. 462,

482, fn. 16 (1983); Webb v. Webb, 451 U.S. 493, 499

(1981). And while the Court has recognized that a party

may enlarge upon a particular federal question raised in

the lower court, the “enlargement” doctrine does not

permit a litigant to raise issues that were not “necessarily

connected” to the questions presented below “so that the

state court could not have given judgment (on the ques-

tions that were raised) without deciding it.”” Dewey v. Des

Moines, 173 U.S. 193, 198-199 (1899). The California

Court of Appeal decided every question that was raised

below without “necessarily” deciding the Due Process

"The sole objection made by OHIO to the proposed jury instruc-

tions that relate to an insurer’s duty to either defend or indemnify an

insured for its defense costs was confined to the erroneous and

discredited claim that General Agreement “C” of the fidelity bond

only required an insurer to defend or indemnify an insured for

defense costs when the third party’s complaint alleged a loss that was

eaused by employee dishonesty (RT 3409:25-3411:13).

23

question that OHIO now urges in its petition. Accord-

ingly, that question is not properly before this Court.

H. OHIO’s Argument that Due Process Requires that

Defendants in Civil Tort Actions that Involve Puni-

tive Damages Are Entitled to the Same Procedural

Rights That Are Enjoyed by Defendants in Crimi-

nal Cases is Frivolous.

OHIO’s attempt to persuade this Court that defendants

exposed to punitive damages in civil tort actions are

entitled to all of the rights afforded defendants in erimi-

nal proceedings ignores the fact that this Court has

eonsistentiy confirmed the constitutionality of punitive

damages adjudicated in traditional civil proceedings and

has never ruled that an award of punitive damages so

adjudicated violates the Due Process Clause of the Four-

teenth Amendment, the Eighth Amendment, or any other

constitutional provision. Scott v. Donald, 165 U.S. 58, 68

(1897); Smith v. Wade, 461 U.S. 30, 35 (1983).

The cases have uniformly held that an “award of penal

damages made under civil rules of procedure (does) not

violate any constitutional right” of the party against

whom the award is made. Toole v. Richardson-Merrell,

Inc., 251 Cal.App.2d 689, 717, 60 Cal.Rptr. 398 (1967);

Curtis Publishing Company v. Butts, 388 U.S. 130, 159

(1967); Smith v. Wade, supra; Malandris v. Merrill Lynch,

Pierce, Fenner & Smith, 703 F.2d 1152, 1173 (10th Cir.

1981), cert. den. 464 U.S. 824 (1983).

OHIO’s challenge to the civil administration of tort

actions involving punitive damages also overlooks and

ignores the rule developed by this Court that state stat-

utes not involving suspect classifications or impinging on

fundamental rights are “presumed to be valid and will be

sustained if the classification drawn by the statute is

24

rationally related to a legitimate state interest.” City of

Cleburne v. Cleburne Living Center, 473 U.S. 432, 440

(1985). See Williamson v. Lee Optical, 348 U.S. 483, 488

(1955); Ferguson v. Skrupa, 372 U.S. 726, 728-732 (1963).

As demonstrated above, California’s statutory punitive

damages provision, California Civil Code section 3294,

constitutes part of the state’s remedial system for the

enforcement of important rights. The statute and inter-

preting state court decisions manifest well-established

and clearly defined guidelines for the imposition of puni-

tive damages in civil tort actions and are “rationally

related”’ to the historic and legitimate purposes served by

punitive damages. Thus, California’s civil administration

of punitive damages in tort actions comports with Due

Process and OHIO is not entitled to convert this civil

action into a criminal proceeding.

Moreover, as noted by the California Court of Appeal,

OHIO’s Due Process argument is defective because

OHIO never identified in the courts below a single proce-

dural safeguard which it now contends it was denied

(Petition, App. A, at 30a). OHIO did not claim that it was

denied an opportunity to be heard, or that traditional

notions of fair play were not applied, or that articulated

rules of procedure and standards of adjudication were

not followed. Rather, OHIO’s claim that criminal rules of

procedure should be applied to a civil proceeding is

simply its Eighth Amendment claim in masquerade. The

argument is no more compelling in this guise. Indeed,

OHIO’s claim that the application of criminal safeguards

would prevent excessive punitive damages awards is irrel-

evant in this case since the lower courts have ruled that

the instant award is not excessive in fact or law. Thus, it

is unnecessary to even consider OHIO’s claim because it

would not affect the award in this case. |

25

CONCLUSION

The lower courts applied the well-developed and rea-

sonable standards of California law governing punitive

damages to the facts of this case and determined that the

punitive damages award in this case was not excessive. In

addition, this case does not involve the retrospective

imposition of punitive damages under a new cause of

action, and OHIO did not properly raise this issue below.

Nor does this case involve any statute that imposes a

penalty on any person who unsuccessfully appeals an

adverse money judgment.

For the foregoing reasons, OHIO’s petition for writ of

certiorari does not raise any important question of federal

law and does not present an “appropriate setting” to

consider the constitutional issues referred to in former

Chief Justice Burger’s concluding comments in Aetna Life

Insurance Company v. Lavoie, No. 84-1601 (Apr. 22, 1986)

slip op., at 13, 106 S.Ct. 1580, 1589 (1986). Accordingly,

it is respectfully submitted that the petition for writ of

certiorari should be denied.

DATED: August 18, 1987.

SAPHIER AND REIN

MICHAEL S. SAPHIER

RICHARD A. WEISZ

By MICHAEL S. SAPHIER, Esq.,

Attorneys for Respondent

Downey Savings and

Loan Association

PROOF OF SERVICE BY MAIL

I am a citizen of the United States and a resident of the

City and County of Los Angeles; I am over the age of

eighteen years and not a party to the within action; my

business address is: 1706 Maple Avenue, Los Angeles,

California.

On August 18, 1987, I served the within Brief in Opposi-

tion to Petition for Writ of Certiorari in re: “The Ohio

Casualty Insurance Company vs. Downey Savings and

Loan Association” in the United States Supreme Court,

October Term 1987, No. 87-159 on the Parties in said

action, by placing Three copies thereof enclosed in a

sealed envelope with postage fully prepaid, in the United

States post office mail box at Los Angeles, California,

addressed as follows:

Theodore B. Olson, Esq.

Gibson, Dunn & Crutcher

1050 Connecticut Avenue, N.W.

Washington, D.C. 20037

All Parties required to be served have been served.

I certify (or declare), under penalty of perjury, that the

foregoing is true and correct.

Executed on August 18, 1987, at Los Angeles, California

“a

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C7 ae Le Lh MHL

“CE CE MEDINA