'Lost' punitive damages make business risky
By DIANE KARPMAN
Your heart may skip many beats when you look at the inflated insurance premium
for your legal malpractice coverage, even if you have a total absence of claims
history or State Bar problems. If the jurisdictional split of opinion on the
issue of "lost" punitive damages is resolved against lawyers, it could
be into the stratosphere.
Liability for legal malpractice, in the prosecution/defense of a claim, requires
that a plaintiff establish that they would have succeeded in the underlying
case (trial-within-the-trial theory). Damages in malpractice are supposed to
be compensatory, so that the plaintiff is made whole. But what if the underlying
case would have resulted in punitive damages? Is the lawyer responsible for
the "whole enchilada?"
Lawyers buy malpractice coverage based upon the cost of their
risky business. Two well-reasoned, contradictory decisions on liability for
punitive damages may further drive up the cost of coverage, because imposing
liability for "lost" punitive damages "will inevitably result
in punishing someone who drives a Buick and pays a mortgage and saves for college
tuition by imposing upon that person . . . [punitive damages] originally tailored
to deter the cruelty and arrogance of a multinational corporation." O'Connor
Agency Inc. v. Brodkin, 2002 Cal. App. LEXIS 4193, Dissent at page 34.
Piscitelli v. Friedenberg (2001) 87 Cal. App. 4th 953, relieved
lawyers from liability for "lost" punitive damages, or those that
would have been available in the underlying case where the lawyer's conduct
could be characterized as simple or "plain vanilla" negligence. After
all, the lawyer was not the evil actor, and imposing liability for "lost"
punitive damages "punishes an innocent actor for another's oppressive,
malicious or fraudulent wrongdoing." Id at 981.
Yet, Justice Moore cogently argued in O'Connor Agency Inc.
v. Brodkin that relieving the lawyer is an unjustified windfall, since the lawyer
set the harm into motion. To make the plaintiff whole, the plaintiff should
recover all that was lost, or the entire value of the original claim. How can
you buy coverage when you cannot gauge the layers of loss? Public policy dictates
that punitive damages sting and punish the evil and malevolent.
Damages must be certain and not speculative. If the lawyer
is liable for the punitive damages that could have been available from the corporate
defendant, they would be based upon the corporate profits. How can you evaluate
profits when the company's books are so cooked that they are ashes? If the underlying
case involves a slip and fall in Rite Aid, involving intentionally dangerous
wax, justifying punitive damages, just how much should they be? What if WorldCom
or Xerox workers bring "off the clock" claims against companies whose
profits are "virtual?" "Why should the entire legal profession
pay premiums to cover the malice and oppression of an unpunished conglomerate?"
(O'Connor dissent at 34.)
We have not seen the end of this issue, since the Supreme
Court has accepted for review a case that includes a punitive damages award,
Ferguson v. Lieff Cabraser et al (2002) 95 Cal. App. 4th 154.
Remember that the lawyer is driving a Buick and not a Beemer.
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