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'Lost' punitive damages make business risky

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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