Argonaut’s Friday the13th Tale
By Robert Warne - June 17, 2003Argonaut Insurance Company successfully won a reduction in punitive and compensatory damage awards last week, but failed to convince the judge that it wasn’t guilty of bad faith and fraud.
The decision stemmed from a legal showdown that began with a workers’ compensation claim back in the late 1990s and concluded Friday 13.
Argonaut got sucked into the legal tussle after it denied a claim because the employee was injured on his first day of work before his employment paperwork had been completed.
Diamond Woodworks and Builders Staff Corporation (BSC) entered into an employee leaseback arrangement in 1995. At that time Diamond’s employees became BSC employees and were made available through the terms of the lease back to Diamond. The agreement was structured in a way that BSC was responsible for the employees’ workers’ compensation.
Following the employee’s injury he filed a workers’ compensation claim with Argonaut, which was denied on the premise that he wasn’t a BSC employee.
The employee who had never heard of BSC then threw down the gauntlet and sued Diamond for tort damages and failure to provide workers’ compensation coverage.
Diamond then sought Argonaut’s assistance with its defense but got turned down. In the midst of the entire legal ruckus Argonaut ended up settling with the claimant, without admitting he was a BSC employee.
Diamond then turned around and successfully sued Argonaut and BSC for breach of contract, insurance bad faith, and fraud. A jury in Orange Superior Court agreed with the accusations and originally awarded Diamond $14 million in punitive damages and $658,000 in compensatory damages. The award though was later lowed by the judge as the result of a remittitur to $5.5 million and $404,000.
Fourth District Court of Appeal Justice, Raymond Ikola rejected Argonaut’s contention that it had no duty to defend or provide coverage because the contract between Diamond and the leasing company clearly provided that no Diamond worker would be considered a BSC employee until paperwork was submitted and the hiring approved.
Ikola said, that BSC and Diamond had modified their contract through their actions. It was found that BSC had provided benefits to employees hired by Diamond on their first day despite any paperwork being completed.
He explained that, “In this routine practice modifying the terms of the written contract, BSC impliedly promised Diamond and caused it to reasonably believe to its clear detriment that all of its new hires were BSC employees from day one and thus covered under the workers’ compensation policy. A false promise can as easily, perhaps more easily, be implied from conduct as from language.”
So even though Ikola found Argonaut responsible for bad faith he further remitted the award to $1 million in punitive damages and $258,000 in compensatory damages based on a recent U.S. Supreme Court decision.
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