Introduction
For at least the last two decades, California courts have recognized the right of a plaintiff to establish a claim of insurance bad faith or a right to punitive damages by proving that an insurer engaged in a "pat-tern and practice" of similar behavior involving other insureds. However, in recent years, plaintiffs have increasingly attempted to introduce evidence of unrelated acts of alleged bad faith by the insurer, arguing that the insurer has a "general" pattern and practice of engaging in "bad faith tactics." The purpose of this article is to demonstrate the impropriety of allowing evidence of unrelated acts of alleged bad faith claims handling and to shed some light on the historical basis for the exclusion of such evidence.
Historical Antecedents
The rule preventing evidence of "prior bad acts" on the part of a defendant had its genesis in criminal law, in which the courts routinely exclude evidence of other crimes by an accused where the only purpose of the evidence is to prove a "criminal disposition to commit the crime charged." As the Supreme Court noted in People v. Haston (1968) 69 Cal.2d 233, 244, 70 Cal.Rptr. 419, 444 P.2d 91:
The general rule is that evidence of other crimes is inadmissible when it is offered solely to prove criminal disposition or propensity on the part of the accused to commit the crime charged, because the probative value of such evidence is outweighed by its prejudicial effect. [Citations.]
The purpose of the rule is to avoid placing the accused in a position of having to defend against crimes for which he has not been charged and to guard against the probability that evidence of other criminal acts having little bearing on the question whether defendant actually committed the crime charged would assume undue proportions and unnecessarily prejudice defendant in the minds of the jury, as well as [to] promote judicial efficiency by restricting proof of extraneous crimes. [Citations.]
However, the court recognized that evidence of other offenses may be admissible to prove "common design, plan or modus operandi." Haston, 69 Cal.2d at 245. After cautioning that even this evidence should be received "with extreme caution," [Haston, 69 Cal.2d at 244], the court explained the limited circumstances under which such evidence should be received:
Several decisions have held that the test of admissibility of evidence of another offense offered to prove common design, plan or modus operandi is whether there is some clear connection between that offense and the one charged so that it may be logically inferred that if defendant is guilty of one he must be guilty of the other. [Citations.] [Haston, 69 Cal.2d at 245]
Likewise, in People v. Durham (1969) 70 Cal.2d 171, 186-187, 74 Cal.Rptr. 262, 449 P.2d 198, cert. den. (1969) 395 U.S. 968, 89 S.Ct. 2116, 23, L.Ed.2d 755 and cert. den. (1972) 406 U.S. 971, 92 S.Ct. 2416, 32 L.Ed.2d 671, it was noted that evidence of other crimes committed by a defendant "should be scrutinized with great care in light of its inherently prejudicial effect and should be received only when its connection with the charged crime is clearly perceived." Similarly, in People v. Ruiz (1998) 62 Cal.App.4th 234, 240, 70 Cal.Rptr.2d 572, the Court of Appeal reiterated the basic principle that "[e]vidence of other criminal acts or misconduct of a defendant may not be admitted at trial when the sole relevancy is to show defendant's criminal propensities or bad character as a means of creating an inference that defendant committed the charged offense."
The common law rules are codified in Ev C § 1101, which provides that evidence of a person's character or a character trait, whether in the form of an opinion, evidence of reputation or evidence of specific instances of conduct, is inadmissible "when offered to prove his or her conduct on a specified occasion."
Application in Bad Faith Litigation
In the civil context, various courts have stressed that evidence of prior conduct by an insurer may be admissible to prove a "pattern and practice" but only where prior acts on the part of the insurer involve the same type of misconduct as that alleged by the plaintiffs. In Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329, the court created a "private right of action" by private litigants to sue for violations of Ins C § 790.03(h). [That right of action was subsequently extinguished in Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58.] Since that code section prohibited insurers from "knowingly committing or performing with such frequency as to indicate a general business practice" a variety of unfair claims settlement practices, the insurer argued that a single instance of unfair conduct was insufficient to trigger liability under the statute. In rejecting this notion, the Supreme Court noted:
There would be no rational reason why an insured or a third party claimant injured by an insurer's unfair conduct, knowingly performed, should be required to demonstrate that the insurer had frequently been guilty of the same type of misconduct involving other victims in the past. [Royal Globe, 23 Cal.3d at 891; emphasis supplied.]
In Colonial Life & Accident Ins. Co. v. Superior Court (1982) 31 Cal.3d 785, 183 Cal.Rptr. 810, 647 P.2d 86, the court addressed the circumstances under which a plaintiff was entitled to conduct discovery concerning prior acts of bad faith by an insurance company. In discussing the Royal Globe decision, the Colonial Life court clearly demonstrated that incidents of prior misconduct on the part of the insurer are relevant only where the misconduct is the same conduct which allegedly harmed the plaintiffs:
The language of the statute and Royal Globe clearly indicate that a plaintiff may establish a claim by showing either that the acts that harmed him were knowingly committed or were engaged in with such frequency as to indicate a general business practice. While proof of a knowing violation will make a plaintiff's job that much easier, in cases where a knowing violation is difficult to establish, knowledge can be proved circumstantially. (See also Evid. Code § 1101, sub. (b).) Discovery aimed at determining the frequency of alleged unfair settlement practices is therefore likely to produce evidence directly relevant to the action. [Colonial Life, 31 Cal.3d at 791; emphasis added.]
Thus, if there is evidence that "the acts which harmed the plaintiffs" were engaged in by the insurer "with such frequency as to indicate a general business practice," they may be admissible to prove, circumstantially, that the defendant engaged in a "knowing violation" of the Insurance Code. Evidence of allegedly unfair practices in other cases that do not involve the "same type of misconduct" are irrelevant and should be excluded.
The necessity of proving instances of prior similar conduct in order to establish a "pattern and practice" is also consistent with the law governing awards of punitive damages. BAJI 14.71 authorizes punitive damages if the jury finds by clear and convincing evidence that the defendant was guilty of oppression, fraud or malice "in the conduct on which you base your finding of liability." Again, evidence of prior claims that do not involve "the same type of misconduct" (Colonial Life, 31 Cal.3d at 791] could not be part of the conduct "on which the jury bases its finding of liability" and could not be considered for the purposes of imposing punitive damages. Indeed, the very vice of allowing evidence of unrelated bad faith claims is that the jury could improperly decide to punish a defendant as a result of the prejudice created by the introduction of such evidence.
The relationship between punitive damages and a pattern and practice of "the same type of misconduct which injured the plaintiff" was discussed in the Colonial Life decision:
Other instances of alleged unfair settlement practices may also be highly relevant to plaintiff's claim for punitive damages. [Citations.] Punitive damages must be based on a showing of "oppression, fraud or malice." (Civ. Code § 3294.) To be liable for punitive damages, defendant must act "with the intent to vex, injure or annoy, or with a conscious disregard of the plaintiff's rights. [Citations.]" These elements may be proven directly or by implication. [Citations.] (Colonial Life, 31 Cal.3d at 791-792.]
In order for the plaintiff to prove "by implication" that the defendant acted in the present case with "the conscious disregard of the plaintiff's rights," a plaintiff may attempt to prove that the defendant was guilty of "the same type of misconduct involving other victims in the past." Colonial Life, 31 Cal.3d at 791. Again, evidence that the defendant engaged in conduct that was not "the same type of misconduct involving other victims in the past" could not prove such "conscious disregard."
Cases subsequent to Royal Globe and Colonial Life have reaffirmed that a plaintiff who is attempting to prove a "pattern of unfair claims practices" must demonstrate that the prior instances of alleged unfairness were "substantially similar" to those practices that allegedly harmed the plaintiffs. See, e.g., Moore v. American United Life Ins. Co. (1984) 150 Cal.App.3d 610, 625, 197 Cal.Rptr. 878.
Conclusion
The rules preventing plaintiffs from introducing evidence of unrelated claims handling practices in insurance bad faith lawsuits are grounded in principles of fundamental fairness and sound public policy that protect a defendant (criminal or civil) from unfair prejudice. Such evidence should be admitted only where there is a "clear connection" between the conduct of the defendant on former occasions and the conduct in the current case that allegedly harmed the plaintiffs. Defense practitioners should aggressively resist any efforts to introduce such improper testimony via appropriate motions in limine at the time of trial.