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Friday, October 8, 1993
Orange County Edition
Section: Business
Page: D-1

Placentia Firm Gets $58 Million in Insurer Suit;
Court: Judge says Farmers Insurance Group acted in bad faith
against the surgical equipment manufacturer.


An Orange County Superior Court judge Thursday awarded a Placentia surgical equipment manufacturer more than $58 million in a lawsuit against Farmers Insurance Group, saying the insurer acted in bad faith.

The award to Surgin Surgical Instrumentation Inc. is one of the largest punitive damage awards granted against an insurance company in Orange County Superior Court, said the company's attorney, Daniel J. Callahan.

Judge C. Robert Jameson also directed attorneys for Surgin Surgical to send a copy of the court case to state Insurance Commissioner John Garamendi for investigation of Los Angeles-based Truck Insurance Exchange, a Farmers Insurance affiliate.

Truck Insurance Exchange, the state's largest carrier of commercial insurance, and Farmers Insurance were co-defendants in the suit. "The record is replete with despicable, vile, malicious, fraudulent, oppressive conduct on the part of Truck Insurance," Jameson said. "This conduct warrants a substantial award of punitive damages." It was the second judgment against Truck Insurance Exchange in Orange County in as many years. In 1991, the insurer was ordered by an Orange County Superior Court judge to pay $56 million in a similar case. Farmers Insurance officials and attorneys denied any wrongdoing and vowed to appeal the case.

Surgin Surgical filed suit against Truck Insurance Exchange in November, 1991, complaining that it failed to provide coverage or represent the small firm when it became the target of two patent infringement lawsuits brought by Alcon Surgical Instruments Inc. of Irvine., a subsidiary of Swiss food giant Nestle SA. Alcon Surgical had filed two patent infringement suits in 1989 against Surgin Surgical. At the time, the two companies were manufacturing similar medical devices used in cataract surgery. Surgin ran out of money during its legal defense, Callahan said, and was forced to obey a permanent order barring the company from making its similar device.

The company has since shifted to producing optical surgical products, such as laparoscopes, catheters equipped with mini-cameras that are used in some forms of surgery.

But Surgin Surgical, in its suit against Truck Insurance Exchange, estimated that it lost some $12 million in profits over the past four years and has spent $500,000 in legal fees. By contrast, Alcon sold more than 1.3 million devices with an
additional profit of $179 million because of the lack of competition, Callahan maintains.

When Surgin approached its insurer, Truck Insurance Exchange, to pay for its continued legal defense, it was stonewalled by the company, even though the insurers' own attorneys had recommended defending the small manufacturer, Callahan said.

Farmers Insurance spokesman John C. Millen denied that his company was guilty of Surgin Surgical's accusations, adding that Jameson's ruling was "without factual or legal foundation."

"In effect," Millen said, "Truck has been punished for failing to do that which was never required."

Millen, who declined to comment on Jameson's specific remarks, added that the damage award was excessive for such cases. "The decision is absurd," he said. "It is clearly arbitrary and capricious. I have to say this is another example of a legal system run amok."

He added that "Truck is confident that this unlawful judgment will not withstand appellate scrutiny."

But Jameson said that Truck Insurance Exchange had signed a contract with Surgin and "both had duties to each other in that contract." By ignoring terms of the contract, the company had become guilty of bad faith.

Among them, Truck was responsible for not only providing coverage to Surgin so the firm could defend itself against Alcon, but it also had a duty to defend the client.

"They failed to investigate the claims. They failed to provide a defense," Jameson said. "They consciously and in bad faith . . . avoided their responsibilities under the policy. Truck clearly takes its own interests ahead of its insured."

Jameson had also found that Truck Insurance Exchange was guilty of "flagrant discovery abuses" during this trial by not turning over documents to Surgin attorneys preparing their case. As such, Truck Insurance Exchange attorneys were barred from presenting any witnesses or cross-examining the 14 witnesses provided by Surgin Surgical's attorneys.


Copyright (c) 1993 Times Mirror Company


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