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A state appellate court ruled that a building contractor was entitled to $3 million in punitive damages for his insurance company’s malicious and protracted litigation against him. In upholding a trial court’s verdict, Third District Court of Appeal Justice Vance Raye said there was ample evidence that Aetna Insurance Co. sued carpenter George Hillenbrand and his firm for improper purposes, despite its duty to defend him. The 63-page opinion took the insurance company to task for a “pattern of despicable conduct,” which included “failing to disclose the facts and the law to the trial court” and “asking the insured to admit to facts in the declaratory relief action that would be fatal to his position in the underlying lawsuit.” The case dates back to a 1973 condominium construction project in Citrus Heights. Hillenbrand, a framer who later became president of the Building Industry Association, did all the siding work on the project. Eight years later the condo owners’ association sued the construction company for negligent construction. The construction company in turn demanded that Hillenbrand defend and indemnify it for all damages resulting from his work, even though it was unclear whether the problems were due to faulty workmanship or poor maintenance. While Hillenbrand’s insurance company was defending him under a reservation of rights, it also initiated a declaratory relief suit against him to limit or exclude coverage. But the appellate court held that under Cal-Farm Ins. Co v. TAC Exterminators Inc. (1985) 172 Cal. App. 3d 564, this was an illegal jumping of the gun. “The insurer insists it had the right to determine the coverage issues while the underlying case was still pending, thereby placing its insured in the untenable position of fighting the third-party claim, assisted by the insurer, while simultaneously fighting the insurer on issues that would compromise its position in the third-party litigation,” wrote Raye, who was joined by Justices George Nicholson and Richard Sims III. “The insurer maintained this position in the trial court even thought it was aware of case law to the contrary, hoping that the trial court or Hillenbrand’s lawyer would not find it.” While Hillenbrand was initially awarded $14 million in punitive damages by a jury, the trial judge reduced that award to $3 million. The full text of the published opinion in Hillenbrand v. Insurance Co. of North America, C030059, will appear in Tuesday’s California Daily Opinion Service.

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