R & R Sails, Inc. v. Insurance Co. of Pennsylvania

Insured R & R Sails, Inc. (“R & R”) sued The Insurance Company of Pennsylvania, a subsidiary of the American International Group, Inc. (“AIG”), for breach of contract, unfair competition, and tortious bad faith denial of an insurance claim. The district court granted summary judgment on R & R’s unfair competition claim. AIG then sent an unsolicited payment to R & R for the remaining policy benefits provided in the insurance policy, plus interest, resolving R & R’s contract claim. These actions left in dispute only R & R’s bad faith tort claim. On that claim, R & R sought to recover attorneys’ fees and costs incurred to obtain its policy benefits, pursuant to Brandt v. Superior Court, 37 Cal.3d 813 , 210 Cal.Rptr. 211 , 693 P.2d 796 (Cal.1985) (“Brandt fees”), and punitive damages.

During the litigation, the district court determined that R & R had violated the disclosure requirements of Federal Rules of Civil Procedure 26(a) and 26(e) and, as a sanction, precluded R & R from presenting its Brandt fees evidence. The district court then granted judgment as a matter of law on R & R’s bad faith tort claim. It reasoned that R & R could not recover Brandt fees because of the…