Background - Victaulic sued its insurers (AIG affiliates) over coverage of nine product-liability lawsuits and alleged breach of contract, bad faith and punitive damages after coverage/adjudication phases favored Victaulic. - The insurance program used a primary policy with a retained-account scheme (York Claims) plus umbrella and excess layers; AIG underwriters strategically contested coverage to preserve excess limits. - In Phase 1 (bench) the court held AIG had a duty to defend and indemnify for the major underlying claims; Phase 2 (jury) tried breach, bad faith and punitive damages. - Victaulic impeached AIG claims examiner Nancy Finberg with the insurers’ written responses to requests for admission (RFAs); Finberg had verified those RFA responses under penalty of perjury. - The trial judge extensively questioned Finberg, halted testimony for an in-chambers conference concluding she had admitted perjury, and then allowed her (with personal counsel) to invoke the Fifth Amendment on a blanket basis in front of the jury; insurers could not rehabilitate or cross-examine her further. - Jury returned verdicts awarding contract damages, Brandt fees for bad faith, and $46 million punitive damages; the court later entered judgment and insurers appealed. ### Issues | Issue | Plaintiff's Argument | Defendant's Argument | Held | |---|---:|---|---| | Admissibility of RFA denials as trial evidence | RFA responses (denials) show insurers’ litigation positions and are probative of bad faith; admissible impeachment | Denials are legal contentions/strategy and not factual admissions; RFA denials are not admissible evidence | Reversed: trial court erred admitting/using RFA denials; RFAs represent legal positions and are generally inadmissible (Gonsalves reasoning applied) | | Trial judge’s interrogation of witness | Court was clarifying apparent inconsistency in testimony; questions proper | Court became an advocate, hostile and implied disbelief, improperly influencing jury | Reversed: court misconduct in its hostile, leading questioning that invaded jury’s role assessing credibility | | Handling of Fifth Amendment invocation (waiver, blanket claim, in-jury invocation) | Finberg (and plaintiff) relied on her asserted privilege; invocation did not prejudice insurers | Insurers argued waiver where witness already testified on topics, blanket assertion improper, and invoking/allowing invocation in front of jury invites adverse inference and deprives defendants of cross-examination | Reversed: multiple errors — waiver/partial-waiver issues mishandled; blanket privilege and requiring invocation before jury improper; testimony should not have remained without opportunity for cross-examination or particularized inquiry | | Prejudice and need for new trial | Plaintiff argued evidence and instructions supported verdict; any error harmless | Defendants argued cumulative errors (RFA use, court interrogation, privilege handling, closing exploitation) were prejudicial and require reversal | Reversed: errors were prejudicial in combination (close jury vote, focused closing argument on Finberg/RFAs) — new trial required | ### Key Cases Cited Gonsalves v. Li, 232 Cal.App.4th 1406 (Cal. Ct. App.) (RFA denials are legal positions and generally inadmissible at trial) People v. Sturm, 37 Cal.4th 1218 (Cal. 2006) (trial judge misconduct by disparaging counsel/witnesses can mandate reversal) Warford v. Medeiros, 160 Cal.App.3d 1035 (Cal. Ct. App. 1984) (blanket Fifth Amendment refusals are unacceptable; privilege must be asserted question-by-question and trial court must particularize) People v. Williams, 43 Cal.4th 584 (Cal. 2008) (partial waiver of Fifth Amendment through prior testimony limits subsequent invocation on same topics) Indalex Inc. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 83 A.3d 418 (Pa. Commw. Ct.) (coverage analysis cited by trial court in concluding an occurrence could exist for faulty workmanship contexts) People v. Frierson, 53 Cal.3d 730 (Cal. 1991) (requiring a witness to assert privilege before the jury encourages improper inference and is disfavored)