Wing Inflatables v. Certain Underwriters at Lloyd's CA1/1

Filed 10/23/26 Wing Inflatables v. Certain Underwriters at Lloyd’s CA1/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION ONE WING INFLATABLES, INC., Plaintiff and Respondent, A172050 v. CERTAIN UNDERWRITERS AT (San Francisco City & County LLOYD’S, Super. Ct. No. CGC-21-589722) Defendants and Appellants. WING INFLATABLES, INC., A173263 Plaintiff and Appellant, v. (San Francisco City & County Super. Ct. No. CGC-21-589722) CERTAIN UNDERWRITERS AT LLOYD’S, Defendants and Respondents. Representations and warranties insurance is a specialized insurance product purchased in connection with certain corporate transactions, such as mergers and acquisitions. It indemnifies the insured for covered breaches in the representations and warranties of other parties to the transaction. In connection with its 2019 acquisition of another company, plaintiff Wing Inflatables, Inc. purchased a representations and warranties policy from defendants Certain Underwriters at Lloyd’s subscribing to Policy No. 1 TLH001130428 (Underwriters). Wing subsequently became aware of irregularities in the other company’s financial statements and filed a claim with Underwriters. After nine months, during which time Underwriters never took a coverage position on, let alone paid, any aspects of Wing Inflatables’ claim, Wing filed this bad faith case. Ultimately, the case was tried and the jury awarded Wing approximately $3.1 million in compensatory damages and $15 million in punitive damages. Both parties appealed. Underwriters challenges only the punitive damages award, asserting (1) the jury’s finding under Delaware law that they committed “outrageous” bad faith supporting a punitive damages award is not supported by substantial evidence; (2) the amount of punitive damages awarded is constitutionally excessive; and (3) the trial court committed prejudicial error by excluding the testimony of Underwriters’ claims handling expert and curtailing Underwriters’ closing argument on punitive damages. In its appeal, Wing challenges the denial of its post-verdict motion for litigation bad faith attorney fees under Delaware law, claiming the court abused its discretion in denying such fees. While we conclude the evidence supports a punitive damages award, we also conclude the amount awarded is unconstitutionally excessive and order the award reduced to $10 million. We affirm the order denying Wing’s motion for bad faith litigation fees. BACKGROUND The Acquisition and Related Insurance Policy Wing Inflatables, Inc. is a family of companies that supplies marine products to recreational, commercial, and military customers. In June 2019, Wing acquired Mustang Survival, Inc.—a company that designed and 2 manufactured personal flotation devices and other lifesaving products for the marine and aviation industries—for $27 million. The stock purchase agreement through which the acquisition was consummated required Wing Inflatables to procure a buyer-side representations and warranties insurance policy as a condition of closing. With respect to choice of law, the acquisition agreement provides: “This Agreement shall be governed by and construed in accordance with the internal Laws of the State of Delaware applicable to agreements made and performed in such state and without regard to conflicts of law doctrines of such state.” In March 2019, CFC Underwriting Ltd. (CFC)—a company authorized to offer insurance through Lloyd’s of London’s insurance market—furnished Wing Inflatables with a proposal to provide the required representations and warranties insurance. The proposal stated it was nonbinding and remained subject to change based on CFC’s “underwriting and due diligence process.” In addition to the premium for the policy, the proposal required Wing Inflatables to agree to a $30,000 expense agreement because CFC anticipated “incurring significant underwriting costs, including outside counsel costs, in connection with the transaction.” CFC also required various specified transactional and financial documents and access to the virtual data room for the transaction to complete a “full underwriting review.” The Lloyd’s of London market allows companies to pool assets and share risk when issuing insurance policies. A managing general agent like CFC is “given a pen” to write a policy and acts as the claims manager on behalf of other companies who financially back the policy. Those backers, called syndicates, subscribe to a portion of the policy. If, for example, a syndicate subscribed to 10 percent of a policy, it would receive 10 percent of the premium payments and be responsible for paying 10 percent of the policy 3 benefits. To avoid coordination problems among what could be dozens of subscribing syndicates, the syndicates are divided into two groups for each policy: leads and follows. The follow syndicates agree to be bound by the decisions of leads, which in turn grant any needed approval for claims- handling decisions to the managing general agent. Under the policy ultimately issued to Wing Inflatables by Underwriters, CFC acted as the managing general agent, responsible for the day-to-day handling of the claim. However, because it was the insurers’ money, CFC worked within a binding authority agreement. This means there was “a cap in terms of what [it could] actually do, and beyond that cap, that’s when insurers step in to provide—or basically to decide . . . a coverage decision to be made. CFC’s cap for purposes of settling claims related to Wing’s policy was $250,000. Under the policy, there were two lead syndicates—Channel 2015 and Markel 3000—and eight follow syndicates. The lead syndicates acted as the final decisionmakers. In other words, Channel and Markel had settlement authority with respect to Wing’s claim, with CFC acting as the claims manager. The representations and warranties policy issued to Wing Inflatables— which Wing purchased for $145,000—lists the percentage interests of each of the 10 syndicates. It insures Wing against “any loss arising out of or resulting from a breach” of the identified seller representations and warranties in the stock purchase agreement for a specified period of years, up to a maximum of $5.4 million. There was a deductible of $270,000 which could be eroded in specified ways through payments received from others. The policy lists Delaware as the choice of law and further provides: “Any dispute between you and us regarding this Policy will be settled in accordance with the choice of law without reference to conflict-of-law 4 principles that would require or allow the application of the law of any other jurisdiction.” Pursuant to the policy, Wing Inflatables was required to “notify the claims managers as promptly as is reasonably practicable” of any claimed breach. Moreover, “to the extent the breach [was] reasonably likely to involve [Underwriters] or this Policy,” Wing was required to “use commercially reasonable efforts” to provide Underwriters with all material documents within its possession relating to the breach or claim, along with its “good faith estimate of the actual or expected loss (to the extent known), and use commercially reasonable efforts to continue to provide [Underwriters] with this information until the breach or claim is settled.” The policy also provides, however, that “a notice of breach or claim shall not be invalid for failing to provide a reasonably complete description of the facts. We acknowledge that . . . you may have incomplete knowledge of a breach or the facts and circumstances underlying a claim at the time notice is provided hereunder and that any notice may reflect such incomplete knowledge and may be supplemented. . . .” And it additionally required Wing to permit Underwriters “to review and take copies of your records, at [Underwriters’] sole cost and expense, relating to the breach or claim” and to provide Underwriters with other information and assistance “at [Underwriters’] sole cost and expense.” (Italics added.) Underwriters’ obligations under the policy included the following: “As soon as is reasonably practicable after you have provided the information above and in any event within 30 calendar days, we will acknowledge the notification and either confirm coverage, decline coverage (including the reasons why we have denied coverage or claimed erosion of the deductible) or, if we are not in a position to determine the coverage position based on the 5 information provided, then the claims manager’s response shall state why it is unable to do so in reasonable detail and request further information (including to the extent any such breach or claim would not actually be payable due to the deductible) from you as may be reasonably required to confirm or decline coverage.” The policy defines “ ‘[c]osts and expenses’ ” to include “that part of any loss which constitutes third party costs, charges, fees and expenses” reasonably incurred by Wing Inflatables in, among other things, the investigation, resolution, defense, or appeal of any breach or claim, including potential breaches and claims. The burden on disproving the reasonableness of the costs and expenses was placed on Underwriters. In addition, Underwriters agreed: “Within 30 business days of our receipt of invoices regarding the costs and expenses you incur, we will pay such costs and expenses.” Wing Inflatables’ Claim and Underwriters’ Claim Processing In the year following the acquisition, Wing Inflatables became aware that various representations and warranties made by the sellers had been breached. It submitted a detailed notice of claim to Underwriters in May 2020. The claim identified six categorical errors in the financial statements: (1) credit card fees for e-commerce transactions were never listed as an expense in the financial statements, leading to an overreporting of revenue in the amount of $54,197, and certain credits and refunds were not properly reflected; (2) failure to account for annual bonuses for certain Florida employees in the financial statements, leading to an annual loss of $15,800; (3) vendor expenses that were never properly recorded or paid in the amount of $80,000; (4) treating the internal consumption of inventory (i.e., 6 demonstration or promotional products) as a receivable instead of an expense, leading to an annual loss of $52,406; (5) under reporting of certain IT expenses (previously provided by the seller’s parent company) in the annual amount of $28,000; and (6) overstating the value of certain obsolete inventory, leading to an annual loss of $39,918. Because an EBITDA multiplier1 of 9.85 was used to determine the purchase price of the company, Wing Inflatables applied that multiplier to the stated losses (except for $30,000 in one-time vendor charges) and estimated its losses for purposes of the policy at $2,223,829. In June, Underwriters acknowledged receipt of Wing Inflatables’ claim by and through their attorney, Kevin Mattessich, who had been retained to assist in the investigation of the matter. Several days later, Mattessich responded to Wing with 28 multi-part questions seeking additional information and documents regarding the six identified losses.2 1 EBITDA means earnings before interest, tax, depreciation, and amortization. EBITDA is the amount of cash that is being generated from a business in an ongoing operation. As Mark French, Wing Inflatables’ CFO explained it: “[Y]ou’re trying to assess the cash flow from the operations of the company without taking consideration of the interest or the debt that’s going to be put on the company. And same thing with taxes; it’s sort of considering the business without the effect of the payments you’ll be making to the government based on your profits or losses or lost carry-forwards or what have you. [¶] And then depreciation and amortization are both noncash expenses. So you don’t actually outlay cash for depreciation or for amortization, so those are taken out of the equation.” When acquiring a company, EBITDA is “a proxy, effectively, for how many years will it take to pay back the investment that you make to buy that particular company.” The EBITDA multiplier in a particular transaction is set based on comparable sales. 2 The list of questions was provided to Mattessich by Rodney Crawford, a financial consultant retained by Mattessich to assist in responding to Wing’s claim. 7  Wing Inflatables responded in September, providing an updated claim with detailed responses to all questions asked and voluminous documentation regarding each of the six categories of losses, some of which Wing had increased and some of which it had decreased upon further review. Wing’s updated claim contained two additional categories of loss denoted as category 7 (fixed assets listed on the financial statements that did not appear to exist) in the amount of $84,985 and category 8 (multiple accounts receivable that should have been reserved or written off), leading to a loss of $74,357. As a result, the claim amount increased to $6,575,418 (plus reimbursement for the costs for Wing’s professional advisors), well over the maximum payable under the policy. Rather than taking a coverage position based on the additional information Wing Inflatables provided, Mattessich again responded with questions, this time 23 in number. One sought more information regarding how the EBITDA of 9.85 for the transaction was set. Wing provided a full response within a week. A conference call was then set for the end of October, with an agenda that, according to Wing Inflatables, was largely a rehash of information it had already provided. Nevertheless, Wing promptly responded to the issues identified on the agenda and raised during the conference call. As a result, it lowered the amount of its claim to $5,710,230 (plus costs and expenses). The decrease included a reduction of the category 6 loss regarding obsolete inventory. Wing Inflatables heard nothing from Underwriters for several months, until it received, in January 2021, a “preliminary assessment” of the claim. Underwriters continued to raise numerous issues with the 9.85 EBITDA multiplier, stating there was “insufficient evidence to conclude that an 8 EBITDA multiple was the sole basis for the transaction price,” and asserting a “forward-looking” EBITDA rather than an historic one was more appropriate. (Italics omitted.) They suggested an EBITDA of 6.5 or 7.5. With respect to the category 7 non-existent fixed assets loss, Underwriters speculated various circumstances could exist justifying denial of coverage for the loss. Applying a reduced or no EBITDA multiplier, and agreeing to covered losses in only the first three identified categories, Underwriters valued Wing Inflatables’ claim at $540,158. It then reduced that amount by the $270,000 deductible, for a total claim value of $270,158—less than five percent of Wing’s $5,710,230 claim, not including costs and expenses which remained unaddressed. Wing Inflatables responded to this “preliminary assessment” in mid- January with a detailed, point-by-point rebuttal. Wing took issue, for example, with Underwriters’ “conceptual” EBITDA calculation, stating it was unaware “of any precedent or accepted use” of Underwriters’ methodology and the 9.85 EBITDA in the purchase price was a matter of calculated fact. To the extent the warranted financial statements were inaccurate, Wing overpaid for the acquired company based on the amount of that multiple. Moreover, ample market data existed that supported purchase price multipliers in the10x range for similar companies. Wing also noted the assessment ignored its balance sheet claims, failed to consider the approximately $300,000 in expenses Wing had already incurred in responding to Underwriters’ requests that were recoverable under the policy, improperly applied the deductible without considering the extent to which it had been eroded by post-closing payments from the seller, and failed to 9 consider that the post-closing working capital settlement of $886,392 was negotiated with the seller and did not cover all of Wing’s losses. Wing Inflatables summarized: “We have endeavored to provide detailed responses and supporting documentation for each of your requests concerning our claim. We made ourselves and our representatives available to you and provided you with complete and honest information during our numerous written and oral communications with you and your team. We have revised our claim in response to points you have raised and have tried to be fair and balanced. For your part, we feel we have not seen similar considerations.” It suggested a conference call the following week to “walk through any remaining issues.” During that call, Underwriters indicated they would be sending Wing Inflatables additional questions. Wing responded that the time for questions had “long since passed” and that it wanted the claim to be paid or a denial of coverage to be articulated. Underwriters refused. The following month, in February 2021, Underwriters issued 10 more requests for information, which Wing Inflatables claims were “virtually identical” to those already made and for which Underwriters already had information. Wing nevertheless responded to the requests. The Complaint and Pretrial Matters Wing Inflatables filed a complaint that same month, asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and unfair business practices. With respect to bad faith, Wing alleged Underwriters “breached the implied covenant of good faith and fair dealing arising out of their insurance contract with [Wing] by unreasonably and in bad faith refusing and failing to pay amounts due under the policy, effectively denying [Wing] insurance coverage to which it is entitled and 10 placing their interests above those of their insured, all to the detriment of [Wing].” Among other alleged acts, Underwriters: “(1) [U]nduly delayed adjusting [Wing’s] claim. (2) [F]ailed to acknowledge the claim and act reasonably promptly after receiving communications about [Wing’s] claim. (3) [F]ailed to either approve or deny the claim within a reasonable time period after receiving from [Wing] adequate proof of covered losses. (4) [F]ailed to timely pay benefits due under the policy. (5) [F]ailed to provide prompt justification for their effective denial of the claim. (6) [F]ailed to properly inquire into bases that support payment of the claim. (7) [F]ailed to adopt and implement reasonable standards for the prompt investigation and processing of the claim. (8) [R]elied on unreasonable, erroneous and/or irrelevant standards to manufacture bases on which to refuse to pay amounts legitimately owed under the terms of the policy, effectively looking for means by which to deny coverage rather than ways to pay the claim. (9) [M]ade a ‘low ball’ coverage offer[. And] (10) failed to adequately explain their effective denial of coverage by completely ignoring entire components of [Wing’s] claim.” Wing Inflatables sought declaratory and injunctive relief, general and compensatory damages of no less than $5.4 million, punitive damages, and attorney fees, costs, and prejudgment interest. The following month, Underwriters provided a “supplement” to its “preliminary assessment” of Wing Inflatables’ claim. They first agreed to accept Wing’s 9.85 EBITDA multiple for certain claimed losses “in the absence of a judicial resolution of the issue.” They then agreed Wing’s claimed loss based on certain e-commerce fees (category 1) was “reasonable” and stated they would pay the claimed amount plus the multiplier, or $373,877. With respect to the claimed loss based on Florida employee 11 bonuses (category 2), Underwriters agreed to pay a portion of the loss and apply the 9.85 multiplier for a total of $321,159. Underwriters also agreed to pay a portion of Wing’s claimed loss for undisclosed vendor liabilities and customer credits (category 3) but refused to apply the EBITDA multiple ($48,899). Finally, they stated they were reviewing Wing’s recently provided invoice for $280,000 in expenses. All told, Underwriters stated they would issue payment to Wing in the amount of $591,339, representing the total of the allowed claimed losses ($861,339), less the deductible ($270,000). Wing accepted the partial payment and proceeded with the lawsuit as Underwriters still had not made a coverage determination, not paid the claim amount Wing believed it was entitled to, not reimbursed Wing’s expenses, and continued to misapply the deductible. The procedural history of the lawsuit from this point onward is extensive and because neither party has adequately presented it in their briefing on appeal, we include the following recitation. Pretrial Rulings Early in the case, Underwriters moved to quash service of summons and to stay/dismiss the matter based on forum non conveniens. Both motions were denied (J. Ulmer). Specifically, the court concluded exercising specific jurisdiction over Underwriters was warranted because they “purposefully availed themselves of the privilege of doing business in California” and Wing Inflatables’ legal claims arose out of Underwriters’ contacts with California. Underwriters also failed to prove “the exercise of jurisdiction over it would be unreasonable even though the policy includes a Delaware choice of law provision and the parties agreed that this matter could also be litigated in Delaware.” With respect to forum non conveniens, Wing’s choice of forum was entitled to great deference, 12 the witnesses and documents were in California, and Underwriters (located in the United Kingdom) did not “sufficiently show why litigating this bad faith matter in Delaware is more desirable.” In early 2022, Underwriters filed a motion for summary adjudication. It first sought a ruling that, pursuant to the terms of the insurance policy, Delaware law applied to the case. It then maintained that under Delaware law (1) Wing Inflatables could not establish Underwriters acted in bad faith, (2) Wing could not establish entitlement to punitive damages, and (3) Wing was not entitled to attorney fees. The record reflects that the parties and the trial court understood the fees at issue to be “Brandt fees”—fees recoverable as damages in an insurance bad faith case under Brandt v. Superior Court (1985) 37 Cal.3d 813, 815 (Brandt). The court (J. Bolanos) also denied this motion. Specifically, the court denied without prejudice Underwriters’ request for summary adjudication on “issues 1 [liability for bad faith] and 2 [entitlement to punitive damages]” because Underwriters had failed to prove its threshold assertion that Delaware law applied. The court also ruled summary adjudication was premature as to these issues under Code of Civil Procedure section 437c, subdivision (h) because Underwriters had not yet produced all ordered discovery regarding its claims handling practices and how it valued Wing Inflatables’ claim. The court denied Underwriters’ request for summary adjudication on “issue 3” (Brandt attorney fees) without caveat, stating Underwriters had merely cited the policy’s choice of law provisions without providing any analysis under Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459 (Nedlloyd) in which our high court addressed the enforceability of such provisions. The trial court further observed the connection to Delaware was 13 attenuated given that Wing Inflatables is a California company, it operates the purchased entities from California, and the purchased entities reside in various jurisdictions, with only one residing in Delaware. Thus, Underwriters had failed to show that Delaware had a substantial relationship to the transaction or that there was a reasonable basis for the choice of Delaware law. It added that “if fees are not recoverable under Delaware law, that policy would conflict with California’s fundamental policy and California has a materially greater interest in enforcing its fee policy.” A year later, in 2023, Underwriters filed a second motion for summary adjudication, this time arguing Delaware law applied to any dispute regarding the insurance policy without reference to choice-of-law principles, as stated in the “freely negotiated” policy. (Boldface, capitalization & underscoring omitted.) Underwriters further maintained that, as a matter of law, Wing Inflatables could not establish bad faith under either Delaware or California law. Underwriters ultimately withdrew this motion. After more than another year had passed, Underwriters, in March 2024, filed a third motion for summary adjudication. It again asserted that under the policy’s choice of law provisions Delaware law applied and went on to argue that under either Delaware or California law, Wing Inflatables’ bad faith claim failed as a matter of law. The court (J. East) denied the motion shortly before trial.3 Specifically, it denied Underwriters’ claim that Delaware law applied to the dispute because Underwriters had failed to analyze adequately the choice-of-law issue. Although Wing represented that a prior judge had ruled California law applied, the court did not get into the 3 On our own motion we take judicial notice of the trial court’s order, which was not included in the record on appeal. (Evid. Code, §§ 452, subd. (d), 459, subd. (a).) 14 specifics of that order but simply ruled Wing had raised a triable issue as to whether Underwriters’ claims handling decisions were unreasonable and in bad faith under California law. Motions in Limine and Trial Proceedings Three months later, in June 2024, after the case was assigned out for trial, Underwriters made an in limine motion asserting Delaware law applied. At the hearing, the trial judge (J. Flores) honed in on attorney fees, asking whether the difference between California and Delaware law in this context, meaning the bad faith context, was related to the recovery of attorney fees. It is again clear from the record that the court and parties understood the fees at issue to be Brandt fees. Counsel for Underwriters stated that was the “primary difference.” He also stated the standards for establishing bad faith are higher under Delaware law. Counsel for Wing Inflatables asserted the choice-of-law issue had already been determined and California law applied because prior judges had denied two summary adjudication motions whereby Underwriters had sought rulings that Delaware law applied. Counsel further argued: “You can’t contract away from the rights and obligations—the rights that a California policyholder has to the protections afforded by California claims handling practices. And that’s outside of the interpretation of the insurance contract.” Underwriters then asked to brief the matter, stating “this is something that could never have been decided at the pleading stage” (although it had sought years earlier to have the issue resolved by motion). Expressing significant dissatisfaction that this fundamental issue had not been resolved earlier, the court requested further briefing on the matter. Underwriters had also filed a motion in limine to prevent Wing Inflatables from presenting invoices for attorney fees it had incurred 15 (relevant to Brandt fee damages). Underwriters maintained the invoices should be excluded because Underwriters had requested copies which it had never received. Wing Inflatables countered that Underwriters’ discovery request had been a general one, it had responded, and Underwriters had never moved to compel production of the invoices or sought updated discovery. Moreover, Wing had designated an expert witness with respect to Brandt fees many months earlier and had presented him for deposition along with copies of the fee invoices. The trial court granted Underwriters’ motion and precluded the evidence, ruling the discovery requests “were specific enough to trigger an obligation” to produce the invoices and that producing them on the eve of trial would prejudice Underwriters. The next court day, Wing Inflatables asked the court to reconsider its evidentiary ruling. Wing again pointed out it had inadvertently turned over unredacted copies of fee invoices through its Brandt expert and had been producing redacted copies of more recent invoices. (See Byers v. Superior Court (2024) 101 Cal.App.5th 1003, 1013–1014 [upholding order allowing redaction of work product in fee invoices].) Underwriters complained the reconsideration request was procedurally and substantively deficient and requested time to review it. The court indicated it would need to have a hearing on the matter the following week. The court then turned to the choice of law issue, which, per the court’s directive, the parties had briefed. Underwriters pointed out that the contractual choice of law provisions required application of Delaware law to all issues, “without reference to conflict-of-law principles.” (Italics added.) Underwriters asserted Wing Inflatables had “freely and voluntarily, and with advice of counsel, executed written agreements that dictated the choice of Delaware law and Delaware 16 law only” to this dispute. It further asserted the choice of law issue had not been finally decided in connection with its 2022 motion for summary adjudication because the motion had been denied without prejudice.4 Underwriters acknowledged that, under California law, a choice of law provision is not controlling if a party “can establish both that the chosen law is contrary to a fundamental policy of California and that California has a materially greater interest in the determination of the particular issue.” (Washington Mutual Bank v. Superior Court (2001) 24 Cal.4th 906, 917 (Washington Mutual).) But they maintained “a claim for breach of the implied covenant of good faith and fair dealing is not a fundamental policy of California.” They did not separately analyze the enforceability of the choice of law provisions as to Brandt fee damages under Nedlloyd, supra, 3 Cal.4th 459. Wing Inflatables, in turn, asserted the prior court had conducted a Nedlloyd analysis and determined “ ‘Delaware’s connection to the transaction is . . . attenuated’ ” and Underwriters have never “ ‘show[n] that Delaware has a substantial relationship to the transaction or there is a reasonable 4As we have recited, the trial court specifically denied the first two issues Underwriters had raised (bad faith liability and liability for punitive damages) without prejudice. But it denied the third issue (Brandt attorney fees) without such caveat. Thus, Underwriters were not entirely accurate in what they told the trial court. At the hearing, they argued: “So when we talked earlier about these various decisions that were made by the Court without prejudice or saying that . . . Underwriters didn’t meet their burden, it seems to me that all of the pretrial decisions fall within that bucket, and that this Court should consider the choice of law separately, independently, pursuant to the contract of the parties, without regard to a prior discussion that may have been between the parties in a prior hearing.” 17 basis for the Choice of Delaware law.’ ”5 Wing further asserted that the court had also concluded, with respect to attorney fees, that application of Delaware law “ ‘would conflict with California’s fundamental policy of protecting its insureds’ ” and “ ‘California has a materially greater interest in enforcing its fee policy.’ ”6 Wing additionally cited Pitzer College v. Indian Harbor Ins. Co. (2019) 8 Cal.5th 93, 97–99, 105 (Pitzer College), in which our Supreme Court concluded California’s notice-prejudice rule (which “generally allows insureds to proceed with their insurance policy claims even if they give their insurer late notice of a claim, provided that the late notice does not substantially prejudice the insurer”) is a fundamental policy of California law that can trump a contractual choice of law provision. (Id. at pp. 97, 105.) The trial court granted Underwriters’ motion. It first concluded the prior orders denying summary adjudication were not dispositive. It then agreed the Nedlloyd line of cases was applicable but concluded the Delaware choice-of-law provisions in the policy and related share purchase agreement governed. In light of the court’s ruling on the choice of law in limine motion, there was no need to address Wing Inflatables’ motion for reconsideration with respect to the admissibility of its fee invoices because Delaware does not have an analog to Brandt fees. Thus, pursuant to the in limine ruling excluding the evidence, Wing did not present evidence of its attorney fees at trial. Nor 5 On our own motion we take judicial notice of Wing’s trial court brief, which was not included in the record on appeal. (Evid. Code, §§ 452, subd. (d), 459, subd. (a).) 6 Wing did not, however, point out that only portions of the prior court’s summary adjudication order were made without prejudice; nor did it do so during subsequent argument on the in limine motion. 18 was the jury instructed it could award such fees as a component of Wings’ compensatory damages. Jury Instructions, Verdict, and Award of Punitive Damages The case was bifurcated for trial, with liability, including for punitive damages, being determined in the first phase, and the amount of any punitive damages being awarded in the second phase. Thus, at the conclusion of the first phase, the jury was instructed pursuant to Delaware law: “If you decide to award compensatory damages to plaintiff, you must determine whether defendant is also liable to plaintiff for punitive damages. [¶] Punitive damages are different from compensatory damages. Compensatory damages are awarded to compensate the plaintiff for the injury suffered. Punitive damages, on the other hand, are awarded in addition to compensatory damages. [¶] You may award punitive damages to punish a party for outrageous conduct and to deter a party and others like it from engaging in similar conduct in the future. [¶] To award punitive damages, you must find by a preponderance of the evidence that defendant engaged in outrageous conduct that was either intentional in nature or with a reckless disregard in investigation and handling of the claim. Punitive damages cannot be awarded for mere inadvertence, mistake, errors in judgment, and the like, which constitute ordinary negligence.” The jury was then provided with definitions of intentional and reckless conduct. It was also informed it was only to determine whether Wing Inflatables was entitled to a punitive damages award, not the amount of such an award. The jury returned a bad faith liability verdict and awarded $3,094,083 in compensatory damages—an amount significantly closer to Wing Inflatables’ ultimate claim for approximately $4,500,000 than to Underwriters’ suggestion in its preliminary assessment that Wing was owed 19 only $270,158 or its offer of $591,339 after Wing filed suit. It also found Underwriters liable for punitive damages. The trial court immediately moved to the second phase, reading to the jury the following: “The parties have stipulated that the defendant can pay whatever amount the jury decides is proper for punitive damages. The collective annual profits in 2023 for the ten syndicates was 1 billion U.S. dollars.” Each side then presented a five-minute argument. Wing Inflatables stressed the need to punish Underwriters and deter them and others from acting with similar bad faith. It suggested an award of $50 million— reflecting 18 days of Underwriters’ profits, less time than the jury had served on the case. Underwriters argued any punitive damages award must bear a reasonable relationship to the compensatory damages and that the amount sought by Wing was neither rational nor reasonable. The court next instructed the jury with a modified version of Delaware’s form punitive damages jury instruction that stated: “The law provides no fixed standards for the amount of punitive damages. In determining an award of punitive damages, you may consider the nature of Underwriters’ conduct and the degree to which the conduct was reprehensible. Finally, you may assess an amount of damages that will deter Underwriters and others like it from similar conduct in the future. You may consider Underwriters’ financial condition when evaluating deterrents. Any award of punitive damages must bear a reasonable relationship to Wing’s compensatory damages.” Shortly thereafter, the jury returned a $15 million punitive damages award. 20 JNOV and New Trial Motions Underwriters filed a notice of intent to move for a new trial and a motion for judgment notwithstanding the verdict (JNOV), both limited to punitive damages. They argued in their new trial motion that the punitive damages award was unconstitutionally excessive and there had been procedural irregularities during the punitive damages phase of the proceedings. Underwriters likewise argued in its JNOV motion that the punitive damages award was excessive and urged that the amount be reduced to that of the compensatory damages. The trial court denied both motions. Underwriters timely appealed, challenging only the punitive damages award. (Appeal No. A172050.) Request for Attorney Fees Under Delaware Law After the jury trial was concluded, Wing Inflatables filed a motion for attorney fees under Delaware law which permits courts to award fees as sanctions for bad faith litigation conduct (hereinafter “litigation bad faith” attorney fees). (See Johnston v. Arbitrium (Cayman Islands) Handels AG (Del. 1998) 720 A.2d 542, 545–546 (Johnston) [Delaware recognizes fees for bad faith litigation conduct as an exception to the “American Rule” which requires partie