Opinion ID: 835320
Heading Depth: 2
Heading Rank: 4

Heading: Was the Jury's Punitive Damages Award Grossly Excessive in this Case?

Text: Having described the methodology and standard of review that courts are to apply in reviewing a punitive damages award for gross excessiveness, we turn to the task of applying them in the present case. We begin by describing the historical facts that a rational juror could find, [6] based on the evidence in the record. In so doing, we agree with and adopt the excellent summary in the opinion of the Court of Appeals: Given the evidence, a rational juror could find the following facts: (1) Defendant, in calculated fashion, engaged in a protracted course of conduct  from its initial `stonewalling' and `low-balling' tactics through its fraudulent manipulation of the claims evaluation process and its refusal to settle even at trial  that exposed its insured to the virtual certainty of a devastating excess verdict in a `no defense' case. (2) Defendant willfully engaged in such conduct, heedless of its insured's interests and in cynical violation of its obligations to its insured, for its own selfish purposes of building and maintaining a reputation for `toughness' in claims adjustment and settlement. (3) Defendant's conduct towards Munson was intentional, deceitful, and malicious. (4) Defendant's hardball tactics in this case were typical, not merely an isolated instance   . Goddard, 202 Or.App. at 112-13, 120 P.3d 1260. Next, we employ the applicable legal criteria (including the three Gore guideposts) to determine if, as a matter of law, the jury's punitive damages award is grossly excessive. The parties have framed their arguments entirely in terms of the three Gore factors. We turn to those factors and the parties' arguments respecting them. For its part, defendant begins its discussion with an argument that, defendant asserts, applies generally to the Gore factors: Defendant notes that one of the due process concerns that the Gore analysis is designed to address is the idea of fair notice. [7] Defendant suggests that due process requires that defendants have fair notice that the law considers their conduct to be tortious and, as such, subject to punitive damages, before such damages may be imposed. In the alternative, defendant suggests that lack of fair notice of the possibility of punitive damages should at least mitigate the reprehensibility of the conduct under consideration. Defendant then argues that, when the conduct at issue here occurred, it had no reason to know that such conduct might be a proper subject of punitive damages. Defendant contends that, at that time, an insurer's bad faith failure to settle an insurance claim was considered to be simply a breach of contract and did not carry the kind of moral and legal stigma that is associated with torts and that justifies the practice of awarding punitive damages. Defendant's argument rests heavily on this court's opinion in Farris v. U.S. Fid. and Guar. Co., 284 Or. 453, 587 P.2d 1015 (1978)  a case that, according to defendant, was this court's final word on punitive damages in breach of insurance contract cases until this court offered an entirely contrary view in Georgetown Realty v. The Home Ins. Co., 313 Or. 97, 831 P.2d 7 (1992)  two years after defendant failed in its duty to plaintiff in this case. [8] In Farris, the court considered whether an insured's action against his insurer for damages resulting from the insurer's denial of liability insurance coverage sounded in tort, so that the insured could recover for emotional distress caused by that denial. The court concluded that such denials of coverage are a breach of contract only and support only normal contract damages. However, the Farris court distinguished between an insurer's bad-faith failure to defend and a bad faith failure to settle: Assuming, but not deciding, that a cause of action for failure to settle within the policy limits is one in tort, it is our opinion that the rationale of such an action has no application to the present situation and that the present action is not one in tort. In an action for failure to settle within the policy limits, the insurance company is charged with acting in a fiduciary capacity as an attorney in fact representing the insured's interest in litigation. The company's interest comes into conflict with that of the insured's while representing him; and, arguably, acting in its own interests to the detriment of the insured's interest while acting in such a fiduciary capacity is a tort. In the present case defendant did not undertake in this fiduciary duty to represent the insured's interest in the litigation  it refused it. It did not, in the course of representing plaintiffs, violate its fiduciary duty arising out of the sole control of the settlement. It never undertook any fiduciary duty by purporting to act in the interests of the insured. Id. at 459-60, 587 P.2d 1015 (footnote omitted). Thus, although Farris did hold that a liability insurer's refusal to defend its insured at all was purely a breach of contract, it did not apply that same holding to insurers who, like defendant, failed to settle claims against their insureds within policy limits. In fact, it expressly left that question open, and even suggested a rationale for treating a failure to settle within policy limits as a tort. It follows that, contrary to defendant's assertion, defendant was on notice, at the relevant time, that its refusal to settle plaintiff's action against Munson within policy limits may well not have been immune from punitive damages. We do not rest our holding respecting fair notice solely on distinctions between Farris and Georgetown Realty, however. The legislature also has spoken in a relevant way on this issue. Specifically, long before defendant engaged in the conduct at issue, the legislature had enacted the Oregon Insurance Code, which includes a provision that forbids an insurer to use the kind of tactics that this defendant used. See ORS 746.230 (providing that no insurer shall commit or perform an unfair claim settlement practic[e], including [n]ot attempting, in good faith, to promptly and equitably settle claims in which liability has become reasonably clear). Defendant was (and is) an insurance company, permitted to do business as such in Oregon. Thus, it was subject at all relevant times to the Code, the provisions of which it is presumed to be aware, and it therefore cannot claim that it was unaware that its actions in handling Munson's claim were illegal. Defendant's suggestion that there is a fair notice issue at play here that should diminish or altogether eliminate punitive damages that otherwise might be permissible under the three Gore factors is not well taken. We turn, then, to the first Gore factor  reprehensibility. As we already have observed, reprehensibility under Gore is a function of at least five separate aggravating factors: whether the resulting harm was physical as opposed to economic; whether the conduct evinced indifference to or a reckless disregard of the health or safety of others; whether the target of the conduct was financially vulnerable; whether the conduct involved repeated actions; and whether the harm resulted from intentional malice, trickery, or deceit. The parties disagree, to one extent or another, about the applicability of each of those factors. At the outset, defendant contends that its conduct did not cause physical harm to either plaintiff or Munson and did not involve a reckless disregard for the health or safety of others. Plaintiff argues, to the contrary, that when an insurer refuses to cover an insured's loss, the insured is denied the peace of mind that the insurer promised and almost certainly suffers emotional and even physical trauma as a result. We think, however, that it is a sufficient answer to plaintiff's argument in this case to note that plaintiff's complaint did not seek, and the trial court's instructions to the jury and the special verdict form submitted with those instructions did not authorize, the jury to award damages for physical harm or emotional distress to Munson, plaintiff, or anyone else. The first two aggravating factors from Gore are not a part of this case. We turn to the remaining three. Plaintiff contends that Munson was financially vulnerable and that defendant's conduct left him with a large excess liability verdict that would have been financially devastating if he had been required to pay it. Defendant acknowledges that Munson had no appreciable assets at the time of the accident, but it contends that the financial vulnerability factor is not implicated because there is no evidence that defendant targeted Munson because of the condition of his finances. We agree that there is no evidence that defendant specifically targeted Munson for that reason, but there is plenty of evidence to permit the inference that defendant knew that Munson was vulnerable, and engaged in its stonewalling tactics despite Munson's vulnerability. In any event, we do not read the cases to require that the defendant solely or even specifically targeted the victim because of his or her financial vulnerability. It was enough, we think, that defendant knew of Munson's vulnerability, and therefore fairly may be deemed to have been indifferent to the harm that its actions would cause him. Munson met this criterion. The parties also dispute whether defendant's conduct involved repeated actions within the meaning of Gore. Plaintiff contends that aggravating factor applies because defendant engaged in a course of conduct that was injurious to Munson over a number of years. Defendant contends that a course of conduct against a single individual does not qualify as repeated actions. It argues that the repeated actions factor is directed at the problem of recidivism and applies only if the actor has engaged in identical transgressions against different individuals in the past and has been punished for or otherwise notified of the wrongfulness of that conduct. The federal cases provide little support for the theoretical foundation of defendant's argument. As the United States Supreme Court stated in Gore: [E]vidence that a defendant has repeatedly engaged in prohibited conduct while knowing or suspecting that it was unlawful would provide relevant support for an argument that strong medicine is required to cure the defendant's disrespect for the law. 517 U.S. at 576-77, 116 S.Ct. 1589 (emphasis added). Many circumstances may supply the necessary warning. For example, as we have explained, defendant had adequate notice that its misconduct was unlawful in this state under ORS 746.230(1)(f) before it engaged in the conduct at issue here. We agree with plaintiff that, even treating Munson's case in isolation, a modest level of repeated action is present here. Munson was not stonewalled once; he was stonewalled many times, over a period of years. Such actions by defendant seem repeated to us. Moreover, Munson's case was not an isolated incident. A rational jury could have inferred from the evidence that, as one lawyer had said, Voth doesn't pay policy limits  i.e., that low-balling insureds' claims was a common practice of defendant. That leaves U.S. to consider the last of the five reprehensibility factors  whether the harm the defendant's conduct caused resulted from intentional malice, trickery, or deceit. Defendant essentially concedes that, under the facts as the jury was entitled to find them, it acted with malice, i.e., intentionally, without just cause or excuse, in its dealings with Munson. Plaintiff argues that defendant's conduct and state of mind was far worse than that. Plaintiff insists, in fact, that the Court of Appeals did not sufficiently capture defendant's malevolence when it recognized that defendant had engaged in a calculated course of conduct betraying its obligation to its insureds, that it acted in cynical violation of its obligations to its insured and for its own selfish purposes, and that its conduct was intentional, deceitful and malicious. We believe, however, that the Court of Appeals' assessment sufficiently conveys the deplorable nature of the thought processes of defendant's minions and correctly places them on the scale of reprehensibility. In summary, we conclude that defendant's actions were directed at a financially vulnerable victim, were not confined to this victim alone, and involved intentional malice and deceit. On the other hand, defendant's actions caused economic harm only and did not evince a reckless disregard for the health or safety of others, although defendant is entitled to little credit for either factor  cases of economic harm like the present one seldom provide malefactors with an opportunity to meet either of those criteria. Taken together, our analysis of the five reprehensibility factors set out in Gore, considered in light of the economic nature of defendant's wrongdoing, leads us to conclude that defendant's actions were very reprehensible. Turning to the second Gore guidepost, we consider the ratio between the punitive damages award and the actual and potential harm suffered by the plaintiff. Campbell, 538 U.S. at 418, 123 S.Ct. 1513. To do so, we first must identify the amount of actual or potential harm, because that figure is a basis for calculating the constitutionally permissible punitive damages award. The Court of Appeals concluded that the correct amount was $1,280,000  the part of the total economic damages award that the jury attributed to defendant ($690,619.20) plus interest. Both parties argue that we should use a different figure. Plaintiff argues that we should use the full economic damage verdict ($863,274) without subtracting the 20 percent comparative fault that the jury attributed to Munson. The full amount of the wrongful death judgment, plaintiff contends, is the measure of Munson's (and hence plaintiff's) potential harm. We disagree. The jury determined that Munson was 20 percent responsible for the large judgment in the wrongful death case. Defendant is not responsible for paying that part of the compensatory damages that resulted from Munson's misconduct; neither should defendant be made to pay extra punitive damages in proportion to Munson's own misconduct. Plaintiff argues in the alternative that the potential harm includes the amount of compensatory damages that plaintiff sought in the wrongful death case ($318,000 more than the $863,274 that the jury awarded), on the theory that the jury in the wrongful death action might have awarded that higher amount. Plaintiff misconceives what the Court meant when it wrote of potential harm: That concept has nothing to do with the amount that a jury could conceivably have awarded to plaintiff. Rather, the actual and potential harm suffered by a plaintiff is a fact to be decided by the jury  in this case, 80 percent of $863,274. Plaintiff next argues that, for purposes of identifying the range of permissible ratios, defendant should not be credited with its 1998 payment (a total of $175,960.08) that purported to satisfy the $100,000 policy limits plus interest. Plaintiff contends that payment did not reduce the potential harm that Munson suffered when the trial court entered judgment in the wrongful death action for $863,274. We disagree. Defendant's responsibility to pay the $100,000 policy limits was contractual, and defendant eventually paid it. The Court of Appeals did not err in crediting defendant for the $100,000 payment. [9] Defendant renews the argument that it made on reconsideration in the Court of Appeals, i.e., that the prejudgment interest, which the Court of Appeals estimated at $589,000, may not be counted in establishing the punitive damages ratio. That argument turns entirely on the phrasing of the trial court's judgment, which labeled prejudgment interest as separate from economic damages. Although defendant does not dispute that it must pay plaintiff that prejudgment interest, it argues that, unless the jury itself awards prejudgment interest, it does not and cannot become `damages.' We reject defendant's argument. Under United States Supreme Court precedent, the punitive damages award should be proportional to the actual or potential harm suffered by the plaintiff. Campbell, 538 U.S. at 418, 123 S.Ct. 1513; see also BMW, 517 U.S. at 575, 116 S.Ct. 1589 (harm or potential harm). By permitting a punitive damages award to be a multiple of potential harm, the Court demonstrated that the punitive damages award is not limited to some multiple of the compensatory damages actually awarded by the trial court. And we have no problem concluding that the prejudgment interest here, however labeled by the trial court, is part of Munson's actual harm. The wrongful death judgment against Munson included accrued interest that Munson is legally obligated to pay. Defendant's 80 percent liability for the wrongful death judgment necessarily makes it responsible for the interest that accrued on that portion of that judgment. We conclude, then, that the constitutionally permissible punitive damages award in this case will be some multiple of the correctly calculated actual harm to Munson  $690,619.20 in compensatory damages, plus interest (which the Court of Appeals estimated at $589,000). Comparing that figure (approximately $1.28 million) to the jury's punitive damages award of $20,718,576, it immediately becomes clear that the ratio of punitive damages that the jury awarded to the actual and potential harm suffered by the plaintiff is somewhere around sixteen-to-one. That ratio significantly exceeds the four-to-one ratio that the Court described, in Haslip, 499 U.S. at 22-23, 111 S.Ct. 1032, as being close to the constitutional line, at least when only economic injury is involved. Indeed, the ratio even exceeds the single-digit ratio that the Court mentioned in Campbell, 538 U.S. at 425, 123 S.Ct. 1513 (few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process), as the putative limit for punitive damages in any kind of case. It may be true that, as we already have observed, a punitive damages award that exceeds the single-digit ratio may be acceptable in a few narrow circumstances: (1) when a particularly egregious act causes only a small amount of economic injury; (2) when the injury is hard to detect; (3) when it is difficult to place a monetary value on noneconomic harms; and (4) when extraordinarily reprehensible conduct  roughly comparable to the defendant's conduct in Williams  is involved. None of those circumstances is present here: The jury awarded plaintiff substantial compensatory damages; the injury that defendant caused was evident; no claim of noneconomic harm was involved; and defendant's conduct is in no way comparable to, for example, Philip Morris's 50-year campaign to delude a large part of the population of Oregon about the potentially devastating physical effects of smoking its products, which this court described in Williams. Also, plaintiff has not pointed to any other factor that we believe takes the case out of the normal realm of punitive damages cases that involve economic injury alone. Although there is no question that this is a case in which punitive damages at some level properly may be awarded, the case is not extraordinary in any way that would justify a punitive damages award that is more than four times, much less more than nine times, the amount that the jury found was the actual and potential harm suffered by the plaintiff. We proceed to the third Gore factor  consideration of comparable criminal or civil sanctions. In Williams, this court concluded that analysis of the comparable sanctions guidepost proceeds in three steps: First, courts must identify comparable civil or criminal sanctions. Second, courts must consider how serious the comparable sanctions are, relative to the universe of sanctions that the legislature authorizes to punish inappropriate conduct. Third, courts must then evaluate the punitive damage award in light of the relative severity of the comparable sanctions. The guidepost may militate against a significant punitive damage award if the state's comparable sanctions are mild, trivial, or nonexistent. However, the guidepost will support a more significant punitive damage award when the state's comparable sanctions are severe. 340 Or. at 58, 127 P.3d 1165. In the context of the calculation method described here, severe comparable sanctions  if they exist  could justify a higher ratio between actual or potential harm and the amount of punitive damages. Plaintiff argues  and we have recognized  that defendant's misconduct implicates civil sanctions. At the time of the accident in this case  and today  defendant's misconduct violated several provisions of ORS 746.230. Each such violation was (and is) subject to a civil penalty of up to $10,000. ORS 731.988(1). [10] Furthermore, the violator may also be required to disgorge the profits that resulted from the violation. See also ORS 731.988(2) (additional civil penalty not to exceed the amount by which such person profited in any transaction which violates any such provision [of the Insurance Code]). Those sanctions are equivalent to an amount that the legislature has authorized to be imposed only for felony crimes (all lesser offenses are subject to fines less than $10,000). See, e.g., ORS 161.635(1)(a) (1987) (maximum fine of $2,500 for Class A misdemeanor); ORS 161.655(1)(b) (1987) (maximum fine of $5,000 for certain Class A misdemeanors committed by a corporation). In other words, $10,000 is an amount that the legislature thought appropriate to levy only in the case of felonies. See ORS 161.625(1) (1987) (for all classes of felonies, fine not to exceed $100,000); ORS 161.655(1)(a) (1987) (for felony by corporation, fine not to exceed $50,000). Measured by those criteria, a relatively severe punitive damages award would not violate due process. Even so, we have little difficulty in concluding that the $20 million punitive damages award that the jury awarded in this case is grossly excessive, as that term is used by the Supreme Court. Although our analysis of the first and third Gore factors suggests that a relatively high punitive damages award would be appropriate, it is the second Gore factor  the ratio of the punitive damages award to the actual and potential harm to the plaintiff  that tells us, in more or less absolute numerical terms, how high the punitive damages award may be. Our consideration of that factor forecloses a conclusion that the jury's $20 million dollar award is consistent with the federal Due Process Clause: The sixteen-to-one ratio between the punitive damages award and plaintiff's actual and potential damages far exceeds the nine-to-one ratio that (with certain specified exceptions) marks the limits of due process. We affirm the Court of Appeals' holding to that effect.