Opinion ID: 3032771
Heading Depth: 3
Heading Rank: 2

Heading: Ratio Between Harm and Punitive Damages Award

Text: 27 While we cannot “‘draw a mathematical bright line between the constitutionally acceptable and constitutionally unacceptable [award], . . . [a] general concer[n] of reasonableness . . . properly enter[s] into the constitutional calculus.’” Gore, 517 U.S. at 583 (quoting Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 18 (1991)). The Supreme Court has set forth instructive principles. First, “few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” Campbell, 538 U.S. at 425. Second, “an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety.” Id. (citing Haslip, 499 U.S. at 23–24). Third, “[w]hen compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee.”15 Id. While helpful, “[t]hese statements do not compel a particular result in this case, as they are not holdings of the Court.” Bach v. First Union Nat’l Bank, 486 F.3d 150, 156 (6th Cir. 2007). “The precise award in any case . . . must be based upon the facts and circumstances of the defendant’s conduct and the harm to the plaintiff.” Campbell, 538 U.S. at 425. 15 The Supreme Court recently found that a punitive damages award may not exceed a 1:1 ratio in the context of maritime law. Exxon Shipping Co. v. Baker, 128 S. Ct. 2605, 2633 (2008). The Court did not directly address constitutional limits. See id. at 2626 (“[W]e are reviewing a jury award for conformity with maritime law, rather than the outer limit allowed by due process; we are examining the verdict in the exercise of federal maritime common law authority, which precedes and should obviate any application of the constitutional standard.”). However, the Court again said that, when punitive damages are substantial, “the constitutional outer limit may well be 1:1.” Id. at 2634 n.28. 28 Here, the ratio is 3.13:1.16 High ratios do not violate due process if “a particularly egregious act has resulted in only a small amount of economic damages,” or if “the injury is hard to detect or the monetary value of noneconomic harm might have been difficult to determine.” Id. (quoting Gore, 517 U.S. at 582). Here the compensatory damages are substantial, Dr. Marcincin suffered only economic harm, and the harm was easily measured — it was the amount of the excess judgment. See id. Medical Protective’s acts were egregious, but not likely “particularly” egregious. Campbell counsels, under these circumstances, that only a lesser award satisfies due process. Id. Other courts have used a 1:1 ratio as a benchmark where compensatory damages are substantial. See Bridgeport Music, Inc., 507 F.3d at 488, 490 (“[A] ratio of closer to 1:1 or 2:1 is all that due process can tolerate” where the compensatory damages award was already substantial — $366,939 — and the original award had a ratio of 9.5:1); Williams v. Conagra Poultry Co., 378 F.3d 790, 796–99 (8th Cir. 2004) (reduced punitive damages award from an approximately 10:1 ratio to a 1:1 ratio because plaintiff received substantial compensatory damages — $600,000); Slip-N-Slide Records, Inc. v. TVT Records, LLC, No. 05-21113-CIV, 2007 WL 3232274, at  (S.D.Fla. Oct. 31, 2007) (affirming a 16 In calculating this ratio, we include attorneys’ fees and costs as part of compensatory damages. In Willow Inn, we found the Pennsylvania Supreme Court would adopt the view of the Superior Court in Hollock v. Erie Ins. Exch., 842 A.2d 409 (Pa. Super. Ct. 2004) (en banc), which considered attorneys’ fees and costs awarded pursuant to § 8371 for purposes of calculating the ratio. Willow Inn, 399 F.3d at 236; see also Action Marine, Inc. v. Cont’l Carbon, Inc., 481 F.3d 1302, 1321 (11th Cir. 2007) (“In Georgia, awards of attorney fees in tort cases involving bad faith are compensatory in nature.”). 29 punitive damages award, which had been reduced to reflect a 1:1 ratio by the District Court, because the “substantial [compensatory damages award of $2.3 million] mitigates against a punitive damages award that materially exceeds that same amount”); Zakre v. Norddeutsche Landesbank Girozentrale, 2008 WL 351662, at  (S.D.N.Y. Feb. 8, 2008) (reducing a punitive damages award, where the ratio was 2:1, because compensatory damages were substantial — $1.65 million); Thomas v. Istar Fin., Inc., 508 F. Supp. 2d 252, 263 (S.D.N.Y. 2007) (“[T]he Court believes the [3:1 to 4:1] ratio in this case is excessive because Thomas was awarded a very substantial amount in compensatory damages [$443,500], making a punitive award equal to the compensatory damage award more appropriate.”); see also, Action Marine, Inc., 481 F.3d at 1317–23 (affirming a punitive damages award with a 5:1 ratio, based on a $3.2 compensatory damage award, in which there was physical, not just economic harm, as well as harm to many non-parties). In Boerner v. Brown & Williamson Tobacco Co., 394 F.3d 594 (8th Cir. 2005), a jury awarded $4.025 million in compensatory damages and $15 million in punitive damages in favor of a smoker’s husband, who sued Brown & Williamson Tobacco for a design defect in its product. Id. at 598. The Eighth Circuit reduced the punitive damages award to $5 million, approximately a 1:1 ratio. Id. at 602–04. The court found, despite a strong showing of reprehensibility, that the 3:1 ratio was “excessive when measured against the substantial compensatory damages.” Id. at 603. There, the factors that justify a higher ratio were absent — those same factors are absent here. Id. The court said, “despite evidence that [the defendant] exhibited a callous disregard for the adverse health 30 consequences of smoking, there is no evidence that anyone at American Tobacco intended to victimize its customers.” Id. Similarly, Medical Protective demonstrated bad faith by failing to act in Dr. Marcincin’s best interests, but the evidence does not show it intended to victimize him. In light of the substantial compensatory award and the harm being exclusively economic, this guidepost advises a reduced award. 3. Disparity Between Punitive Damages Award and Civil Penalties “Comparing the punitive damages award and the civil or criminal penalties that could be imposed for comparable misconduct provides a third indicium of excessiveness.” Gore, 517 U.S. at 583. This guidepost, which “should accord substantial deference to legislative judgments concerning appropriate sanctions for the conduct at issue,” id., “provides notice of possible sanctions to potential violators,” Willow Inn, 399 F.3d at 237. The District Court relied on Willow Inn, in which we upheld a punitive damages award where the insurer’s bad faith conduct “arguably amounted to multiple violations of 40 Pa. Stat. Ann. § 1171 [of Pennsylvania’s Unfair Insurance Practices Act (“UIPA”)].” Id. at 237–38. The UIPA “regulate[s] trade practices in the business of insurance” by setting forth the unfair or deceptive practices prohibited in Pennsylvania. 40 Pa. Stat. Ann. § 1171.2. The Commissioner may seek a penalty of up to $5,000 for each violation of the UIPA. Id. § 1171.11(1). The Commissioner may also suspend or revoke the offender’s license. Id. § 1171.9. Section 1171.5(a) sets forth two relevant “unfair or deceptive acts or practices” punishable by fine or suspension or revocation of the insurer’s license: 31 (vi) Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which the company’s liability under the policy has become reasonably clear. (xiii) Failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage or under other policies of insurance. Id. § 1171.5(a)(10)(vi), (xiii). In Willow Inn, we did not overturn the punitive damages award despite punitive damages outnumbering the civil penalty 30:1. Willow Inn, 399 F.3d at 237–38. We were unwilling to overturn the award solely based on this third guidepost because we were “unsure as to how to properly apply” it. Id. at 238. Furthermore, the insurer’s conduct could have amounted to multiple violations of § 1171, which could also have led to suspension and revocation of one’s license to issue insurance policies. Id. Section 1171 provides notice to violators of possible sanctions. It also reveals a substantial disparity between the punitive damages award and the civil penalty. While we found the 30:1 disparity in Willow Inn insufficient to overturn the punitive damages award in light of the confusion surrounding this guidepost, we face a disparity here of 1250:1. While courts do not focus on the ratio under this factor, the District Court failed to consider that, although the award in Willow Inn was $150,000, the award here is $6.25 million, putting a discussion of civil penalties on a different footing. In Gore, the Supreme Court said a statute imposing sanctions of up to $10,000 for deceptive trade practices could not provide a potential offender notice that it might be subject to a multimillion 32 dollar penalty. Gore, 517 U.S. at 584. While the potential exists for a suspension or revocation of Medical Protective’s license to sell insurance, the large punitive damages award appears excessive in light of the comparatively modest monetary sanctions imposed for such conduct. Section 1171 is unlikely to provide an insurer with fair notice of a $6.25 million award. Although the outrageous conduct that occurred here is unlikely to be deterred by the statutory penalties in § 1171, the third guidepost suggests the award was excessive. 4. Conclusion Consideration of the guidelines leads us to conclude that the punitive damages award should be reduced. Medical Protective’s conduct does not justify so high an award in light of the moderate degree of reprehensibility, the substantial compensatory award, and the large disparity between the award and civil penalties under § 1171. Only two of the reprehensibility factors point strongly toward reprehensible conduct, because little, if any, evidence of recidivism exists. With regard to the proper ratio, the Supreme Court has instructed that “[w]hen compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee.” Campbell, 538 U.S. at 425. We believe, in light of our consideration of all three guideposts, the Supreme Court’s statement instructs the outcome here. Accordingly, we will reduce the award to reflect a 1:1 ratio.