Opinion ID: 1846468
Heading Depth: 2
Heading Rank: 3

Heading: Was the Punitive-Damages Award Excessive?

Text: National contends that the award of $600,000 to Sockwell as punitive damages is grossly excessive and contrary to the law governing such awards. [12] We recently announced that in Alabama punitive-damages awards are subject to a de novo standard of review, in accordance with the recent holding of the United States Supreme Court. See Acceptance Ins. Co. v. Brown, 832 So.2d 1 (Ala.2001), citing Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 121 S.Ct. 1678, 149 L.Ed.2d 674 (2001). Accordingly, in reviewing a punitive-damages award, this Court applies its own rationale when considering the guideposts established in BMW of North America, Inc. v. Gore, 517 U.S. 559, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996), and the factors recognized by this Court in Hammond v. City of Gadsden, 493 So.2d 1374 (Ala.1986), and Green Oil Co. v. Hornsby, 539 So.2d 218 (Ala.1989).
We first analyze the three guideposts established by the United States Supreme Court in BMW.
Perhaps the most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant's conduct. BMW, 517 U.S. at 575, 116 S.Ct. 1589. Although there is no definitive yardstick by which to measure a defendant's reprehensibility, the United States Supreme Court in BMW acknowledged that trickery and deceit are more reprehensible than negligence, and that acts of affirmative misconduct or deliberate false statements are more reprehensible than innocent misrepresentations. Id. at 579-80, 116 S.Ct. 1589. The Supreme Court also recognized that economic damage inflicted upon a financially vulnerable plaintiff might support a larger punitive-damages award. Id. at 576, 116 S.Ct. 1589. In reviewing this guidepost and the evidence applicable thereto, we quote extensively from the trial court's posttrial order: An important aspect of the plaintiff's case was the denial of her claim by the defendant's adjuster, Patrice Hawthorne, under circumstances indicating that Hawthorne intentionally or recklessly denied the claim when she knew it was due to be paid. The evidence indicated that Hawthorne ostensibly relied upon a `limitation of liability' provision in the policy to deny Sockwell's claim because she had also pursued a claim for workers' compensation benefits arising from the subject automobile accident. The policy provision provided that the defendant was not obligated to pay any elements of loss for which the claimant (Sockwell) could also recover under workman's compensation laws. However, Hawthorne admitted at trial that based upon her training and experience, she knew workers' compensation claims generally involved only two elements of recovery: medical benefits and lost wages. She further admitted that tort claims arising from automobile accidents, such as Sockwell's, generally involved many other elements of loss such as mental anguish, pain and suffering, scarring and disfigurement, disability, loss of enjoyment of life, etc. Hawthorne had medical records in the claims file showing that Sockwell suffered injury compensable under these other elements of loss. Even though she knew the policy provision would not preclude payment for these other elements of loss suffered by Sockwell in the automobile accident, Hawthorne refused to continue her investigation of Sockwell's claim, and instead intentionally denied it. Contrary to the defendant's assertion, Hawthorne was not laboring under a mistake of law; instead, she intentionally misapplied policy language to deny a claim that she knew was compensable. The Court finds such conduct reprehensible. In an effort to conceal her bad faith denial of Sockwell's claim, Hawthorne submitted false testimony in an affidavit prepared during discovery in this case, and submitted in connection with the defendant's motion for summary judgment. Hawthorne's affidavit was submitted by defense counsel in an effort to explain or justify her denial of the claim. However, Hawthorne admitted at trial that she knew certain portions of the affidavit were false, but she nevertheless allowed the affidavit to be submitted and used in connection with this case. Efforts to conceal wrongful conduct, such as submitting false affidavit testimony, are matters to be considered when assessing the reprehensibility of the defendant's conduct. Green Oil, 539 So.2d at 223. The defendant's misconduct did not stop with the intentional misapplication of the policy provision by Patrice Hawthorne. Evidence was introduced at trial indicating that the litigation department at National Insurance Association knew many years ago that the provision upon which Hawthorne relied in denying Sockwell's claim was illegal and void as against public policy, although company officials failed to communicate such information to adjusters such as Hawthorne handling Alabama claims. Thus, even though Hawthorne knew Sockwell's claim was not limited or excluded by the policy language at issue, the provision was nevertheless totally and completely illegal, and the defendant did nothing to remove the illegal language from its policy. In fact, the evidence indicates that even though this case had been pending for almost two years at the time of trial, the defendant had still done nothing to remove the illegal provision from its policy. Like concealment of the misconduct, the length and duration of the conduct should also be considered in determining the reprehensibility of a party's conduct. Green Oil, 539 So.2d at 223. Perhaps the most reprehensible conduct was committed by the defendant's claims supervisor, Kathy West, who [was the defendant's representative] at trial. West testified that upon receipt of this lawsuit in March 1999, she reviewed the claim filed prepared by Patrice Hawthorne and immediately concluded that the claim had been improperly denied, and should have been paid. Nevertheless, testimony from the attorneys who were handling Sockwell's claim at that time indicated West made an offer of $41,000, and expressly conditioned payment of Sockwell's underinsured motorist claim upon her release and dismissal of the bad faith claim. Such a conditioned offer, when West knew the claim was due to be paid, is evidence of another, separate act of bad faith. Moreover, testimony from Sockwell's former attorneys indicated that West threatened to abuse the legal system if Sockwell did not accept her offer by playing hardball and by dragging out discovery as long as possible so that Sockwell would not see the policy proceeds for many, many years. West told Sockwell's former attorneys that Sockwell needed the money, and that they should tell her to take it or face the consequences of a protracted and expensive litigation battle. The Court finds this conduct to be shocking and supportive of the punitive damages award in this case. Finally, the Court notes that even though West testified she knew Sockwell's claim should have been paid, the defendant filed an answer to the plaintiff's complaint denying any obligations to pay Sockwell underinsured motorist benefits. This fact was introduced at trial, and evidences a pattern of continued acts of bad faith through the litigation process. `Factors such as the duration of the conduct, the defendant's awareness of the hazards created or likely to be created by his conduct, any deliberate concealment of those hazards, and the frequency of the kind of conduct complained of, can be considered in determining the reprehensibility of a party's conduct.' Tyson Foods, Inc. [v. Stevens, 783 So.2d 804, 810 (Ala.2000) ]. Substantially all of these factors are present in the defendant's conduct here, which the Court determines to be extremely reprehensible, if not outright egregious. (Emphasis in original.) We find the trial court's analysis of the evidence pertinent to this guidepost to be thorough and accurate, and we adopt that analysis as our own. The evidence summarized in the trial court's order establishes a substantial degree of reprehensibility on the part of National. Our analysis of this BMW guidepost as it relates to this case supports a substantial award of punitive damages.
The second indicium of the reasonableness or the excessiveness of punitive damages the Supreme Court recognized in BMW is the ratio of the punitive-damages award to the actual harm inflicted upon the plaintiff. BMW, 517 U.S. at 580, 116 S.Ct. 1589. In this case, the ratio of punitive damages to compensatory damages is 3:1, a ratio for which substantial support can be found under Alabama law. See Prudential Ballard Realty Co. v. Weatherly, 792 So.2d 1045 (Ala.2000) and the cases cited therein; see also § 6-11-21(a), Ala. Code 1975. Accordingly, the ratio of punitive damages to compensatory damages in this case indicates that the punitive-damages award is reasonable.
This Court is not aware of any criminal or other civil sanctions that could be imposed against National for its wrongful conduct in this case. Thus, no other methods of punishment and deterrence are available, and this factor does not support a finding that the punitive damages awarded in this case are excessive.
The reprehensibility of National's actions favor a significant punitive-damages award; the ratio of the punitive-damages award to the compensatory-damages award in this case is 3:1, a ratio that has garnered substantial support by this Court; and no criminal or comparable civil sanctions are available to punish National for its misconduct. Our analysis of the BMW guideposts indicates that the $600,000 punitive-damages award is reasonable. However, we must also consider the factors established by this Court in Hammond and Green Oil. B. The Hammond/Green Oil Factors. 1. The punitive-damages award and the actual or likely harm caused. `Punitive damages should bear a reasonable relationship to the harm that is likely to occur from the defendant's conduct as well as to the harm that actually has occurred. If the actual or likely harm is slight, the damages should be relatively small. If grievous, the damages should be much greater.' Green Oil, 539 So.2d at 223, quoting Aetna Life Ins. Co. v. Lavoie, 505 So.2d 1050, 1062 (Ala.1987) (Houston, J., concurring specially). Is the harm caused by National's misconduct, considering the actual harm as well as the harm likely to result from that misconduct, slight or grievous? We find it to be grievous. We recognize that the amount of the insurance benefits in dispute was $40,000neither the largest nor the smallest amount this Court has addressed in a Hammond/Green Oil analysis. However, the actual harm caused by National's wrongful evaluation and its denial of Sockwell's claim was twofold. First, Sockwell was prevented for some 17 months from obtaining the $40,000 insurance benefits to which she was entitled and which National knew she was entitled to and needed. Second, Sockwell suffered physically and emotionally as a result of the wrongful evaluation and denial of her claim. Thus, the actual harm caused by National's misconduct was significant. However, another harm of an entirely different nature is also likely to result from National's misconduct, if that conduct is not deterred in the future. How many other National insureds with valid claims for insurance benefits will be denied the right to those benefits if National continues to retain invalid provisions in its insurance policies? How many insureds will fail to pursue their claims, believing that National has validly denied those claims? How many other insureds will lose the benefit of their insurance contracts if National's claims representatives continue to act with such intentional or reckless disregard for an insured's right to a proper evaluation of his or her claim? Pursuing a bad-faith claim is a risky and expensive venture. It is possible that some of even the more determined plaintiffs may not be able to retain legal counsel because of the degree of risk involved. Considering the actual harm as well as the harm likely to result from National's misconduct, we find such misconduct to justify a significant punitive-damages award.