Limitations on Punitive Damages Against Insurers Since State Farm v. Campbell: Lessons for Insurers
This article focuses on the limitations imposed on punitive damages awards by the United States Supreme Court, concentrating tm how these limitations have been applied by lower courts in actions against insurance companies. The article begins by examining the Supreme Court's three "guideposts" for determining whether a punitive award complies with due process. The article focuses on the compensatory damages predicate for determining a punitive award pursuant to the second "guide­ post" requiring trial courts to examine the ratio between actual and potential harm and the punitive award. The article examines what types of damages have been included in the predicate in bad-faith claims against insurers, and argues that under black-letter contract law, only the plaintiff's bad-faith tort damages should be included in the actual or potential harm side of the ratio. Finally, the article examines how the "reprehensibility" of insurers' conduct has affected punitive awards against insurers.
Punitive Damages: Achieving Fairness and Consistency after State Farm V. Campbell: Despite Its Best Efforts, the U.S. Supreme Court's Opinion Leaves Many Blank Spaces and Holes with Which Appellate Courts Have Had to Cope
PUNITIVE damages have been a part of the American jurisprudence and have been recognized by the U.S. Supreme Court for more than 150 years. (1) But that Court began to suggest the possibility of limiting such damages in 1988. (2) As businesses became more financially vulnerable to excessive punitive damages awards, several states enacted statutes limiting them. Although the U.S. Supreme Court consistently had upheld the constitutionality of punitive damages as determined by lower courts, in 1996 it created limitations and set a standard in BMW of North America v. Gore, (3) a test re-emphasized and clarified in 2003 in State Farm Mutual Automobile Insurance Co. v. Campbell. (4) Section 908(1) of the Restatement (Second) of Torts states that punitive damages are designed to "punish [the defendant] for his outrageous conduct and to deter him and others like him from similar conduct in the future." Unfortunately, the focus of punitive damages has shifted from deterring defendants to rewarding plaintiffs with windfalls. Some argue that plaintiffs should not receive punitive awards because they are made whole by compensatory damages. (5) The dilemma is who should receive punitive damages. To address this problem, some states, including Alaska, Georgia, Illinois, Indiana, Iowa, Missouri, Oregon, and Utah, have enacted split-recovery statutes, which allocate a portion of the punitive damages to either the state or a special fund. A problem of excessive punitive damages is the severe financial impact they have on defendants, many of whom have gone bankrupt as a result of adverse judgments resulting in large compensatory and punitive damages. As the purpose of punitive damages is primarily to deter and punish, it is difficult for juries and judges to determine an appropriate award under such an arbitrary goal in a consistent manner. Historically, punitive damages were intended to punish a private harm done to a specific plaintiff, (6) not to compensate the plaintiff. (7) Over time, courts and lawmakers have used punitive damages to address the harm done to society. (8) Despite the inherent problems that policy imposes, another basic issue arises. Under the historical approach, it is more acceptable for plaintiffs to receive the punitive damages because the harm suffered by plaintiffs is paramount. The harm to society is now taken into account, however, adding an additional dilemma of whether plaintiffs or society should be entitled to punitive damages. Another effect of assessing punitive damages occurs when defendants face multiple punitive damages for conduct for which they were previously punished. (9) Under Section 908(1) of Restatement (Second), once a company pays punitive damages for "outrageous conduct," hypothetically, it has been deterred and punished. Therefore, similar to the law against double jeopardy in criminal cases, why should a defendant be penalized again for the same conduct? States and courts have directed their efforts in reducing extreme payments of punitive damages in two general ways: limiting the actual amount of punitive damages awarded and trying to prevent multiple punitive damages. STATE STATUTES A. Monetary Limits Many states have enacted legislation limiting punitive damage awards. These statutes implement a variety of means to impose limits, like using a multiple of compensatory damages (Idaho, Indiana, New Jersey), basing damages on the net worth or annual income of the defendant (Alabama, Kansas, Mississippi), limiting damages for certain types of claims or conduct (Florida, Georgia, Oklahoma) or setting a specific dollar amount (Virginia). Table 1 shows these statutes and the limitations. B. Split Recovery Eight states (Alaska, Georgia, Illinois, Indiana, Iowa, Missouri, Oregon and Utah) also have split-recovery statutes, by which the state obtains a portion of the punitive damages awarded. Although the constitutionality of these statutes has been challenged, (10) only a couple of states found them unconstitutional. …
Law in a law-governed union (Recht in einer Rechtsunion) : the Court of Justice of the European Union and the free law doctrine
The Court of Justice of the European Union characterizes the Union as a Rechtsunion: a law-governed union. The conception of “the law” in Article 19 paragraph 1 of the Treaty on European Union transcends the Treaties, according to the Vice-President of the Court of Justice, Koen Lenaerts. This thesis demonstrates with reference to the work of Georg Jellinek that the Union is a non-sovereign state and, with reference to the work of Eugen Ehrlich in particular, that the state-based perception of law is a misperception. Not all production of law is reserved to the state and not all law is state-recognized law. There is extra-state law. It has been alleged that the Court of Justice of the European Union has had “a free law attitude”. The author discusses the free law doctrine developed at the beginning of the twentieth century and has made literal translations of writings in German, French and Italian by the main representatives of the free law movement. The free law doctrine provides a descriptive framework for the case-law of courts. The author describes the creation by the Court of Justice of four constitutional principles of Union law through its case-law. He concludes that every court is, to quote Hermann Kantorowicz, praeter legem law-creatively active and has, in that sense, a free law attitude. The decisions of judges are often volitional decisions. How the law will be applied should be predictable but volitional decisions, because they are unpredictable, are inconsistent with the principle of legal certainty. In the Union and its member states the judiciary and not the statute or “the law” is pre-eminent. The author suggests how the concept of law should be defined in a material Rechtsunion. He argues that societal legal norms could be provided with an appropriate position consistent with the principle of legal certainty by making the validity of a societal legal norm contingent on its material lawfulness.