Punitive Damages. RIMS February Luncheon. Patrick F. Madden, Shareholder Macdonald Devin, P.C.

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1 Punitive Damages RIMS February Luncheon Patrick F. Madden, Shareholder Macdonald Devin, P.C.

2 What are punitive damages? Punitive damages are intended: to punish a defendant; and to provide a deterrent to future similar conduct by defendant Corporations may be liable if a principal participated in, authorized, or ratified the offending conduct

3 Some Statistics Largest $145 billion Awarded in tobacco class action lawsuit. Trial Court Judgment in 2000; reversed on appeal by Florida Supreme Court in 2006

4 Some Statistics Juries Decide Blockbusters 95% of punitive damage awards in excess of $100 million dollars are made by juries as opposed to judges

5 Some Statistics Rarely Granted Punitive damages are awarded in only 4% of trials

6 Some Statistics Mean Award $1,816,031 from juries $557, from judges

7 Determined by State Law Not available under every state s laws (Michigan, Nebraska, New Hampshire and Washington) Some states require a portion of the award to be paid to the state (Utah)

8 Tort Reform Twenty states, including Texas, have enacted punitive reform legislation Texas Standard: Must be proved by clear and convincing evidence (as opposed to more likely than not standard for compensatory damages)

9 Tort Reform Twenty states, including Texas, have enacted punitive reform legislation Texas Standard: May be awarded only if the claimant proves the wrong is accompanied by an aggravating circumstance, such as malice, fraud, willful conduct or gross negligence

10 Tort Reform Twenty states, including Texas, have enacted punitive reform legislation Texas Standard: Cap Punitive Damages (two times economic + noneconomic not to exceed $750,000; or $200,000)

11 Engineering Project Report: The presently used turntable bearing is approximately 100% overloaded against the allowable bolt limitation and is loaded right up against the static capacity limit. Could an experienced lawyer successfully defend [company] if the upper structure of the [product] would separate from the car body due to a turntable bearing failure?

12 BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996) Directed Appellate Court s review of punitive damage awards to consider the following three guideposts: 1. The degree of reprehensibility of the defendant s misconduct; 2. Ratio between the punitive and compensatory damages; 3. The amount of civil penalties or criminal fines that could have been assessed for similar conduct.

13 State Farm Mutual Insurance Company v. Campbell, 538 U.S. 408 (2003) Factors to determine reprehensibility Whether the harm was physical or economic Whether conduct evinced an indifference to or reckless disregard for the health or safety of others Whether the conduct involved repeated actions or was an isolated incident Whether the actual harm resulted from intentional malice, trickery, or deceit or mere accident

14 State Farm Mutual Insurance Company v. Campbell, 538 U.S. 408 (2003) Ratio of Economic to Punitive Declined to adopt a bright line ratio between actual and punitive damages Few awards exceeding a single digit ratio will satisfy due process Four times the amount of compensatory damages might be close to the line of constitutional impropriety

15 Tony Gullo Motors v. Chapa, Texas Supreme Court 2006 In addition to statutory caps, punitive damages must pass constitutional analysis Texas Supreme Court will perform an independent constitutional analysis when the punitive/actual ratio is greater than 4 to 1

16 Where do we go from here?

17 Philip Morris v. Williams Will apply the Gore guideposts to case involving death of a plaintiff for the first time Can the reprehensibility of a defendant s conduct override requirement of reasonable ratio actual/punitive? Does Due Process allow a jury to punish a defendant for the effects of its conduct on nonparties?

18 Defending Punitive Damage Claim Discovery and witness selection humanize company demonstrate the difference between mistakes and conduct intended to cause harm Jury selection exclude emotional witnesses likely to decide the case on anger or sympathy Trial Establish a record on Gore guidepost

19 Insurability of Punitive Damages American Home Assure v. Safway Steel Prod, 743 SW 2d. 693 (Tex. App. Austin, 1986, writ denied) Punitive damages awarded for gross negligence under liability policies that did not exclude coverage for punitive damages were insured Rationale: Parties should be able to enter contracts freely.

20 Insurability of Punitive Damages Hartford Casualty Ins. Co. v. Powell, 19 F. Supp. 2d 678 (N.D. Tex. 1998) Punitive damages are not insurable Rationale: What good does it do to punish the insurance carrier?

21 Insurability of Punitive Damages Fairfield Insurance Co. v. Stevens Martin Paving, L.P. 381 F.3d 435 (5th Cir. 2004) 5th Circuit certified question of whether punitive damages are insurable to the Texas Supreme Court 15 states hold insurance coverage for punitive damages is void as against public policy (but 6 of these allow coverage for punitive damages imposed as a result of vicarious liability.) In 29 states, insurance coverage for punitive damages does not violate public policy (10 of these states exclude coverage for punitive damages arising out of intentional acts)

22 Thank you Patrick Madden