MAY 13, 2024
Florida Gov. Ron DeSantis signed comprehensive tort reform bill HB 837 into law last March. The bill addressed an epidemic of homeowner insurance litigation that helped give Florida the highest property insurance rates in the nation. The reforms seem to be working—whereas the number of filings to initiate litigation was approximately 8,000 per month in early 2023, the most recent report from Florida’s Office of Insurance Regulation shows filings were down to approximately 4,000 per month by November (the latest month for which there is data).
Another sign that HB 837’s reforms are guiding the market in the right direction is the number of new capital providers entering the Florida property insurance market, reversing an exodus of insurers that occurred prior to the bill. This sends a glimmer of hope to Floridians that their two biggest property insurance-related concerns—availability and affordability—are being addressed.
While the news from Florida is favorable, the civil litigation landscape in other states remains plagued by practices that drive excessively large verdicts and settlements. Such jurisdictions include Missouri, Georgia, Illinois, and California. One practice responsible for jumbo verdicts is that of awarding punitive damages many multiples of compensatory damages. For example, Anderson v. Monsanto awarded $1.5 billion in punitive damages and $61 million in compensatory damages—a punitive-to-compensatory multiple of 25 to 1. Chaplin v. Geiger awarded $700 million in punitive damages and $45 million in compensatory damages—a punitive-to-compensatory multiple of 15.6. The most recent analysis of large verdicts shows that the number of $10 million-plus and $100 million-plus verdicts is increasing.
Billboard Lawyers Talking Tough
The main driver of outsized punitive damage verdicts is plaintiff attorneys’ use of applied human psychology to stir up jurors’ retributive feelings both in and out of courtrooms. A representative example is the wording in an online video ad for Connecticut’s largest personal injury law firm: “Hey, insurance company—before you try to intimidate, bully, ignore, or mislead another accident victim …” The same firm’s billboards show an anaconda wrapped around a torso with the words “Squeezed by big insurance?” Aggressive messaging demonizing insurance companies feeds on and stokes populist portrayals of insurers as rich, heartless, faceless enterprises. These fighting words bolster the message that plaintiff attorneys battle for their clients to win seven- and eight-figure awards.
What’s in a Tort?
Civil law, or tort law, seeks to compensate those who have suffered financial loss as the result of a defendant’s wrongful conduct. According to Black’s Law Dictionary, a tort is “a legal wrong committed upon the person or property independent of a contract.”
Civil law differs from criminal, or penal, law in that it uses state and federal statutes to define criminal offenses and shape fines and punishment. As its name suggests, penal law focuses on punishment. Civil law’s principal purpose is to compensate—which can happen in a number of ways.
There are three types of civil litigation awards: compensatory damages, which correspond to the financial harm experienced by the plaintiff; non-economic damages, such as a monetary amount equivalent to the plaintiff’s pain and suffering; and 3) punitive (or exemplary) damages in cases where the defendant is found to have acted in a grossly unfair or unethical manner. The main purpose of punitive damages in civil litigation is to deter defendants from future reprehensible behavior.
Judges use texts called “restatements” for guidance on principles or rules for a specific area of law. Published by the American Law Institute, these volumes clarify the law to help judges make decisions consistent with the law. For example, “Restatement of Law Second, Torts” declares that “[p]unitive damages are damages, other than compensatory or nominal damages, awarded against a person to punish him for his outrageous conduct and to deter him and others like him from similar conduct in the future … Punitive damages may be awarded for conduct that is outrageous, because of the defendant’s evil motive or his reckless indifference to the rights of others.”
This restatement shows that in tort law, punitive damages are only sanctioned when a defendant’s conduct is “outrageous.” The Supreme Court has described such behavior as “eyebrow-raising,” or the result of “intentional malice, trickery or deceit.” But the main problem in defining “outrageous” behavior is the element of subjectivity. The plaintiff bar has taken advantage of this in its introduction of the “reptile theory,” which encourages jurors to punish corporations for putting profits above people.
Punitive Damages Gone Wild
One landmark Supreme Court case, BMW of North America v. Gore, pulled back the covers on jury punitive damage calculations. The suit featured Ira Gore, who, after buying a new BMW vehicle, learned it had been repainted. BMW policy stipulated that any new vehicle sustaining paint damage of 3 percent or more during shipping from the plant would be repainted completely. Gore sued, alleging that the dealership defrauded him. The jury ruled in Gore’s favor, returning compensatory damages of $4,000 and $4 million in punitive damages, with a ratio of punitive to compensatory damage of 1,000 to 1.
The Court reduced the punitive damage award from $4 million to $2 million. This case outlined a three-part test for evaluating a compensatory damages award:
- Severity of defendant misconduct
- Ratio of punitive damages to actual harm
- Size of award compared to statutory sanctions for similar conduct
A second contentious element of punitive damage calculation is whether the defendant’s financial size is an admissible factor. Whereas the Supreme Court found that “evidence of a tortfeasor’s wealth is traditionally admissible as a measure of the amount of punitive damages that should be awarded… encouraging [the Court] to impose a sizable award,” it also found that “the impact of such a windfall recovery is likely to be both unpredictable and, at times, substantial.” The Court subsequently noted that a defendant’s wealth “cannot justify an otherwise unconstitutional punitive damages award.”
Pushing Back On Punitive Damages
Legal scholars have long criticized the practice of awarding large punitive damage awards in civil litigation based solely on a defendant’s conduct. For example, a seminal 1897 article on the “bad man theory of law” by late Supreme Court Justice Oliver Wendell Holmes argued for the separation of liability from morality. More recently, an article in The Yale Law Journal noted that “[t]he addition of punitive damages to a court award is akin to grafting criminal law, whose intent is to punish, onto tort law, whose purpose is corrective, compensatory. Fault and liability depend on violations of some relational duty, not on culpability or on deterrence. Therefore, if punitive damages are based on culpability and deterrence, they do not fit with corrective justice.”
As they should be, punitive damages in civil litigation are the exception rather than the rule. Following in the footsteps of BMW and another landmark case, State Farm v. Campbell, courts typically find that punitive damages should not be “grossly excessive.” Awarded only in a minority of cases, these damages raise the ceiling—as demonstrated by the trend for such awards to grow ever higher.
Essentially, there are three reasons to push back on excessive punitive damage awards in civil litigation. First, judges and defense attorneys must recognize that the primary purpose of civil litigation is to compensate, not to punish. Second, where punitive damages are merited because a defendant’s conduct is deemed outrageous, the ratio between punitive damages and the overall award should not exceed single digits. And third, the defendant’s size or financial worth should be considered when awarding punitive damages. Famous criminal Willie Sutton’s explanation of why he robbed banks— “because that’s where the money is”—need not be paraphrased to justify targeting insurance company balance sheets.