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February 23, 2024
It is Time to Control Punitive Damages

Courts Should Limit Punitive Damages

Barry Zalma
Feb 23, 2024

Read the full article at https://lnkd.in/g9Njunza, see the full video at https://lnkd.in/gYr_8GtK and at https://lnkd.in/gV2sWs8g and at https://zalma.com/blog plus more than 4700 posts.

Post 4741

The US Supreme Court has clearly stated that “[p]unitive damages may properly be imposed to further a State’s legitimate interests in punishing unlawful conduct and deterring its repetition.” [BMW of North America, Inc. v. Gore, 517 U. S. 559.] These damages often exceed the fines assessed by the state if the same person had acted criminally to damage the plaintiff.

The skills of plaintiff’s trial lawyers have convinced juries to award damages in sums that exceed the annual budget of Greece. The jury assesses the enormous damages because it becomes inflamed by the wrongful conduct of the defendant and agrees with the lawyer’s suggestion that the jury “teach the defendant a lesson” to stop it from doing the same to others. The argument has been successful in thousands of suits brought from Vermont to California and Florida to Washington.

For years punitive damage awards were unlimited. A $40 compensatory damage award resulted in a $5,000,000.00 punitive damages verdict. Some juries assessed billions of dollars in punitive damages with no constraint from the courts other than the wealth of the defendant.

In 2003 the US Supreme Court limited punitive damages in the United States when in State Farm Mutual Automobile Insurance Co. v. Campbell, 123 S.Ct. 1513, 538 U.S. 408, 155 L.Ed.2d 585 (U.S. 04/07/2003) by a 6-3 vote, overturned a $145 million verdict against an insurer. The Supreme Court concluded that a punitive damages award of $145 million, where full compensatory damages were $1 million, is excessive and violates the Due Process Clause of the Fourteenth Amendment.

Justice Kennedy, writing for the majority limited the ability of state and federal courts to award huge punitive damages awards and concluded that it was improbable that a punitive damage award more than a single digit multiplier of the compensatory damages award would seldom, if ever, pass the due process test. The Supreme Court, in BMW of North America, Inc. v. Gore, supra, set forth specific tests that must be met before punitive damages could fulfill the requirements of due process.

The State Farm Mutual Automobile Insurance Co. v. Campbell case arose out of an automobile accident where one party was killed and another severely injured. The Campbells, insured by State Farm attempted to pass six vehicles on a two-lane highway, failed, and caused the driver of an oncoming car to drive off the road to escape collision with the Campbells’ vehicle. The Campbells only had $25,000 coverage per person and $50,000 in the aggregate. The Campbells felt they were not at fault because there was no contact between the two vehicles. State Farm ignored the advice of its adjuster and counsel to accept policy limits demands and took the case to trial. The verdict at trial was more than $180,000 and the State Farm appointed counsel told the Campbells to put their house on the market since they would need the money to pay the verdict. State Farm refused to pay the judgment and to fund an appeal. The Campbells retained personal counsel to pursue an appeal that was not successful, entered into a settlement with the plaintiffs where the plaintiffs agreed to not execute on their judgment in exchange for an assignment of 90% of all money received in a bad faith action by the Campbells against State Farm. Before suit was filed, State Farm paid the full judgment.

At trial, the plaintiffs brought in evidence of actions of State Farm in first party cases across the country, in third party cases not similar to the Campbells’ auto accident and other evidence not related to the facts of their case.

The Supreme Court found that State Farm’s “handling of the claims against the Campbells merits no praise,” but concluded “a more modest punishment could have satisfied the State’s legitimate objectives “instead, this case was used as a platform to expose, and punish, the perceived deficiencies of State Farm’s operations throughout the country. However, a State cannot punish a defendant for conduct that may have been lawful where it occurred.”

State Farm Mutual Automobile Insurance Co. v. Campbell created a major, precedent changing, limitation on the right of a jury to assess punitive damages settling limits on total amounts that can be assessed and the types of wrongful conduct a jury can consider.

In determining the constitutional maximum for a particular punitive damage award under the due process clause, we are directed to follow three guideposts:

(1) the degree of reprehensibility of the defendant’s misconduct;

(2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and

(3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.

The Ratio of Punitive Damages to Actual or Potential Harm

Punitive damages must bear a reasonable relationship to compensatory damages or to the plaintiff’s actual or potential harm. Courts must ensure that the measure of punishment is both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered.

Juries are often mislead that the poor victim of an insurer’s bad faith will be able to enjoy the compensation. After paying a contingency fee to counsel and state and federal income taxes the plaintiff recovers little or nothing of the punitive damages.

ZALMA OPINION

Although punitive damages serve a public purpose and deter wrongdoers from wrongful conduct the use of punitive damages in insurance bad faith cases has, in my opinion, done little to deter wrongdoing by insurance companies.

It is time to put a stake in the heart of the tort of bad faith. Insureds who are wronged by their insurer should limit their recovery to contract damages. They should be compelled to waive the tort and sue in assumsit. If the tort of bad faith must exist it must be applied equally. The abuse of the tort of bad faith has become so extreme that the tort must be eliminated or otherwise made fair.

Adapted from my book the Insurance Bad Faith and Punitive Damages Deskbook available at fastcase.com bookstore.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

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Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

Subscribe to my substack at https://lnkd.in/gcZKhG6g

Go to X @bzalma; Go to Newsbreak.com https://lnkd.in/g8azKc34; Subscribe to my substack at https://lnkd.in/gcZKhG6g,

Go to the Insurance Claims Library – https://lnkd.in/gwEYkxD.

00:09:18
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See the full video at https://lnkd.in/gWQQEySW and at https://lnkd.in/gyhdK6wv

This is a Fictionalized True Crime Story of Insurance Fraud explaining why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is one of a collection designed to help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime.

This is a Fictionalized True Crime Story of Insurance Fraud explaining why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is one of a collection designed to help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime.

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Post 5397

Posted on July 20, 2026 by Barry Zalma

See the video and at https://lnkd.in/gNUs2XzT and at https://lnkd.in/g2MawyzX

Magistrate Issues a Search Warrant if there is a Fair Probability that Contraband or Evidence of a Crime will be Found in a Particular Place.

In United States Of America v. Frank Suess, et al., CRIMINAL No. 3:24-308, United States District Court, M.D. Pennsylvania (July 16, 2026) a federal grand jury indicted Frank Suess, Melissa Driscoll, and others in a 55-count health care fraud and anti-kickback prosecution arising from an alleged scheme involving medically unnecessary prescription “foot baths.”

As part of the investigation, the FBI obtained an August 19, 2022 warrant to search Driscoll’s Sterling Pharmacy Yahoo email account for emails from January 1, 2018 through December 31, 2020. Driscoll moved to suppress the resulting evidence, arguing that the warrant lacked probable cause, was overbroad, and rested on material misstatements and omissions.

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The ...

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July 17, 2026
The Great Jewel Theft

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Post 5396

See the video and at https://rumble.com/v7ctgmq-the-great-jewel-theft.html at https://youtu.be/aRbQ2sJfGwA

This is a Fictionalized True Crime Story of Insurance Fraud explaining why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is one of a collection designed to help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the ¬¬¬Perpetrators than any Other Crime.

The Insured purchased, for the first time in his life, a policy of Personal Articles Floater Insurance (PAF) scheduling $125,000 worth of ladies jewelry. He advised the insurer that the jewelry was always kept in a class E safe at his residence. He also told the insurer that he was employed full time as the owner of a gasoline service station and that he had never been canceled or suffered a previous loss.

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9 hours ago
Plaintiff Sues Because State Employees Stigmatized Her

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Post 5421

Posted on August 11, 2026 by Barry Zalma

First Amendment Right Will be Allowed to Go to Trial

In Betsey J. Grant v. Maine State Department Of Heath And Human Services, No. 1:25-cv-00490-JAW, United States District Court, D. Maine (August 6, 2026), Betsey J. Grant, a licensed childcare provider and operator of Tiny Tikes Daycare in Trenton, Maine, sued Maine DHHS and several employees after she publicly criticized DHHS before Maine’s Government Oversight Committee and alleged that officials retaliated against her.

She claimed DHHS imposed and extended a conditional license, published stigmatizing information, interfered with subsidies and program funding, removed her from a food program, rescinded an expansion grant, and used biased or falsified evidence in licensing proceedings. Following the March 10, 2023, GOC testimony, Ms. Grant alleges that foster children's subsidies (approximately $30,000) were withheld; she was removed from the ...

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August 05, 2026
It Doesn’t Pay to Lie in an Application for Insurance

Rescission for Material Misrepresentation
Post 5418

Posted on August 5, 2026 by Barry Zalma

An Insurer May Rescind An Insurance Policy Where The Applicant Made A Material Misrepresentation In The Application.

In Union Mutual Fire Insurance Company v. 844 Knickerbocker, LLC, et al. No. 2024-10359, Index No. 602824/22, 2026 NY Slip Op 04789, Supreme Court of New York, Second Department (July 29, 2026) Union Mutual Fire Insurance Company issued commercial insurance policies to 844 Knickerbocker, LLC, and Sanjaya Mallick based on applications stating that the insured property contained two apartment units. After an underlying personal injury action was filed, Union Mutual determined that the property actually contained three apartment units and rescinded the policies on the ground that the defendants had made a material misrepresentation in the applications.
LAW:

A misrepresentation is material if the insurer would not have issued the same policy, or would have issued it only on different terms, had the true ...

post photo preview
August 05, 2026
It Doesn’t Pay to Lie in an Application for Insurance

Rescission for Material Misrepresentation
Post 5418

Posted on August 5, 2026 by Barry Zalma

An Insurer May Rescind An Insurance Policy Where The Applicant Made A Material Misrepresentation In The Application.

In Union Mutual Fire Insurance Company v. 844 Knickerbocker, LLC, et al. No. 2024-10359, Index No. 602824/22, 2026 NY Slip Op 04789, Supreme Court of New York, Second Department (July 29, 2026) Union Mutual Fire Insurance Company issued commercial insurance policies to 844 Knickerbocker, LLC, and Sanjaya Mallick based on applications stating that the insured property contained two apartment units.

LAW:

A misrepresentation is material if the insurer would not have issued the same policy, or would have issued it only on different terms, had the true facts been disclosed. To establish materiality as a matter of law, the insurer must submit documentation of its underwriting practices, such as manuals, guidelines, bulletins, or rules addressing similar risks.

DISCUSSION/ANALYSIS:

As a result, the...

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