Insurers' Hope: High Court Punitive Damage Limit

And in the State Farm case the Supreme Court three years ago set constitutional boundaries on the ratio courts can use to reward punitive damages as against compensatory damages.

Lawyers said the justices' decision Monday for a review of the case titled Phillip Morris USA v. Williams could help reduce the soaring cost of punitive damage awards.

"The most recent Supreme Court decision, in the State Farm case, held that the ratio of punitive damages to compensatory damages shouldn't generally exceed single digits, 9-1," said Darren McKinney, a spokesman for the American Tort Reform Association. "And the Oregon case in question here vastly exceeds that ratio.

"Needless to say, we are hopeful that the Supreme Court will this time make it much clear as to what its thinking is on punitive damages," Mr. McKinney said. In the State Farm case, a Utah jury had assessed compensatory damages of $1 million and punitive damages of $145 million. The case dealt with State Farm's initial refusal to settle a claim for a policyholder.

The Supreme Court later reversed that, with Justice Anthony Kennedy holding for the majority that the punitive damages were "neither reasonable nor proportionate to the wrong committed."

In the latest case, the Oregon Supreme Court upheld a jury verdict that granted Mayola Williams, the widow of longtime smoker Jesse Williams, $821,485 in compensatory damages and $79.5 million in punitive damages, or 97 times the compensatory damages.

Specifically, at trial, the jury found in favor of plaintiff on both the negligence and fraud claims, and it awarded compensatory damages of $821,485–$21,485 in economic damages and $800,000 in noneconomic damages.

As to the negligence claim, the jury found Mr. Williams 50 percent responsible for the damages–he had smoked Phillip Morris cigarette products every day for several decades. The jury declined to award any punitive damages respecting that claim. As to the fraud claim, however, the jury awarded punitive damages of $79.5 million.

Lori Nugent, chairman of the enterprise risk practice group at Cozen O'Connor in Chicago, said constitutional guidelines on punitive damages say awards must be based on three so-called "guideposts": the reprehensibility of the act, the appropriate ratio between punitive and compensatory damages, and a comparison between the punitive damages to be awarded the plaintiff and legislative-enacted decision on the fair amount of punishment for similar misconduct.

In this case, Mrs. Williams's lawyer asked the jury in the case to consider "how many other Jesse Williamses in the last 40 years in the state of Oregon there have been."

Ms. Nugent said that, "I think this is a critical opportunity to help lower courts." Frequently, she said, "we see lower courts struggling with the comparative weight to place on the reprehensibility guideposts and the ratio guideposts. They also frequently struggle with whether reprehensibility goes to the horrible nature of the conduct or to the mental state of the individuals involved with the plaintiffs."

"They also struggle with the weight and admissibility of evidence pertaining to non-party injuries," Ms. Nugent said. "This decision could address all of these issues."