Understanding Punitive Damages
By Ray Bourhis and Alexander MacDougall
Punitive damages are damages that can be awarded in a law suit with the intention of punishing a party for acting improperly as a means to either reform that party’s future behavior or to cause other actors who may be behaving similarly to stop. So even though it is not a court’s objective to compensate a plaintiff by awarding punitive damages, if punitive damages are appropriate in the eyes of the court, the damages will nevertheless be awarded to the plaintiff.
The availability of punitive damages to a plaintiff relies on both state and federal law. For punitive damages to be available in a Long-Term Disability (LTD) action, the case must first be brought in a state that allows for punitive damages. In California, for example, punitive damages may be obtained under a state statute that provides for punitive damages “where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud or malice.” Therefore, if a plaintiff can show that the insurance carrier has committed an act of bad faith in denying policy benefits, and that the bad faith was committed maliciously, oppressively, or fraudulently they may receive punitive damages.
However, as mentioned before, punitive damages must also comport with federal limits that have been established by the U.S. Supreme Court. Essentially, the Court has found that excessive punitive damages deprive a defendant of their due process rights under the Fifth and Fourteenth Amendments. The Court has often approved punitive damages that equate to four times the amount of the general damages of the case and have stated that damages that exceed a 10:1 ratio are almost certainly unconstitutional. As an example of how punitive damages are set, in our case Hangarter v. Provident Insurance Company, the jury awarded general damages of approximately $2.5 million and punitive damages for the company’s egregious behavior of roughly $5 million.
This is just a basic overview of some of the issues pertaining to punitive damages in a LTD setting and it does not necessarily apply to every case. It is best to speak with an experienced attorney about the specific facts and circumstances of a case in order to determine whether or not punitive damages are even available under the given circumstance.