Award of punitive damages against insurer for bad faith, which is 10 times amount of compensatory damages, is constitutionally excessive

(Punitive Damages)  Award of punitive damages against insurer for bad faith, which is 10 times amount of compensatory damages, is constitutionally excessive.  Amerigraphics, Inc. v. Mercury Casualty Company,  2010 DJDAR  4326  (March 23, 2010). 

In this matter, the court was asked to consider whether an award of punitive damages that was ten times the amount of compensatory damages and prejudgment interest was correctly calculated and comports with due process.  The court found that substantial evidence supported  an amount of punitive damages not to exceed compensatory damages by more than 3.8 to 1 ratio.  

The court stated that courts examine reprehensibility of the defendant’s conduct and the disparity between the harm suffered by the plaintiff and the award in determining the amount of punitive damages.  Here, the matter involved a claim for insurance related to  flooding of a business premises.  The harm caused by the defendant was not physical and did not involve a disregard of another’s safety.  Thus, the degree of reprehensibility was low.  The court found that the single digit ratio between punitive and compensatory damages was therefore proper.

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