July 17, 2008

Disability Insurers Get Hit for $60 Million in Punitive Damages on Retrial; Original Verdict was $10 Million

As reported in the Worcester Telegram, a federal court jury in Nevada awarded $60 million in punitive damages against Paul Revere Life Insurance Company and UnumProvident Corporation in a case for wrongful denial of a disability claim.

The case has an interesting history. In 2004, a jury awarded $1.6 million in compensatory damages and $10 million in punitive damages. The defendants appealed and the Ninth Circuit reversed the punitive damages award, finding that the trial court failed to give a limiting instruction based on Philip Morris v. Williams (Williams I). The Ninth Circuit ordered a retrial limited solely to punitive damages. On retrial, the jury awarded six times the amount of punitive damages that had been awarded by the original jury. Ouch.

It would be easy to say, in hindsight, that the defendants were foolish to seek a retrial. But given that punitive damages are rarely awarded, and when they are awarded they rarely exceed the amount of compensatory damages (see footnotes 14 & 15 in Exxon Shipping Co.), the defendants played the right odds in seeking a retrial. (Unless of course the facts of this case were so outrageous that any jury would be likely to render a huge punitive damages verdict.)

It seems highly likely that the defendants will try their chances at the Ninth Circuit again if they don't get relief from the district court. The 37.5-to-1 ratio of punitive-to-compensatory damages cries out for appellate review.