The Supreme Court’s current term has lacked decisions of outstanding importance to the insurance industry. The Supreme Court has not issued rulings on McCarran-Ferguson, arbitration, ERISA or RICO. However, the court has issued opinions with potential impact to the insurance industry. Those decisions are discussed below.
1. Phillip Morris USA v. Williams, Case No. 05-1256 (February 20, 2007).
In this case, a jury found that Philip Morris had deceitfully represented that cigarettes were safe. A jury awarded the plaintiff $821,000 in compensatory damages and $79.5 million in punitive damages. After the Oregon Supreme Court affirmed the award, the United States Supreme Court granted certiorari.
The court held that a jury may not consider the harm to non-parties in assessing punitive damages. However, the court did state that evidence of actual harm to non-parties may be introduced to show the reprehensibility of the conduct. In my view, the decision is negative for the insurance industry for two reasons. First, the decision allows evidence of actual harm to non-parties. While the jury would be instructed not to compensate those non-parties, but only to consider the harm to those non-parties in assessing reprehensibility, it is debatable whether juries, or law professors for that matter, can make that distinction. Second, the distressing part of the opinion is what the court did not address. The ratio of actual damages to punitive damages in this case was roughly 100 to 1. In State Farm Mut. Automobile Ins. Co. v. Campbell, 538 U.S. 408 (2003), the court adopted the single digit rule to the effect that punitive awards generally should not be more than nine times the compensatory award. In Philip Morris, the court declined to decide whether the amount was grossly excessive. “Because the application of this standard may lead to the need for a new trial, or a change in the level of the punitive damages award, we do not consider whether the award is constitutionally ‘grossly excessive.’”
Whether Due Process limits awards of punitive damages by state courts is a question that has split pro-business Republicans from state’s rights Republicans. Court watchers were interested in how recently appointed Chief Justice Roberts and Justice Alito would address federal constitutional limits on state punitive awards. In the State Farm case, Republican appointees Kennedy, Rehnquist and O’Connor agreed with the single digit rule and federal limits on state punitive awards. Conversely, Justices Thomas and Scalia disagreed, arguing that punitive awards were solely the province of state law and state courts. The Philip Morris court’s avoidance of the question may indicate that Roberts and Alito, who replaced Rehnquist and O’Connor, are not ready to accept any Due Process limitation on state punitive awards.
2. Scott v. Harris, Case No. 05-1631 (April 30, 2007). In this case, the court held that a high speed chase resulting in serious injury to the escapee did not pierce the police officer’s qualified immunity. While this is a subject that typically would be of interest only to the police department’s insurers, the procedural vehicle adopted by the court has further implications.
The issue in the case was whether the police officer’s conduct violated the Fourth Amendment. On summary judgment, disputes of fact are resolved in favor of the party opposing summary judgment. For that reason, the Court of Appeals adopted the complainant’s testimony as to the facts and denied the police officer’s prayer for summary judgment.
However, the Supreme Court reversed, rejecting the complainant’s testimony and relying on the police videotape of the chase. The court stated as follows:
The videotape quite clearly contradicts the version of the story told by respondent and adopted by the Court of Appeals. For example, the Court of Appeals adopted respondent’s assertions that, during the chase, “there was little, if any, actual threat to pedestrians or other motorists, as the roads were mostly empty and [respondent] remained in control of his vehicle.” Indeed, reading the lower court’s opinion, one gets the impression that respondent, rather than fleeing from police, was attempting to pass his driving test. . .
The videotape tells quite a different story. There we see respondent’s vehicle racing down narrow, two-lane roads in the dead of night at speeds that are shockingly fast. We see it swerve around more than a dozen other cars, cross the double-yellow line, and force cars traveling in both directions to their respective shoulders to avoid being hit. We see it run multiple red lights and travel for considerable periods of time in the occasional center left-turn-only lane, chased by numerous police cars forced to engage in the same hazardous maneuvers just to keep up. Far from being the cautious and controlled driver the lower court depicts, what we see on the video more closely resembles a Hollywood-style car chase of the most frightening sort, placing police officers and innocent bystanders alike at great risk of serious injury. (Footnotes omitted).
This holding is important in that it appears that, in adjudicating a motion for summary judgment, the court may reject testimony contradicted by the record. “When opposing parties tell two different stories, one of which is plainly contradicted by the record, so that no reasonable jury could believe it, a court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment.” (Id. p. 1776).
This is a significant expansion of a court’s authority to grant summary judgment. In essence, the court can weigh the evidence to determine if a party’s testimony is “plainly contradicted by the record.” This holding could have value in cases where an insurer has videotaped the application process. Such videotapes may now trump contradictory testimony from the buyer.
Lewis Hassett is a partner in the firm’s litigation group and chairs the firm’s insurance and reinsurance dispute resolution group. His practice concentrates in the areas of complex civil litigation, including insurance and reinsurance matters, business torts and insurer insolvencies. Lew received his bachelor’s degree from the University of Miami and his law degree from the University of Virginia.
