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Sep 15

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Pay more attention to compensatory damages: Punitive damages remain limited to simple multipliers

In Nickerson v. Stonebridge Life Insurance Company (B234271, Aug. 29, 2013), the California Court of Appeal affirmed the trial court’s reduction of the jury’s punitive damage award to ten times the tort damages. In reaching this decision, the Appellate Court extensively discussed the defendant’s conduct, and its application under federal and California punitive damage law. Under the Court’s analysis, a large punitive damage award could have been justified under numerous other considerations. Nevertheless, in the final analysis, punitive damages were limited by a mathematical multiplier.

The Court’s ultimate conclusion is summarized below:

“Based on our application of the Gore guideposts to the facts and circumstances of this case, Stonebridge‘s reprehensible conduct that resulted in only a relatively small economic damage award, and Stonebridge‘s $368 million net worth, a significant ratio of punitive to compensatory damages comports with due process. We hold the trial court properly remitted the jury‘s award to the outside constitutional limit of a 10:1 ratio of punitive to compensatory damages.

Nickerson and Amicus Curiae, United Policyholders, argue that in view of the small size of the compensatory damages awarded Nickerson, a ratio of something larger than the 10:1 in the remittitur is called for. They point to the trial court‘s concern that where Stonebridge‘s conduct was highly reprehensible, a multiplier of 10 to 1 may function simply as a cost of doing business. Thus, they argue, the court should have fixed a larger ratio to achieve a more effective deterrent. While we agree with Nickerson and Amicus Curiae that Stonebridge may fold this award into its cost of doing business, we also agree with the trial court that we are constrained by case law and the Constitution. The nature and size of Nickerson‘s compensatory damage award does not justify a punitive damage award beyond the constitutional maximum. While Stonebridge‘s financial condition is an essential consideration to be factored into our analysis, it alone cannot justify exceeding what due process will allow. We have considered these facts in our analysis. We conclude that 10:1 is the maximum constitutionally defensible ratio.”

Nickerson was a disabled veteran seeking additional medical coverage damages. In Nickerson’s situation, additional consequential damages may not have existed. However, the lesson for other plaintiffs is that compensatory damages deserve significant attention, even when punitive damages are likely. Without a larger base of compensatory damages as a starting point for the multiplier, punitive damages will not turn a small case into a large one.

 

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

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