Slashing a $6.25 million punitive damages award down to $2 million, the 3rd U.S. Circuit Court of Appeals has ruled that in most cases where the plaintiff wins a “substantial” compensatory award and the damages were purely economic, a 1-1 ratio should apply.
The Wednesday ruling in Jurinko v. Medical Protective Co. is the clearest sign to date that large punitive damages awards face an increasingly hostile audience on appeal because of a string of decisions from the U.S. Supreme Court that culminated in this year’s decision in Exxon Shipping Co., v. Baker.
Although the Supreme Court hasn’t mandated a 1-1 ratio between compensatory and punitive damages, the 3rd Circuit found that the justices are leaning in that direction in cases where there is no physical injury and where there is no evidence of some of the traditional factors used to measure the “reprehensible” nature of a defendant’s conduct.
In Jurinko, a jury awarded more than $7.9 million in an insurance bad faith case brought on behalf of a doctor who claimed that his insurer’s failure to offer the limits of his policy led to a $2.5 million malpractice verdict against him.
The judgment later swelled to more than $8.2 million when U.S. District Judge Cynthia M. Rufe awarded more than $337,000 in attorney fees to attorneys Mark W. Tanner and Peter M. Newman of Feldman Shepherd Wohlgelernter Tanner Weinstock & Dodig.
The suit stemmed from a medical malpractice suit brought by attorneys Mark Frost and Gregg L. Zeff of Frost & Zeff on behalf of Stephen and Cynthia Jurinko.
The Jurinkos had sued Paul G. Marcincin, a dermatologist, as well as SmithKline Beecham Clinical Laboratories and one of its doctors, Andrew S. Edelman.
Stephen Jurinko blamed both doctors for failing to diagnose his skin cancer at a time when it could have been cured easily. Instead, he said, the cancer metastasized and required extensive surgery to remove lymph glands, as well as a year of interferon treatments.
SmithKline settled during the trial for $525,000, and a Philadelphia Common Pleas Court jury returned a $2.5 million verdict in April 2002 in which it exonerated Edelman and found Marcincin 100 percent responsible for the missed diagnosis.
Marcincin later assigned his rights to the Jurinkos to pursue his bad faith claim against MedPro.
In the trial of the bad faith claim, Frost testified that he had originally demanded $1.6 million, but later won approval from the Jurinkos to accept a total of $1 million. With SmithKline’s $525,000 already in hand, Frost said the case could have settled for another $475,000. And since the CAT Fund had already agreed to contribute $300,000, Frost said, the settlement could have been reached if MedPro had offered the full $200,000 of Marcincin’s policy.
On appeal, MedPro’s lawyer, James C. Sargent Jr. of Lamb McErlane in West Chester, Pa., urged the 3rd Circuit to overturn the verdict.
But Chief 3rd Circuit Judge Anthony J. Scirica found the evidence supported both the jury’s finding of bad faith and its conclusion that punitive damages were warranted because MedPro’s conduct was “outrageous.”
“While the other parties — Jurinko, Dr. Marcincin, the CAT Fund, and SmithKline — all were interested in reaching a settlement, [MedPro] would not budge from its initial offer,” Scirica wrote.
Scirica found that MedPro “knew the case was worth far more than $200,000,” but had “refused to negotiate in good faith.”
And the trial testimony showed that MedPro “acted with bad motives,” Scirica found, because it was “trying to play a negotiating tactic against the CAT Fund” in order to save itself money.
The evidence, Scirica said, showed that MedPro “recklessly exposed” Marcincin to the risk of an excess judgment and assigned a single lawyer to represent both doctors despite knowing that it would present a conflict of interest.
But Sargent fared better on his second line of attack — that the punitive damages were excessive.
Scirica found that recent decisions from the Supreme Court have held that “grossly excessive” punitive damages violate the Due Process Clause of the 14th Amendment.
In the 2003 decision in State Farm Autp Insurance Co., v. Campbell, Scirica said, the justices instructed lower courts to look at three “guideposts”: the degree of reprehensibility of the defendant’s misconduct; the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and the difference between the punitive damages awarded and the civil penalties authorized or imposed in comparable cases.
Reprehensibility, Scirica said, is measured by five factors: whether the harm caused was physical as opposed to economic; whether the evidence showed an indifference to or a reckless disregard of the health or safety of others; whether the target of the conduct had financial vulnerability; whether the conduct involved repeated actions or was an isolated incident; and whether the harm was the result of intentional malice, trickery, deceit or mere accident.
Applying those factors, Scirica found there was evidence of only two.
Marcincin was “financially vulnerable,” Scirica said, because he would have been forced to deplete his life savings to pay the excess judgment if the Jurinkos had not agreed to accept the assignment of his right to the bad faith claim in lieu of the excess judgment.
MedPro’s conduct was also intentional, Scirica said, because there was evidence the company had refused to tender Marcincin’s policy in order to force the CAT Fund to pay more from Edelman’s policy.
As a result, Scirica concluded that the 3-1 ratio between punitive and compensatory damages was too high.
“Here the compensatory damages are substantial, Dr. Marcincin suffered only economic harm, and the harm was easily measured — it was the amount of the excess judgment,” Scirica wrote.
MedPro’s acts “were egregious, but not likely ‘particularly’ egregious,” Scirica wrote.
In deciding how much to reduce the award, Scirica cited the Supreme Court’s recent Exxon decision, which held that a punitive damages award may not exceed a 1-1 ratio in the context of maritime law.
Scirica found that although the justices “did not directly address constitutional limits,” the high court’s opinion said in a footnote that, when compensatory damages are substantial, “the constitutional outer limit may well be 1:1.”
In applying a 1-1 ratio to the Jurinkos’ award, Scirica found that Pennsylvania law calls for adding any award of attorney fees and costs to the compensatory damages to reach a true measure of the ratio.
As a result, Scirica added the stipulated compensatory damages of $1,658,345 (a stipulated figure equal to the portion of the $2.5 million verdict that exceeded Marcincin’s insurance coverage, together with delay damages and interest on that amount), with the awards of $323,167.50 and $15,438.06 in costs.
That calculation yielded a punitive damages award of $1,996,950.56.
Scirica was joined by Judge Jane R. Roth. The third judge on the panel, Judge Maryanne Trump Barry, participated in the January 2008 oral argument but later “discovered facts causing her to recuse,” and the opinion was filed by a quorum of the panel.
In an interview, Tanner said he was “obviously disappointed” by the ruling and that he believed the jury’s verdict was a “just result” because its punitive award was just 1 percent of MedPro’s stipulated net worth.
The 3rd Circuit’s reduction of the award, Tanner said, now means that the award is just four-tenths of 1 percent of the company’s net worth.
“What we’re seeing here is a steady erosion of the deterrent effect that punitive damages can play in our society,” Tanner said.