High Court to Examine Huge Punitive Damages

The Supreme Court today agreed to decide whether huge punitive damage awards in lawsuits may violate constitutional guarantees of fundamental fairness.

The court said it will consider overturning a $1-million award and three smaller awards to Alabama residents who successfully sued an insurance company for fraud.

The case, of enormous importance to American business, is likely to be decided in 1991.

The justices ruled last year that huge awards in civil suits, often millions of dollars, do not violate the Constitution’s ban on excessive fines. But the court left open the possibility that such awards, intended to punish wrongdoers, may be so disproportionate to the actual harm that they violate due-process rights.

The Constitution says states may not deprive anyone of property without due process of law. Those wishing to limit damage awards say due process prohibits unlimited discretion by judges and juries.

In the case acted on today, Pacific Mutual Life Insurance Co. was found by a jury to have participated in fraud by one of its agents, Lemmie Ruffin. Employees of Roosevelt City, Ala., paid health insurance premiums to Ruffin which he pocketed, according to court records.

Cleopatra Haslip, a city worker who had been paying premiums, incurred $2,500 in hospital and medical bills in 1982 and then learned that her insurance had been canceled by Pacific Mutual.

The hospital demanded $600 before agreeing to discharge her, and her doctor eventually turned her case over to a collection agency. Her credit also suffered from her inability to pay the bills.

Haslip and other members of the insurance plan sued Pacific Mutual and Ruffin, and a jury in 1987 awarded her $1,040,000. Three others were awarded $10,288, $12,400 and $15,290.

It is not clear from records filed with the Supreme Court how much of the money was intended to compensate the workers for actual losses and how much was designed to punish the insurance company.

The Alabama Supreme Court upheld the awards last year. The state court said, “Jury verdicts are presumed correct, and that presumption is strengthened when the presiding judge refuses to grant a new trial.”

Pacific Mutual said its constitutional rights were violated because the jury was allowed to award damages “as a matter of moral discretion without adequate standards as to the amount necessary to punish and deter.”