Pacific Mutual Life Insurance Co. v. Haslip et al.

This was the one of several cases heard by the Court which addressed the constitutionality of large awards of punitive damages by juries. The ruling denied the accusation that these extremely large awards granted by juries were in violation of the due process clause of the Fourteenth Amendment. But the decision in this case did not rule out limitations on the amounts of punitive damages juries could award; this case was one discussion in an ongoing conversation about the function of juries and punitive damages in civil law suits.

During the 1980s and 1990s, public concern over the use of juries in civil law suits grew, especially in the matter of punitive damages awarded by these juries. Some punitive awards reached seven digits or more, and civil suits themselves came to be seen as largely frivolous. The court heard several cases in which the defendant in a civil case appealed the judgement on the grounds that the punitive award was so extraordinarily high that it violated the Constitution, either under the Eighth Amendment's prohibition of excessive fines, or under the Fourteenth Amendment's clause guaranteeing the right to due process.

In Pacific Mutual Life Insurance Co. v. Haslip et al., Cleopatra Haslip and her coworkers sued the insurance company--along with Lemmie L. Ruffin Jr., an agent of that company--because the agent defrauded them as employees of Roosevelt City, misappropriating the premiums they paid for their health insurance. The employees' health insurance policies were cancelled without their knowledge, a fact which Ms. Haslip discovered only when she was hospitalized. The civil case was brought before a jury, and the jury awarded compensatory damages to all the plaintiffs, and punitive damages of $1,000,000 to Ms. Haslip.

Compensatory damages are awarded, literally, to compensate a party for losses or damages incurred because of actions of another. Punitive damages, though, are not linked directly to specific loss; rather, they are intended to act as punishment for inappropriate behavior on the part of the payer. The idea behind punitive damages is that if a company or individual is charged a large enough sum, it would act as a deterrent to repeating the behavior being punished. The question for the Supreme Court was not whether punitive damages could be awarded by juries, as this had been established over time by other courts according to common law. Rather, the question addressed was whether damages considered exorbitant were, in fact, legal.

Because the Court had already decided, in Browning-Ferris Industries of Vermont, Inc. v. Kelco Disposal, Inc., that the Eighth Amendment's Excessive Fines Clause could not be applied to private parties in a civil suit, it did not further consider the argument in this case. Instead, the relevant amendment was the Fourteenth, which guarantees individuals the right to the due process of law. This right includes a trial which is free from undue bias, or prejudiced treatment. As the Court made clear in Browning-Ferris Industries of Vermont, Inc. v. Kelco Disposal, Inc., "The parties agree that due process imposes some limits on jury awards of punitive damages, and it is not disputed that a jury award may not be upheld if it was the product of bias or passion," but it did not decide in that case whether "the Due Process Clause places outer limits on the size of a civil damages award."

While the Court did not find that in the Browning-Ferris case-nor in the related TXO Production Co. v. Alliance Resources, involving a $10,000,000 award over drilling rights--that the punitive award was in opposition to the right to due process, it did not rule out the possibility that another, more outrageous award might do so. In 1994, for example, the Court held that the state of Oregon could not prevent the careful review of jury-awarded punitive damages, as decided in Honda Motor Co. Ltd. v. Oberg. And in 1996, the Court finally found a punitive damages case which exceeded the limits of the Due Process Clause. In BMW of North America, Inc. v. Gore the jury's award of $4,000,000 to a man whose new BMW had been repainted by the car company without his knowledge was reduced to $2,000,000 on appeal, but was still called "grossly out of proportion to the severity of the case" by the Court, and was seen to violate the Due Process Clause. Even this finding, though, did not set up hard and fast rules for courts and juries to follow in civil cases.

Justice Blackmun wrote in the Court's opinion for the Pacific Mutual case,

unlimited jury or judicial discretion in the fixing of punitive damages may invite extreme results that are unacceptable under the Due Process Clause. Although a mathematical bright line cannot be drawn between the constitutionally acceptable and the constitutionally unacceptable that would fit every case, general concerns of reasonableness and adequate guidance from the court when the case is tried to a jury properly enter into the constitutional calculus.

According to these standards, the Court found that the punitive damages charged to Pacific Mutual were acceptable. While even after the BMW case there was still no consensus, there stood the Court's assertion that some form of fairness, including considering the nature and degree of the wrongdoing and the need for deterrence, must be applied in individual civil cases.