Mitchell v. Fortis Ins. Co.
(Supreme Court of South Carolina, September 14, 2009)
Policyholder brought causes of action for breach of contract and bad faith rescission against his insurance company, and sought actual and punitive damages as a result of the company’s termination of his health care insurance from original issuance on the grounds of a purported material misrepresentation due to a subsequent positive HIV test and mis-dated referral note. The jury awarded the policyholder $36,000 in actual damages on the breach of contract claim, $150,000 in actual damages on the bad faith rescission claim, and $15 million in punitive damages deriving from the bad faith cause of action. Thereafter this appeal was filed by the insurer challenging the punitive damages award as “so excessive as to violate it constitutional right to due process” and trial error. Relying on its decision in Gamble v. Stevenson, 305 S.C. 104 (1991), which outlined eight key factors to be considered and the U.S. Supreme Court decision in BMW of North America v. Gore, 517, U.S. 599 (1996), the court agreed that the punitive damages award was excessive. In doing so, the South Carolina Supreme Court articulated the preferred test for South Carolina courts to apply in conducting post-judgment review of punitive damages based on (1) the degree of reprehensibility of defendant’s conduct, (2) the disparity between the actual or potential harm and the amount of the punitive damages (ratio), and (3) comparative penalty awards. Based on an analysis of these factors, the court held that the insurer’s conduct was highly reprehensible such that the imposition of punitive damages was appropriate; that a 13.9 to 1 ratio in this case exceeded due process limits; and that while there is no comparable cases directly on point, South Carolina “has a substantial history of upholding punitive damages wards against insurance companies that fraudulently rescind their customer’s heath insurance policies.” Based on the foregoing, the court upheld the imposition of punitive damages, but reduced the award to $10 million, resulting in a ration of 9.2:1 that appropriately satisfied due process concerns under South Carolina law.
For a copy of the decision, click here
By Thomas F. Segalla and Paul C. Steck