Ohio high court creates cancer research fund from punitive damages award.

In a decision that was equally surprising to both sides, the Ohio Supreme Court recently ordered the creation of a cancer research fund out of the punitive damages awarded in a case against an insurance company. (Dardinger v. Anthem Blue Cross & Blue Shield, No. 2001-1222, 2002 WL 31895279 (Ohio Dec. 20, 2002).)

While stating that the defendant's bad-faith conduct "merit[s] a historic punitive damages award," the court reduced what it said was an "excessive" $49 million award to $30 million, a figure it arrived at by doubling the state's previous record-setting punitive award. Then, citing its common law authority to play a central role in the distribution of punitive damages--and without inviting comment from either side--the court ordered that $10 million should go to the plaintiff, and the remainder, minus litigation fees, should go to a fund, to be called the Esther Dardinger Fund, at the James Cancer Hospital and Solove Research Institute at the Ohio State University (OSU).

"There is a philosophical void between the reasons we award punitive damages and how the damages are distributed," the court stated in its decision. "The community makes the statement, while the plaintiff reaps the monetary award."

Although some states have "split-recovery statutes," which designate a certain percentage of punitive damages to some kind of state fund, it is unprecedented for a court to earmark an award for a specific charity. It is also unusual for a court to issue such an order without seeking comment from either side.

"I certainly think it's a due process violation to come up with this kind of a solution to a problem of their own imagination and then not give the parties an opportunity to be heard on it," said Robert Peck, president of the Center for Constitutional Litigation in Washington, D.C. "One of the hallmarks of due process is a meaningful opportunity to be heard."

The plaintiff, who had already taken steps to set up a charitable fund at the hospital in his late wife's name, was "perplexed" by the alternative distribution and "surprised" that no one had been informed before the decision, said his attorney, Robert Palmer of Columbus, Ohio.

Esther Dardinger was diagnosed with metastatic brain tumors in October 1996. She underwent radiation therapy, which stabilized but did not shrink the tumors. In March 1997, Herbert Newton, the director of neuro-oncology at the James Cancer Hospital, recommended intra-arterial chemotherapy (IAC). The neuro-oncology tumor board at OSU agreed with the assessment and recommendation.

Beginning in April, Dardinger went through three IAC treatments and responded well. A fourth procedure was scheduled for June 30 and July 1. Anthem Blue Cross & Blue Shield, after approving and paying for the first 3 treatments of a 12-treatment program, refused to pay for more. Newton and the Dardingers decided to go ahead with the fourth treatment, assuming that the denial was a mistake.

In July, the Dardingers embarked on an appeal process that would last into November. Although her husband and Newton urged her to continue with the IAC treatment, Dardinger was concerned about saddling her family with what could amount to over $100,000 in medical bills. The couple chose to wait out the appeal.

In mid-September, hoping that the tumors would stabilize, Dardinger tried intravenous chemotherapy, which Anthem covered. She did not respond well to the treatment. An MRI taken later that month showed dramatic tumor growth.

Dardinger died on November 6 and was buried four days later. The final letter from Anthem refusing payment arrived at the Dardinger home on November 11.

The Ohio Supreme Court's decision to create a cancer research fund in Dardinger's name has drawn significant criticism because it gives minimal guidance on how lower courts should implement such alternative distributions in the future. The court said only that the money should go to "a place that will achieve a societal good, a good that can rationally offset the harm done by the defendants," and that "due to the societal stake in the punitive damages award, we find it most appropriate that it go to a state institution."

Lower courts in Ohio "have now been vested with the authority to make these kinds of allocations," said Peck. "They have the discretion to make an appropriate award to the plaintiff and take the rest of the punitive damages and award it to their favorite charity. It is an authority that often will be irresistible."

Chief Justice Thomas Moyer, who along with two other judges dissented in part, noted that every U.S. court that has engaged in the alternative distribution of punitive damages awards has acted only with statutory authorization.

"This form of judicial restraint is born of good reason," he wrote. "For the majority's holding today, rendered without precise standards or guidelines, sanctions a judge's unbridled discretion to allocate punitive damages to his or her preferred charity, and leaves open the question of how courts should determine the percentage of punitive damages subject to such distribution."

Moyer echoed critics' concerns about due process. "This court (and almost every member of the majority) has historically held that it is inappropriate for a court to decide an issue not suggested by the parties on appeal without giving notice of its intention and an opportunity to brief the issue," he wrote. "Despite this well-settled principle of Ohio law, the plaintiff in this case will have no opportunity to challenge the alternative distribution of punitive damages in any Ohio court. I strongly object to the extinguishment of a right that has been so consistently protected under Ohio jurisprudence."

At press time, both sides were weighing the possibility of taking the issue to the U.S. Supreme Court.