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U.S. Supreme Court upholds punitive damage award.

The U. S. Supreme Court, in Haslip v. Pacific Mutual Life Insurance Co. (553 S.2d 537), upheld a $840,000 punitive damages award against Pacific Mutual.

In the case (discussed in the JofA Feb.91 Legal Scene), an agent for Pacific misappropriated funds that should have been tendered to the insurer, which provided group healthcare to employees of Roosevelt City, Alabama. Because it never received the funds, Pacific sent cancellation notices to the city regarding its healthcare coverage. The notices were intercepted by the embezzler and never received by the city.

After being hospitalized, city employee Cleopatra Haslip was forced to pay her own medical costs when a collection agency obtained a judgment against her on behalf of the attending physician and the hospital. Haslip and other city employees sued Pacific, alleging the insurer was responsible for the wrongful acts of its agent.

A jury awarded Haslip $200,000 compensatory damages and $840,000 punitive damages. The Alabama Supreme Court upheld the award. Pacific then appealed the case to the U.S. Supreme Court, arguing that the punitive award was the product of unreasonable jury discretion and violated Pacific's rights to due process under the 14th Amendment of the U.S. Constitution.

Justice Harry Blackmun, speaking for the Court, ruled punitive damages schemes are not "so inherently unfair as to deny due process and be per se unconstitutional." The Court also addressed the narrower issue of whether the punitive damage award violated the due process clause. The Court concluded that the discretion allowed the jury, as long as exercised within reasonable constants (that is, similar jury instructions regarding the scope and purpose of punitive damages), satisfied due process requirements. (Pacific Mutual Life Insurance Company v. Cleopatra Haslip, 1991 WL 24587 U. S.)

Editor's note: Thanks to Ron Berman of Berman and Clark for the Union Bank case. Edited by Wayne J. Baliga, CPA, JD, CPCU, vice-president, AON Corp.
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Author:Baliga, Wayne J.
Publication:Journal of Accountancy
Date:Jul 1, 1991
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