Federal Court limits punitive damages to 1:1 ratio; "bad faith" award against insurer reduced

Many states allow punitive damages in order to punish inappropriate behavior and in an attempt to enhance safety.  Michigan allows punitive damages in very few isolated situations, with little real public policy consideration.  For example, Michigan allows "treble damages" for wrongful tree cutting and allows 12 percent punitive interest when some insurance payments are wrongfully delayed.  Other states have a more comprehensive approach to punitive damages and the U.S. Supreme Court has recently indicated a willingness to strike down punitive damage claims.  The Alaskan oil spill, for example, resulted in a punitive damage award against Exxon that was ultimately reduced to a few weeks of oil profits after 19 years of litigation.

The Third Circuit Court of Appeals cited the Exxon example in throwing out a jury's bad faith punitive damages award against medical malpractice insurer MedPro.  The jury verdict against MedPro originally exceeded 7 million dollars, and resulted from a doctor's claim that his insurer wrongfully refused to settle a lawsuit that had been brought against him.  MedPro had refused to contribute the doctor's $200,000.00 of coverage to settle the underlying claim of a man whose melanoma had been misdiagnosed, and as a result the doctor was ultimately hit with a verdict for $2.5 million dollars.  The jury repudiated MedPro's "hardline" bargaining tactics, but the appellate court held that the jury's punitive award (at 3:1) was "excessive" and reduced it to an amount equal to the doctor's actual damages, even though the judges agreed that MedPro's conduct was "outrageous" and in "bad faith".