Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1 (1991)

Pacific Mutual Life Insurance Company v. Haslip

No. 89-1279

Argued Oct. 3, 1990
Decided March 4, 1991
No. 89-1279

499 U.S. 1

CERTIORARI TO THE SUPREME COURT OF ALABAMA

Syllabus

After respondents’ health insurance lapsed when one Ruffin, an agent for petitioner insurance company and another, unaffiliated insurance company, misappropriated premiums issued by respondents’ employer for payment to the other insurer, respondents filed an action for damages in state court, claiming fraud by Ruffin and seeking to hold petitioner liable on a respondeat superior theory. Following the trial court’s charge instructing the jury that it could award punitive damages if, inter alia, it determined there was liability for fraud, the jury, among other things, returned a verdict for respondent Haslip of over $1 million against petitioner and Ruffin, which sum included a punitive damages award that was more than 4 times the amount of compensatory damages Haslip claimed. The Supreme Court of Alabama affirmed, specifically upholding the punitive damages award.

Held: The punitive damages award in this case did not violate the Due Process Clause of the Fourteenth Amendment. Pp. 9-24.

(a) Holding petitioner responsible for Ruffin’s acts did not violate substantive due process. The jury’s finding that Ruffin was acting within the scope of his apparent authority as an agent of petitioner when he defrauded respondents was not disturbed by the State Supreme Court and is amply supported by the record. Moreover, Alabama’s longstanding common law rule that an insurer is liable for both compensatory and punitive damages for the intentional fraud of its agent effected within the scope of his employment rationally advances the State’s interest in minimizing fraud, since that rule creates a strong financial incentive for vigilance by insurers. Thus, imposing liability on petitioner under the respondeat superior doctrine is not fundamentally unfair. Pp. 12-15.

(b) Since every state and federal court considering the question has ruled that the common law method for assessing punitive damages does not in itself violate due process, it cannot be said that that method is so inherently unfair as to be per se unconstitutional. The method was well established before the Fourteenth Amendment was enacted, and nothing in the Amendment’s text or history indicates an intention to overturn it. Pp. 15-18.

(c) Nevertheless, 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. Pp. 18.

(d) The punitive damages assessed against petitioner, although large in comparison to the compensatory damages claimed by Haslip, did not violate due process, since the award did not lack objective criteria and was subject to the full panoply of procedural protections. First, the trial court’s instructions placed reasonable constraints on the exercise of the jury’s discretion by expressly describing punitive damages’ purposes of retribution and deterrence, by requiring the jury to consider the character and degree of the particular wrong, and by explaining that the imposition of punitive damages was not compulsory. Second, the trial court conducted a post-verdict hearing that conformed with Hammond v. City of Gadsden, 493 So.2d 1374 (Ala.), which sets forth standards that ensure meaningful and adequate review of punitive awards. Third, petitioner received the benefit of appropriate review by the State Supreme Court, which applied the Hammond standards, approved the verdict thereunder, and brought to bear all relevant factors recited in Green Oil Co. v. Hornsby, 539 So.2d 218 (Ala.), for ensuring that punitive damages are reasonable. Pp. 18-24.

553 So.2d 537 (Ala.1989), affirmed.

BLACKMUN, J., delivered the opinion of the Court, in which REHNQUIST, C.J. and WHITE, MARSHALL, and STEVENS, JJ., joined. SCALIA, J., post,p. 24, and KENNEDY, J., post,p. 40 filed opinions concurring in the judgment. O’CONNOR, J., filed a dissenting opinion, post,p. 42. SOUTER, J., took no part in the consideration or decision of the case.