goddard v. farmers insurance and punitive damages and compensatory damages

Now we will see some real rolling of the dice. Why? Because the Court of Appeals in this case "split the baby" very consciously in deciding that the $20,000,000+ of punitive damages awarded to Goddard's estate by the jury in the trial court (2002) should be reduced to about $3,800,000 (plus the economic damages of $1.280,000). More particularly the court offered the 3X compensatory damages (more below) immediately to the plaintiff (within 28 days of entry of appellate judgment) or else the case will be returned to the trial court for a new trial limited to the amount of punitive damages. Thus, plaintiff's three options are: (1) to accept the amount and call it a day or, more accurately, call it 18 years; (2) appeal the punitive damage award immediately to the Supreme Court; (3) not accept the amount but not appeal it either, in which case the trial court would hold another trial on punitive damages amounts. Of course, the defendant can appeal the decision immediately to the Supreme Court or wait for a new trial if plaintiff doesn't accept the amount. The purpose of this essay is to review the decision of the Court of Appeals. Consult previous essays for the relevant facts in this case.

Understanding the Numbers

As I mentioned in an earlier essay, after the Multnomah County jury in 2002 awarded around $600,000 in a combination of "economic damages plus prejudgment interest" and more than $20,000,000 in punitive damages to Goddard's estate, in 2003 the US Supreme Court in Campbell (I will summarize this case elsewhere) declared that any ratio of punitive to compensatory damages exceeding single digits (i.e., 9:1), except in the most rare instances, offends the due process clause of the federal constitution. Thus, the Goddard legal team was in a bind when it presented its case to the Court of Appeals in 2004/05. With the numbers given in 2002, it appeared that the ratio was more like 33:1 than 9:1 or less. They could do two things. First they could argue that the facts in Goddard were so reprehensible that this case was one of those rare cases deserving more than a single digit ratio. Second, the could argue that the court's calculation of "damages and prejudgment interest" in 2002 didn't really represent the proper baseline compensatory damage amount for computing punitive damages ratios. They tried both theories, but they only won on the second. Thus, this is a case about math as much as about law.

Here are the numbers, as seen by the trial court. On February 5, 1990, an award was given in the wrongful death case. The total verdict (economic damage verdict) was $863,274.00,* which the

[*This amount, however, included a punitive damage award of $250,000, so that the Court of Appeals may have been in error when it considered this amount as the baseline amount for calculating "compensatory damages" in the bad faith case]

Court of Appeals in 2005 used as its baseline compensatory damages amount. The trial court in 1990 subtracted $172,654.80 from the verdict, which is precisely 20% of the $863,274.00 because Munson, the insured, was 20% at fault as determined by the jury. Thus, the damages as of 2/5/90 were $690.619.20. The bad faith trial court in 2002, in its calculations, reduced this amount by $350,000 to take into account a State Farm payment of this amount to Goddard's estate on Mrs. Foley's behalf for uninsured motorist coverage for Mrs. Foley. This resulted in $340,619.20 of damages remaining. Then, the bad faith trial court further reduced this amount by $100,000 because Farmers paid their policy limits on Mrs. Foley's policy. Then $25,000 was returned to State Farm because of a contractual provision, leaving $265,619.20 as Goddard's economic damages as of 4/14/98. Prejudgment interest was calculated at $343,573.62, which was simple interest calculated on the various amounts of damages. Thus, the total judgment was just a little over $600,000. A $20,000,000+ punitive damage award would have been more than a 33:1 ratio.

The Court of Appeals Ruling

Plaintiffs argued that under the doctrine known as the collateral source rule, codified at ORS 31.580, the $350,000 paid by State Farm to Goddard's estate in 1992 shouldn't be reduced from the liability owed to Goddard by Farmers Insurance. The collateral source rule is whereby "a defendant cannot escape [its] liability because the injured party is made whole by its own efforts or the efforts of others." The court agreed with defendants, thus restoring $325,000 (350,000-25,000) to the compensatory damages column. Then, the plaintiffs also contended that the $100,000 insurance payment to Goddard's estate in 1998, representing the amount paid on Foley's policy, should not have been deducted from the economic damages amount but should rather have been deducted from the prejudgment interest. Citing the "American rule," where "when a partial payment has been made, the court 'is to apply the payment, in the first place, to the discharge of the interest then due,'" the court concurred. Thus, according to the Court of Appeals "rough" calculation, the full $690,619.20 should be the basic economic damages amount. The prejudgment interest, adjusted for the payment on the Foley policy (and its interest) would be roughly $589,000. Thus, the new baseline total economic damages amount is approximately $1,280,000.**

[**I suppose the trial court would calculate the precise amount.]

Punitive Damages

Plaintiffs, then, won a big victory on the compensatory damages issue. They more than doubled from about $600,000 to about $1,280,000. But now the dangerous punitive damages calculations impended. Ever since the State Farm case in 2003, where the Supreme Court said that even a 4:1 ratio is at the limits of constitutional permissibility, courts have been cutting back on huge punitive damage awards. In this instance the court, mindful of the fact that punitive damages are awarded based not generally on insurer conduct but only on conduct as relates to the relationship between insurer and insured (i.e., Munson) said that the plaintiff should get a 3:1 ratio in punitives. The principal feature of punitive damage analysis now is what is called the "reprehensibility" analysis. In three cases decided in Oregon after State Farm, the ratios awarded were 7:1, 4:1 and 96:1 (the suit against Philip Morris). I think the decisive factor here appeared to be the fact that no bodily damage was suffered here by the policy holder (Munson).

Conclusion

So, the clock is ticking for the plaintiffs right now. I think that there will be lots of pressure to accept the verdict in order to give closure to it all, but, then again, a 3:1 ratio is rather "low" and may hurt later plaintiffs if plaintiff accepts the settlement. I'll keep you informed on the issue.

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