Jewish World Review May 20, 2003 / 18 Iyar, 5763

Eric Peters

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Consumer Reports

High court takes step to rein in runaway awards | WASHINGTON Down but not out. That sums up the prognosis for outlandish punitive damage awards after a significant Supreme Court ruling in April that reined in run-away jury verdicts.

In the ruling, the nation's highest court not only threw out an "arbitrary" and "irrational" $145 million punitive damage award against State Farm Insurance Co. but also gave judges better guidance on when punitive damages should be considered over the top.

To say this is a good thing is an understatement. In recent years, lawyers have been filing some extremely dubious claims against corporations with so-called "deep pockets." And, juries have responded with increasingly huge verdicts as they follow the lawyers' admonishments "to send big business a message."

As a result, many companies seek to settle those suits rather than face the whim of an irrational jury awarding an enormous verdict.

The effect is an incredible drain on our economy as billions of dollars hemorrhage out of businesses for no particular reason.

No one argues that individuals who are harmed by the actions of a corporation should not be compensated, but the amount of that compensation should be within reasonable limits.

This is especially so considering that punitive damage awards, which are intended to punish companies, have mushroomed to hundreds of times the actual - or compensatory - damages that the plaintiff has suffered.

The State Farm case is a glaring example. There, a driver caused an accident in which one man died and another was permanently disabled.

In his lawsuit, the driver contended State Farm did not adequately cover his costs when he was found liable for the accident. The Utah jury awarded the driver $1 million in compensatory damages. Then, it slapped the company with a $145 million penalty.

In contrast, the actual victims and their families received less than $200,000. Imagine that. The guy who causes the death gets millions in damages and his victims walk away with peanuts.

Overturning the award, the U.S. Supreme Court indicated that a punitive award 145 times the compensatory damages was beyond reason. As a general rule of thumb, it said, punitive damages should not be more than nine times as large as the compensatory award.

"Single-digit multipliers are more likely to comport with due process," wrote Justice Anthony Kennedy.

While legal experts are hailing the State Farm ruling, attorneys are trying to find loopholes in the decision. Some argue that the ruling only applies to cases where someone suffers an economic injury - as opposed to a personal injury.

At first blush, their reasoning carries some weight. Punitive damages are entitled to be decided based on how bad the corporation's conduct is deemed to have been. And, when someone is injured or killed, there has traditionally been an assumption that the actions of a responsible party must have been pretty bad.

However, the court must not allow juries to jump to the conclusion that a company's conduct is reprehensible just because someone is injured or died.

The fact is there are many useful products - gasoline, knives, toothpicks and stairs, to name a few - whose everyday use involves some unavoidable risk of serious injury or death.

Manufacturers are constantly struggling with finding the right balance between risk and utility. Should a company that has made good-faith design decisions - and whose products meet and even exceed federal safety standards - face a multimillion-dollar punitive award because a jury might strike a different balance?

Fortunately, the Supreme Court will have an opportunity to clarify this issue if it decides whether to hear a 1999 California case involving another auto accident.

In that case, a jury awarded $4.6 million in compensatory damages and $290 million in punitive damages in connection with a single accident involving a Ford Bronco. At 63 times the amount of actual damages, this is the largest punitive damage ever affirmed by an appeals court.

In this case, the 19-year-old driver, who had been driving all night, swerved to avoid a truck that had cut off his 15-year-old, 1978 Ford Bronco, causing the Bronco to roll over. Three of its passengers were killed.

While the drivers of the Bronco and truck both were found responsible for the accident, the driver of the Bronco and his sisters sued the automaker contending that parts of the Bronco's roof were defective - even though the Bronco exceeded federal safety standards - then and now.

The Supreme Court should seize this opportunity to clarify its standards with regard to punitive damages in personal injury cases.

It's high time to restore rationality to a system that has been running out of control and penalizing companies and individuals out of proportion to the actual harms they have done.

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© 2003, Eric Peters Distributed by Knight Ridder/Tribune Information Services