Oregon Supreme Court holds punitive damages award unconstitutionally excessive
March, 2008
Today the Oregon Supreme Court released another case examining the constitutionality of a large punitive damages award. In Goddard v. Farmers Ins. Co. of Oregon, the court held that the jury's approximately $20 million award was unconstitutionally excessive. In the portion of the opinion that makes new law in Oregon, the court held that the maximum constitutional award in the case would be an amount four times the amount of the compensatory damages award. That analysis is interesting because it marks the first time the court has specifically articulated how much is constitutional in a case where the amount awarded by the jury was deemed unconstitutional.
The court's decision is the most recent opinion in a long-running appeal arising from an auto accident 20 years ago.
Essentially, Farmers was sued for unreasonable failure to settle a wrongful death action within policy limits. That action resulted in a verdict against Farmers for approximately $1.2 million in compensatory damages and approximately $20 million in punitive damages.
The court of appeals reduced the punitive damages award, and then the Oregon Supreme Court took review to analyze the constitutionality of the punitive damages.
In a unanimous opinion, the court held that a punitive damages award of four times the amount of compensatory damages was the maximum award permitted by the constitution under the circumstances of this case. Most of the decision is a revisitation of the familiar rules and principles from Gore and Campbell. Applying the "guideposts" from those cases, the court concluded that the $20 million award was unconstitutional. Then the court went to the next question: if $20 million is too much, what is the right number?
The court held that the ratio guidepost is the most helpful in making that determination, and noted that the US Supreme Court has occasionally said that a four-to-one ratio between compensatory damages and punitive damages is at the outer boundary of constitutionality. The court also noted that the US Supreme Court has indicated that cases involving only economic loss do not warrant punitive damages as substantial as cases involving physical harm. Applying these and other considerations, the court held that the maximum permissible punitive damages award is four times the compensatory award.