In the last several years, the U.S. Supreme Court has greatly reduced the ability of courts to award punitive damages in amounts that dwarf the amount of compensatory damages. In Exxon Shipping Co. v Baker (2008), a maritime case arising out of the 1989 Exxon-Valdez oil spill, the Court held that the ratio of punitive damages to compensatory damages could not exceed one-to-one. Exxon Shipping indicated that the Court would find a ratio of greater than a one-to-one to be grossly excessive and in violation of the Due Process Clause. Recently, the U.S Court of Appeals for the Third Circuit has interpreted the Supreme Court’s decision in Exxon Shipping to mean exactly that.
Jurinko v The Medical Protective Co. (December 24, 2008) arose from a jury award on a bad faith claim against a medical malpractice insurer. The jury awarded compensatory damages of $1,68,345 and punitive damages of $6,250,000, and the trial court had found that the four-to-one ratio between punitive and compensatory damages was not excessive. The Third Circuit disagreed, finding the punitive damages award to be grossly excessive under the three-factor test laid out by the Supreme Court: “(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the [factfinder] and the civil penalties authorized or imposed in comparable cases.” Notwithstanding the fact that defendant’s conduct was “outrageous,” the court announced that in cases where compensatory damages were substantial, a one-to-one ratio is the most that due process will allow.