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How Much Is Too Much? Punitive Damages Award Multiplier of 10 Is Found Excessive
Insurance Law Update
In Amerigraphics, Inc. v. Mercury Cas. Co., 182 Cal.App.4th 1538 (Cal. Ct. App. March 23, 2010), the California Court of Appeal, Second District, held that a punitive damages award 10 times the amount of compensatory damages and prejudgment interest was unconstitutionally excessive, and reduced the award to an amount 3.8 times the amount of compensatory damages.
Amerigraphics, Inc. was insured under a policy issued by Mercury Casualty Company covering damage to business and personal property and loss of business income. Amerigraphics submitted a claim for reimbursement after its premises were flooded due to a broken water heater. Mercury denied a portion of the claim on the grounds that there was no business income loss, that a printer and scanner did not need to be replaced, and that only a portion of the tenants-improvement claim was payable. Amerigraphics sued Mercury for breach of contract and bad faith.
The jury found in Amerigraphics' favor on both causes of action, and awarded it $130,000 in compensatory damages, $3,000,000 in punitive damages, and $40,000 in prejudgment interest. The trial court reduced the punitive damages award to $1,700,000.
The Court of Appeal held that, although there was sufficient evidence supporting the award of punitive damages, the $1,700,000 awarded was unconstitutionally excessive. The appellate court examined the degree of reprehensibility of Mercury's conduct, and found that only one of five reprehensibility factors – financial vulnerability – weighed in favor of Amerigraphics. It then examined the ratio of the punitive damages to the actual harm to Amerigraphics, and found that the 10-to-1 ratio of punitive damages to compensatory damages and prejudgment interest was inconsistent with due process. The court found that $500,000 was the maximum award of punitive damages consistent with due process.
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