On Christmas Eve, the Third Circuit issued its opinion in Jurinko v. The Medical Protective Company and The Medical Care Availability and Reduction of Error (MCARE) Fund, a fascinating insurance bad faith claim arising from the failure to tender policy limits in a medical malpractice case, prompting an article in yesterday’s Legal Intelligencer and a flurry of twitter and blog activity. Perhaps it’s a lesson to all of us in the limitations of twitter and blogs and other rapid-response social media. Bob Ambrogi’s tweet “3rd Circuit imposes 1-1 ratio for punitive to compensatory damages” was technically correct, as was this AmLawDaily blog post summarizing the holding:

The court, citing two U.S. Supreme Court rulings (including the Exxon case), ruled that the award was excessive under a test the high court devised in a 2003 case. The judges went further, though, in concluding that the Supreme Court’s general path points toward a 1-1 ratio between compensatory and punitive damages becoming a general guidepost. Good news for corporate defense lawyers.

Both, however, miss the point: the Third Circuit didn’t create or recognize a brightline 1-to-1 ratio. It’s a little more complicated than that.

Taking the “precedential” and “non-precedential” designations at face value (in spite of Federal Rule of Appellate Procedure 32.1 making such designations irrelevant), the non-precedential Jurinko opinion must give way to the precedential CGB Occupational Therapy v. RAJ Health Services, et al. opinion of August 23, 2007, which reduced a verdict of 18-to-1 punitive-to-compensatory damages down to 7-to-1 in another case also involving purely economic damages (and thus falling squarely under State Farm and Gore).

On the face of the two opinions, the take-home message is that, in the wake of recent Supreme Court precedent, trial and appellate courts will give very little weight to jury’s punitive damages awards and will instead look anew at the facts to determine, in the court’s own judgment, the degree to which the plaintiff established the State Farm v. Campbell elements for exceeding the 1-to-1 ratio:

(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.

State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 418 (2003). (I note here how courts frequently overturn jury verdicts awarding punitives but never overturn verdicts denying punitives.)

Viewed that way, the distinction between the cases is clear: the conduct of Medical Protective was not nearly as reprehensible as the conduct of Sunrise (the company responsible for the most wrongful conduct in CGB Occupational Therapy), because Medical Protective merely acted in an outrageous manner to protect its own financial interests, rather than intentionally setting out to harm the plaintiff, as Sunrise did. The size of the respective underlying compensatory awards was also critical: in Jurinko, the jury awarded $1,658,345 in compensatory damages, as compared to the $109,000 awarded in CGB.

In essence, as a defendant’s conduct becomes worse, punitives above 1-to-1 are allowed but will be discounted by the size of the compensatory damages. (Again, note how no opinion will conclude, for example, “because the jury did not recognize how truly reprehensible the defendant’s conduct was, we hereby triple the punitive damages awarded.”)

Which brings me to what I believe is the real meaning behind both of these cases: courts have begun to take an economic, as opposed to legal, view of punitive damages. In line with the Supreme Court’s criticism in Exxon v. Baker of “the stark unpredictability of punitive awards” – an economic, not legal, concern – courts are increasingly unwilling to uphold verdicts designed to financially punish defendants (one of the explicit goals of punitive damages), even where the defendant has acted in a manner the court itself has recognized as “outrageous” and “reprehensible.”

I think that’s a shame, particularly given the mechanism by which such civil immunity from bankruptcy is being enacted: constitutional interpretation, the second most powerful weapon in the legal arsenal after constitutional amendment. If the duly-elected legislature decides that unlimited punitive damages awards are outweighed by the need for “predictability” after outrageous and reprehensible conduct, that’s one matter, but to see the courts usurp an economic policy determination under the rubric of constitutional interpretation is quite another.

If you were injured by medical malpractice, contact a Philadelphia medical malpractice attorney.