Punitive damages are meant to punish wrongdoers for reckless and purposely deceitful conduct. They are designed to send a message that some conduct will not be tolerated under any circumstances. Punitive damages can be awarded both in a wide array of cases, from injury case to business litigation. Many states do not place a cap on punitive damages; however, several states, including Tennessee, have started limiting punitive damages.

In 2011, the Tennessee Civil Justice Act was enacted. It placed a cap on punitive damages. The amount of the cap was the greater of:

• Two times the amount of compensatory damages, or
• The sum of $500,000

The cap does not apply where there is intentional misconduct, a destruction of records, or a defendant was under the influence of alcohol or drugs.

Tennessee Governor Haslam signed the 2011 law, which was enacted as a tort (accident) reform measure on the assertion that high punitive damages awards were affecting business in Tennessee. At the time, he claimed “Business recruitment is incredibly competitive, and Tennessee is not only competing against other states but against foreign countries as we go out and market ourselves as the best place for business. This tort reform legislation will help us attract and retain jobs by offering businesses more predictability and a way to quantify risk.”

The law was primarily aimed at allowing manufacturers and sellers limit exposure in product liability cases.  The legislature suggested that such “reform” would keep vehicle and property owners from having to pay high premiums or settlements for the accidents they or their employees caused. No such effect actually occurred and these “reforms” have largely benefitted insurance companies and not consumer.  The law essentially allowed insurance carriers to limit the amounts they might have to pay.

Until now.

The facts of the case which was tried before a jury

A mother brought a claim, on behalf of her two children, that Jackson National Life Insurance Co. should pay the full $350,000 life insurance policy that became due when her husband died in 2013.  The insurance denied the claim, and the mother alleged that they did so in bad faith.

The jury found that the insurance company should pay:

• The compensatory damages – the $350,000 that was due
• $87,500 in bad faith damages because the insurance company refused to properly pay the mother
• $3 million in punitive damages

While the case was not a tort/accident case, Tennessee allows juries to award punitive damages in contract disputes if the defendant acted “intentionally, fraudulently or recklessly.” The jury did find that Jackson National Life Insurance Co. was reckless. Among other wrongs, the jury heard evidence that the insurance company:

• Misled the mother about her legal rights
• The insurance company incorrectly and without any basis asserted that the mother “obviously waived her beneficiary status’ under the policy,” according to the lawsuit
• That the insurance company did not have procedures in place to stop its personnel from making such false statements.

The federal judge applied the 2011 cap law and reduced the mother’s punitive damage amount from $3 million to $700,000 – twice the amount of the compensatory damages of $350,000.

The insurance company on appeal argued that the caps should apply. The mother’s lawyers objected to the punitive damage cap.

The effect of the 6^th Circuit unconstitutionality decision

The 6^th Circuit federal court includes Tennessee, Michigan, Kentucky, and Ohio. This court found that 2011 caps on punitive damages were unconstitutional because the caps essentially violated a victim’s right to a jury trial. The court also found that the cap law violates the separation of powers between the legislative branch and the judicial branch.

Two of the three appellate judges made their decision based on their reading of the Tennessee Constitution, which was enacted in 1796. (The dissenting judge stated that the case should be sent to the Tennessee Supreme Court for review since state courts should determine the constitutionality of Tennessee laws and not federal courts.)

The 6^th Circuit case, if applied to all Tennessee tort and contract cases, would reinstate the right of victims to punitive damage awards – without limits. Whether the decision will be applied throughout Tennessee and to all types of cases is an open question. However, if the 6^th Circuit decision stands, then a precedent could be set that all damage caps are unconstitutional under the law.

Punitive damages aren’t a case of punishing someone for being merely negligent. Punitive damages are awarded when defendants intentionally cause harm or recklessly fail to consider the safety or rights of another. They also argue that the decisions of juries should be respected. If juries award extremely high punitive damages awards, it’s only because they are convinced the defendant’s acts were unconscionable. The 6^th Circuit Court’s decision could be a massive blow against tort reform measures that only hurt victims, not the negligent parties.

At Delius & McKenzie, PLLC, we’ve been fighting for injury victims for more than 20 years. In accident cases we demand payment for your medical bills, pain and suffering, and lost wages. When defendants failed to put your safety first, we demand punitive damages. For help with any type of accident case, please call us at (865) 428-8780 or use our contact form to make an appointment. We represent injury victims who live in Sevierville, Seymour, Gatlinburg, Pigeon Forge, and the surrounding areas.