Congressional Review of Punitive Damages Welcomed by Alliance

The Alliance of American Insurers welcomed the Sept. 23 hearing by the House Judiciary Committee’s Subcommittee on the Constitution related to excessive punitive damage awards in civil suits.

In April, the United States Supreme Court, in the case of State Farm v Campbell, threw out a $145 million punitive damages award against the insurer, saying the Constitution prohibits gross or excessive punishments on defendants in lawsuits. The Court also reduced the compensatory damages in that case from $2.6 million to $1 million.

The Subcommittee’s hearing focused on the Court’s indication that punitive damages could be limited by establishing a ratio of punitive damages to compensatory damages in the single digits. For example, antitrust laws use a 3 to 1 ratio so that a $1 million compensatory damage award would limit punitive damages to no more than $3 million.

“Excessive punitive damages are one of the primary symptoms of the
runaway litigation explosion that has developed in many parts of this country,” Ken Schloman, the Alliance’s Washington counsel said.

“Under our legal system, if punitive damages are awarded, they should bear a rational relationship to actual damages. Increasingly, the judicial system itself is beginning to realize the impact that excessive punitive damage awards have on society and the economy. We applaud the Judiciary Committee’s decision review of this issue in light of the Supreme Court’s recent opinion.”

“A report released just today by the Manhattan Institute’s Center for Legal Policy notes that lawsuits cost the U.S. economy over $200 billion a year, or 2 percent of the gross domestic product,” Pat Watts, Alliance assistant vice president and attorney, said.

“If Congress stands up to the trial bar and enacts limits on punitive damages, it will have a major impact on the economy and will put a stop to much of the harmful litigation that is clogging our courts and choking American business.”

Topics Politics