E. Punitive Damages

• Library: South Carolina Damages (SCBar) (2009 Ed.)

E. Punitive Damages ⁸¹

Punitive damages are recoverable if the insurer acted willfully or with reckless disregard of the insured's rights.⁸² South Carolina courts carefully review punitive damage awards for clear and convincing evidence, willful or reckless disregard standard, and procedural safeguards, and they conduct post-trial review under Gamble v. Stevenson⁸³ and appellate review that ensures the award is reasonable and rational.⁸⁴

The plaintiff must prove entitlement to punitive damages by clear and convincing evidence.⁸⁵ Consideration of punitive damages may be excluded if it was reasonable to refuse to act or if it was an honest mistake, oversight, or ordinary negligence.⁸⁶ Furthermore, even if the insurer's refusal to act was unreasonable and in bad faith, the insurer's actions must also be willful or reckless to trigger punitive damages.⁸⁷ In addition, punitive damages may be awarded only after an award of actual damages.⁸⁸

Recently, the United States Supreme Court reversed a state court bad faith punitive damage award.⁸⁹ The Court held the award was grossly excessive and violated the Due Process Clause of the Fourteenth Amendment. In so doing, it stated that "few awards [of punitive damages] exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process."⁹⁰ However, as Judge Richard Posner recently noted, "[t]he Supreme Court did not...lay down a 4-to-1 or single-digit-ratio rule...and it would be unreasonable to do so."⁹¹ The Supreme Court in Campbell stated that "there is a presumption against an award that has a 145-to-1 ratio" and explicitly declined "to impose a bright-line ratio which a punitive damages award cannot exceed."⁹²

In order to comport with the United States Supreme Court's standards for due process, South Carolina courts apply a three-factor test to determine whether or not a punitive damages award was constitutional. Courts take into account: "(1) the degree of reprehensibility of the defendant's misconduct; (2) the disparity between the actual and potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases."⁹³ Thus, the facts of each case determine whether the amount of punitive damages might be unconstitutionally excessive.⁹⁴

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Notes:

^[81] See also infra Part III, Chapter 6.

^[82] Nichols v. State Farm Mut....