Vol. 6, No. 3, Pg. 18. Trial Trifurcation/Quadrification Unbridled Punitive Verdicts In Federal Court.

• Author: By Sandra J Senn

South Carolina Lawyer

1994.

Vol. 6, No. 3, Pg. 18.

Trial Trifurcation/Quadrification Unbridled Punitive Verdicts In Federal Court

18Trial Trifurcation/Quadrification Unbridled Punitive Verdicts In Federal CourtBy Sandra J SennThe recent practice by some federal judges in South Carolina has been to trifurcate trials when there is a jury determination that punitive damages should be awarded. During the third phase of trial a jury is told not only that there is insurance coverage but the policy limits.

Currently, three district judges are using the trifurcated method and three others have indicated their willingness to conduct trials in the same manner. Judges who have already trifurcated trials are the Honorables C. Weston Houck, David C. Norton and Cameron M. Currie. Judges indicating their willingness to conduct trifurcated trials are the Honorables Sol Blatt Jr., G. Ross Anderson Jr., and Charles E. Simons Jr. Specifically declining to adopt the trifurcated method are the Honorables Falcon B. Hawkins and Joseph F. Anderson Jr. The Honorables Henry M. Herlong Jr. and William B. Traxler Jr. have yet to address the issue.

It is puzzling how a case which was designed to protect South Carolina defendants from unbridled jury verdicts has now produced much confusion and justified fear concerning punitive damages among the defense bar.

Insurance has become a concern because federal judges are having to reconcile the "defendant's ability to pay" limitation as enunciated in Mattison v. Dallas Carrier Corp., 947 F.2d 95 (4th Cir. 1991) with the knowledge that a defendant'sinsurance carrier has the actual ability to satisfy most punitive verdicts.

During trifurcation a jury is asked to make a determination of liability and award actual damages, if appropriate. The jury is also instructed to make an initial decision of whether it believes punitive damages, should be awarded, with the amount later to be determined.

Absent a defense verdict or the jury's decision that punitive damages are not appropriate, the jury then hears ability-to-pay testimony and is given damage instructions in accordance with Mattison and, in state court, Gamble v. Stevenson, 305 S.C. 104, 406 S.E.2d at 350 (1991). A second series of closing arguments are then directed toward whether the defendant should be punished and what punitive award would be proper.

The third phase of trial is the most perplexing. If the jury returns punitive damages it is then told the exact amount of insurance coverage and asked whether that knowledge would have affected their punitive verdict. A third round of closing arguments are heard, this time with the insurance company's flesh on the table.

This article will address problems engendered by the trifurcated trial method and will review the only two South Carolina cases in which juries increased their punitive award based on knowledge of insurance coverage. It will also briefly examine quadrification when there is excess coverage and its possible ramifications.

THE LAW

The judges' reasoning with respect to trifurcation is evident. No court wants to retry a case. Pending definitive guidelines from the Fourth Circuit, the judges have determined that if two verdicts are received, with and without the insurance information, either way the Fourth Circuit rules there will be a correct verdict making retrial unnecessary. To date the Fourth Circuit has advised that their office is unaware of any pending case that addresses this issue.

In order to understand why the district judges are struggling with the punitive damages problem, case law as it has recently evolved must first be examined.

The law in South Carolina has long been that evidence of liability insurance is inadmissible in an action for damages for personal injury. Horsford v. Glass Co., 92 S.C. 236, 75 S.E. 533 (1912); Fed.REvid. 411. However, when the Circuit Court of Appeals for the Fourth Circuit decided Mattison, it determined that South Carolina's punitive damages law denied defendants due process because there were no discretionary standards to guide a jury in awarding punitive damages prior to depriving defendants of their property. See Mattison at 96.

19It is ironic that a case designed to protect South Carolina defendants from unbridled jury verdicts has now produced much confusion and justified fear among the defense bar. The confusion only exists in federal district courts because state courts steadfastly apply the mandated rule that evidence of insurance coverage unduly influences juries and creates a diversion from the real issue of damages.

Prior to Mattison, the U.S. Supreme Court decided Pacific Mutual Life Ins. Co. v. Haslip, 499 U.S. 1, 113 L.Ed.2d 1, 111 S.Ct. 1032 (1991). In a 7-1 decision it determined that Alabama's system for imposing punitive damages met the due process requirements of the 14th amendment. The Court did not mandate set requirements for imposing punitives but did specifically approve Alabama's three-stage approach. See id. at 1618, 111 S.Ct. 1044-46.

The three steps in Alabama's approach adjudged procedurally correct include: (1) adequate instruction that punitive damages were not to compensate, but to punish and deter; (2) the trial court's review of punitive damage awards for excessiveness; and (3) appellate court review that the first two steps were followed, with a determination that the award was rational. See id. at 17, 111 S.Ct. 1045. The Haslip court then enunciated (not mandated) what are now known as the Hammond v. City of Gadsden, 493 So.2d 1374, 1379 (Ala. 1986), factors. They are:

1. Whether there is a reasonable relationship between the punitive damages award and the harm likely to result from the defendant's conduct as well as the harm that actually occurred;

2. The degree of reprehensibility of the defendant's conduct, duration of that conduct, thedefendant's awareness, any concealment, and the existence and frequency of similar past conduct;

3. The profitability to the defendant of the wrongful conduct and the desirability of removing that profit and having the defendant also sustain a loss;

4. The 'financial position' of the defendant;

5. All the costs of litigation;

6. The imposition of criminal sanctions on the defendant for its conduct, these to be taken in mitigation; and

7. The existence of other civil awards against the defendant for the same conduct, these also to be taken into mitigation. Haslip at 17, 111 S.Ct. 1045.

   The Mattison court made abundantly clear that federal courts sitting in diversity jurisdiction must ultimately be controlled by the federal rules.

   In Haslip, Alabama's scheme for assessing punitive damages did not include evidence of the defendant's wealth, for that was contra to Alabama state law. See id. at 8. However, the court stated that since Alabama provided adequate post-trial review of punitive damages, its system was not constitutionally incorrect. See id. at 8-9.

   Therefore, the Supreme Court has expressly ruled that addressing the defendant's ability to pay in a post-trial procedure is constitutionally adequate, at least as far as Alabama's system was concerned. However, district courts sitting in diversity jurisdiction present a different matter.

   South Carolina' s answer to both Haslip and Hammond was presented in Gamble v. Stevenson, which mandates post-trial review of the following...