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July 30, 2009 | Publication| Writ Of Certiorari Dismissed As Improvidently Granted -- The Ambiguous End To Philip Morris USA, Inc. v. Williams

John V. Garaffa

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 23, #6, page 37 (July 30, 2009). © 2009

[Editor's Note: John V. Garaffa is a senior associate with the law firm of Butler Weihmuller Katz Craig LLP with offices in Tampa, Tallahassee, Miami, Mobile, and Charlotte.  He devotes his practice to the litigation of property coverage issues. This commentary, other than the quoted material, are the author's opinions; not his law firm's, and not Mealey's Publications. Copyright © 2009 by author. Responses are welcome.]

On March 31, 2009, the United States Supreme Court dismissed, as improvidently granted, a writ of certiorari in Philip Morris USA, Inc. v. Williams.1 While the reason for the court's action remains a mystery, it seemed to signal an end to the court's interest in the central constitutional issue in the case: punitive damages. Unfortunately, the court's decision to abandon the issue leaves both the litigants and observers wondering what, if anything, had been gained by years of decisions, reversals and remands.

The facts of the case are well known. The litigation concerned a punitive damages award against a cigarette manufacturer in an action for negligence and deceit brought by the widow of a smoker, Jesse Williams against Philip Morris.2 Mrs. Williams asserted that the company had purposefully taken actions to obscure the dangers of smoking and, as a result, her husband was deceived into believing smoking was not harmful and that 47 years of smoking ultimately caused his death.

The Oregon jury awarded Mrs. Williams $21,485.80 in economic damages, $800,000 in non-economic damages, and $79.5 million in punitive damages. As the punitive damage award was 96.7 times the jury's award of economic and non-economic damages, the defendant appealed, citing the apparent violation of the Due Process protections regarding punitive damages established by the Supreme Court in BMW of North America, Inc. v. Gore and State Farm Mutual Automobile Insurance Co. v. Campbell.3

Following the verdict, the trial court reduced the punitive damages award on Due Process grounds. On appeal, the Oregon Court of Appeals reversed and remanded with instructions to enter judgment on the original jury verdict.4 The Oregon Supreme Court denied review.5 The U.S. Supreme Court granted Phillip Morris's petition for a writ of certiorari6 and, not surprisingly, vacated the judgment, and remanded to the Oregon Court of Appeals for reconsideration in light of Campbell.7 Despite what appeared to be clear guidance from the U.S. Supreme Court, the Oregon Court of Appeals reaffirmed its prior ruling. It held that, in its opinion, under the guidance provided by the Supreme Court, the award was not excessive.8 The Oregon Supreme Court affirmed.9

The United States Supreme Court again reversed the decision of the Oregon court, finding that a punitive damage award was impermissibly based in part on jury's desire to punish defendant for harm to non-parties amounts to a taking of property from defendant without due process. The case was again remanded so that the Oregon Supreme Court could "apply" the due process standard set forth by the United States Supreme Court. The Court directed:

As the preceding discussion makes clear, we believe that the Oregon Supreme Court applied the wrong constitutional standard when considering Philip Morris' appeal. We remand this case so that the Oregon Supreme Court can apply the standard we have set forth. Because the application of this standard may lead to the need for a new trial, or a change in the level of the punitive damages award, we shall not consider whether the award is constitutionally grossly excessive. We vacate the Oregon Supreme Court's judgment and remand the case for further proceedings not inconsistent with this opinion.10

On remand, the Oregon Supreme Court again took pains to sidestep the Due Process violation underlying the punitive damage award. Instead, while the Oregon court acknowledged that it was being called upon to reconsider and reassess its earlier holding, it found that any claim of "error" would have to be predicated upon the defendant's request for a jury instruction limiting consideration of potential harm to third-parties when awarding punitive damages. The trial court had declined to give the instruction and plaintiff's counsel argued that such potential damage to others should be considered in the award of punitive damages. Dodging the constitutional issue entirely, the Oregon Supreme Court found that the trial court's refusal was not in error because, under state law, the defendant's proposed instruction could be refused because it did not correctly state the law of Oregon. According to the court, unless the proposed instruction was clear and correct in form and substance and altogether free from error, an appellate court could not reverse a trial court's refusal to give a proposed jury instruction. In the Oregon court's view, if the danger that the jury rendered a punitive damage award based upon speculative damage to strangers to the litigation was predicated on the failure to give the proffered instruction, the independent state basis for the trial court's decision on the instruction obviated any claim of constitutional error.

What the Supreme Court found offensive was the Plaintiff's attempt to inflate the punitive damage award by asking the jury to punish the defendant for unknown damage done to unknown potential past and future plaintiffs who, they asserted, had undoubtedly been damaged, to some unknown degree. The defendant asserted that the trial court had erred by failing to give an instruction to prevent the jury from basing a punitive damage award on unspecified damage to strangers to the litigation. The U.S. Supreme Court agreed:

In our view, the Constitution's Due Process Clause forbids a State to use a punitive damages award to punish a defendant for injury that it inflicts upon nonparties or those whom they directly represent, i.e., injury that it inflicts upon those who are, essentially, strangers to the litigation. For one thing, the Due Process Clause prohibits a State from punishing an individual without first providing that individual with an opportunity to present every available defense. Lindsey v. Normet, 405 U.S. 56, 66, 92 S.Ct. 862, 31 L.Ed.2d 36 (1972) (internal quotation marks omitted). Yet a defendant threatened with punishment for injuring a nonparty victim has no opportunity to defend against the charge, by showing, for example in a case such as this, that the other victim was not entitled to damages because he or she knew that smoking was dangerous or did not rely upon the defendant's statements to the contrary.

For another, to permit punishment for injuring a nonparty victim would add a near standardless dimension to the punitive damages equation. How many such victims are there? How seriously were they injured? Under what circumstances did injury occur? The trial will not likely answer such questions as to nonparty victims. The jury will be left to speculate. And the fundamental due process concerns to which our punitive damages cases refer-risks of arbitrariness, uncertainty and lack of notice-will be magnified. State Farm, 538 U.S., at 416, 418, 123 S.Ct. 1513; BMW, 517 U.S., at 574, 116 S.Ct. 1589.11

On remand, the Oregon court advises that the trial court would have performed its constitutional duty to instruct the jury if the defendant's proffered instruction on the issue had been perfect. As it was not, the trial court's ruling disallowing the proffered instruction was not an error and the trial court had no independent duty to guard against a punitive damage verdict predicated on speculative damage to strangers to the litigation. The Oregon Supreme Court's position is at odds with the U.S. Supreme Court's repeated admonishment that courts have an independent obligation to ensure that punitive damage fall within constitutional constraints. Consistent with its earlier decisions, the Oregon Supreme Court left the punitive damage award, 96.7 times the jury's award of economic and non-economic damages, intact.

The Oregon Supreme Court's procedural maneuvering was perhaps to be expected. Throughout the litigation, the Oregon court declared it found the Supreme Court's decisions provided no constitutional impediment to the size of the punitive damage award. While the Oregon Supreme Court's opinions seem inexplicable given the language of those decisions, it is perhaps interesting to note that the largest beneficiary of the apparent unconstitutional scope of the award was the State of Oregon itself. Under state law, Oregon stood to collect 60% of the punitive damage windfall, perhaps greatly lessening any institutional objection the organs of the state might have raised to the efforts of Plaintiff's counsel to inflame the passions of the jury.12

In light of the Oregon court's apparent indifference to the constitutional issue before them, the case seemed destined for yet another trip to the U.S. Supreme Court. In its reply brief in support of its petition, Phillip Morris highlighted the result driven nature of the Oregon court's decision and the utter refusal of the Oregon court to address the constitutional issue that prompted the remand:

Not only does the procedural bar at issue here serve no legitimate state interest; it also is neither firmly established nor regularly followed. We demonstrated in our opening brief that prior to this case, no Oregon appellate court had ever invoked the correct in all respects rule to cast aside a perfectly correct instructional request, considered individually and rejected on the merits, simply because an appellate court is later able to identify an unrelated error in a separately numbered paragraph of the proposed jury charge. We also showed that the decision below conflicts with two separate aspects of previously-settled Oregon law: (i) the rule that litigants are not required to make futile and repetitive gestures in order to preserve an argument for appeal, and (ii) the axiom that Oregon courts do not reach federal constitutional issues if the case may be resolved by resort to state law.

Unable to rebut these points, plaintiff tries to change the subject. She devotes nine pages (Br. 20-29) to an elaborate history of the correct in all respects rule and a catalogue of supposed errors in Philip Morris's requested jury charge. But it is irrelevant whether the Oregon Supreme Court was right in finding that other paragraphs of Instruction 34 contained state-law errors, or whether (as plaintiff asserts at Br. 23-25) the proposed charge included additional errors that were so trivial as to go unmentioned by any of the Oregon courts. The only question is whether such errors can properly justify the trial court's refusal - for a different and unambiguously erroneous reason - to instruct the jury not to punish Philip Morris for harms to non-parties.13

Despite the ill concealed contempt of the Oregon Supreme Court for the Due Process concerns outlined by the U.S. Supreme Court's opinions, and the apparent substance of the issues raised by the defendant in light of those opinions, four months after the Petitioner's response brief was filed, the writ of certiorari was dismissed as improvidently granted.14 The reason for the action or inaction remains a mystery.

Looking Forward

Despite the victory of the Oregon Supreme Court, the final substantive decision of the U.S. Supreme Court in the litigation made it clear that a jury may not punish a defendant based upon rank speculation as to actual or potential harm to unnamed and unknown victims. In addition, states in civil actions must have procedures that ensure the jury does not base a punitive damage award on such speculation as such an award would violate Due Process.

In defense of state courts, even a court more inclined to follow the constitutional guideposts than the Oregon Supreme Court would find the path difficult to follow. Under the court's prior decisions, the constitutionality of a punitive damage award is to be measured by reference to three guideposts:


the degree of reprehensibility

(2) the ratio between the actual or potential harm suffered by the plaintiff (compensatory damage) 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. 15

It is the first guidepost that renders the exercise so difficult. Simply put, while a jury may not base a punitive damage award upon rank speculation as to actual or potential harm to unnamed and unknown victims who are not before the court, such speculative considerations can guide the jury's determination concerning the defendant's "degree of reprehensibility" without violating Due Process. The awareness of danger posed by this dichotomy is not new. In Campbell, the Court cautioned that due process does not permit courts, in the calculation of punitive damages, to adjudicate the merits of other parties' hypothetical claims against a defendant under the guise of the reprehensibility analysis.16

In Phillip Morris, the plaintiff argued the Oregon Supreme Court's decision was actually based upon a finding of reprehensibility and not based upon constitutionally infirm punishment for actual or potential harm to unnamed parties. In rejecting that claim, the U.S. Supreme Court noting that, contrary to the opinion in Campbell, the Oregon court had specifically found a jury must be able to punish the defendant for harm to non-parties. In support of that view the Oregon court had stated "[i]t is unclear to us how a jury could 'consider' harm to others, yet withhold that consideration from the punishment calculus."17 [If] "a jury cannot punish for the conduct (to other unnamed persons not before the court) then it is difficult to see why it may consider it at all."18

To its credit, the U.S. Supreme Court addressed the question posed by the Oregon court: "How can we know whether a jury, in taking account of harm caused others under the rubric of reprehensibility, also seeks to punish the defendant for having caused injury to others?" Unfortunately, the Court's response however gives little guidance except that the lower courts are bound to "do something" to prevent juries from basing punitive damages on speculative injuries to non-parties.

Our answer is that state courts cannot authorize procedures that create an unreasonable and unnecessary risk of any such confusion occurring. In particular, we believe that where the risk of that misunderstanding is a significant one-because, for instance, of the sort of evidence that was introduced at trial or the kinds of argument the plaintiff made to the jury-a court, upon request, must protect against that risk. Although the States have some flexibility to determine what kind of procedures they will implement, federal constitutional law obligates them to provide some form of protection in appropriate cases. 19

The reaction of other state courts has been mixed. Of the cases citing to the U.S. Supreme Court's last decision in Philip Morris USA v. Williams,20 most noted both the issues that had concerned the U.S. Supreme Court; the appeal for punitive damages based upon damaged to strangers to the litigation and the ratio between compensatory and punitive damages.21 A review of some of those cases is instructive.

In Grefer v. Alpha Technical, 965 So. 2d 511, (La. App. 4th Cir. 2007)22 plaintiffs were landowners who sued an oil company and that company's equipment cleaning contractor. The defendant oil company had leased the property from the landowners and, according to the landowners, had contaminated their property with naturally occurring radioactive material contained on pipes. The Grefers asserted causes of action in negligence, strict liability, absolute liability, nuisance, fraud, and breach of contract. They sought compensatory damages for the loss of use and the remediation of the property as well as punitive damages pursuant to La. C.C. art. 2315.3.

After a five-week trial, the jury returned a verdict in favor of the Grefers and awarded them compensatory damages in the amount of $56,145,000.00, which included $145,000.00 in general damages and $56,000,000.00 in restoration costs (special damages). The jury also awarded exemplary (punitive) damages in the amount of one billion dollars, eighteen times the compensatory damage award.

On appeal, the Louisiana intermediate appellate court reduced the punitive damage award to $112,290,000.00, an amount equal to twice the compensatory award, and affirmed the judgments in all other respects. Unlike the hostility to this due process issue shown by the Oregon appellate courts, the Louisiana appellate court found that application of the Gore23 guideposts to the facts of the case, especially in light of the substantial compensatory damages awarded, justified a punitive damages award closer to the amount of compensatory damages. The court found that the punitive damage award of $1 billion, therefore, was neither reasonable nor proportionate to the wrong committed. As a consequence, the court found the punitive damage award represented an irrational and arbitrary deprivation of the oil company's property. In light of the U.S. Supreme Court's decisions, the Louisiana court reduced the punitive damage it to an amount that it determined was both reasonable and proportionate to the amount of harm suffered by the Grefers and to the general damages of $56,145,000.00, which was $112,290,000.00 or twice the general damage award.24

As in Phillip Morris, the defendant in Grefer proposed jury instructions with respect to exemplary damages. Exxon's proposed instructions were as follows:


In this particular case, Louisiana law permits you to consider an additional element of damages called exemplary damages (or called "punitive damages" in other states).


You may only award exemplary damages if the plaintiffs prove, by a preponderance of the evidence, that:

(1) the defendant's conduct was wanton and reckless;
(2) the danger created by the defendant's wanton and reckless conduct threatened or endangered public safety;
the defendant's wanton and reckless conduct occurred in the storage, handling, or transportation of hazardous or toxic substances; and
(4) the plaintiffs' damages were caused by the defendant's wanton and reckless conduct.

The phrase "wanton and reckless" means a conscious indifference to consequences, amounting almost to a willingness that harm to the public safety would follow. Stated another way, wanton and reckless conduct is that which amounts to intentional and deliberate action that has the character of outrage frequently associated with crime.

Unless you find that the defendant acted with almost a willingness that harm to the public safety would follow, then you may not award exemplary damages.

Even if you decide that the plaintiffs are entitled to exemplary damages, you may not award such damages for conduct that the defendants engaged in before 1984 or after 1996. Under Louisiana law, the plaintiffs are not entitled to exemplary damages for conduct that the defendants engaged in before 1984 or after 1996.


Exemplary damages are within your discretion. This means that even if you find that the defendants' conduct was wanton or reckless, you are not required to award exemplary damages to the plaintiffs.

The trial judge rejected the proposed instructions and instructed the jury on exemplary damages as follows:

The trier of fact may consider the following factors in awarding exemplary damages:

(1) the nature and extent of the harm to the plaintiff;
(2) the reprehensibility of the defendant's conduct;
the wealth or financial position of the defendant;
(4) the imposition of punishment on the defendant; and
(5) the deterrent effect, i.e. whether it will deter future or similar conduct by the defendant and others.

The Grefers and Exxon applied for Writs of Certiorari to the Louisiana Supreme Court, which were denied. Exxon petitioned for a Writ of Certiorari to the U.S. Supreme Court. The United States Supreme Court granted Exxon's petition and the Louisiana appellate court's decision was reversed and remanded for further consideration in light of the Supreme Court's decision in Philip Morris USA v. Williams.25

As in Phillip Morris, on remand, the state appellate court found no reason to disturb its earlier decision. The court held that, in instructing the jury with respect to whether exemplary damages should be awarded to the Grefers, the trial judge set forth a correct statement of the law and had not impermissibly suggested that the punitive damage award could be based on damage to persons who were not parties to the litigation.

The Louisiana appellate court acknowledged that the trial judge had referred to harm or the potential (risk of) harm to nonparties resulting from the defendant's conduct when she referred to the public safety in her explanation of "wanton" and "reckless" conduct. However, the court noted that, under the U.S. Supreme Court's opinions, the jury may consider the reprehensible nature of the defendant's conduct in deciding whether exemplary damages are warranted. The court advised that the trial judge's only other reference to nonparties occurred when she instructed the jury that exemplary damages were awarded not to benefit the plaintiff but to punish the defendant, to compel the defendant to have "proper regard for the rights of the public," and to deter others from following the defendant's example. According to the Louisiana court, as the U.S. Supreme Court has found no constitutional violation in imposing punitive damages "to further a State's legitimate interest in punishing unlawful conduct and deterring its repetition."26 Thus, the trial court's reference to nonparties within the context of the public's interest and safety did not violate the defendant's rights to due process.

Not surprisingly, Exxon again applied for a Writ of Certiorari to the Louisiana Supreme Court, which was denied.27 Exxon again petitioned for a Writ of Certiorari to the U.S. Supreme Court. This time United States Supreme Court denied Exxon's petition despite the fact that the denial left Exxon where it had been when the U.S. Supreme Court remanded the case for reconsideration in light of its decision in Phillip Morris.28

A similar dispute over jury instructions was the focus of the court's decision in Cook v. Rockwell International Corporation, 564 F. Supp. 2d 1189 (D. Co. 2008). In that case property owners had filed a class action against operators of a nuclear weapons manufacturing plant to recover for damages caused by repeated release of hazardous substances from plant. The jury awarded compensatory damages of $176.8 million which the court found was not excessive. Plaintiffs had requested compensatory damages of $248 million and presented evidence, including both expert and lay witness testimony, upon which the jury could have found that the amount of compensatory damages awarded was caused by the defendants'' conduct.

Defendants objected to the award of exemplary damages, asserting that the instruction given the jury was unconstitutional under Philip Morris USA v. Williams,29 because it defined "willful and wanton conduct" in part as "conduct that was done heedlessly and recklessly, either without regard to the consequences, or without regard to the rights and safety of others, particularly the Plaintiff Class." It was this reference to "the rights and safety of others," Defendants argued, that renders the instruction, and the exemplary damages awards based on it, unconstitutional because, under Philip Morris, a jury may not consider harm to others in deciding whether to impose punitive damages.

The appellate court disagreed. The court advised that the reference in the instruction was taken directly from Colorado's exemplary damages statute. The action was a trespass and nuisance class action alleging that the operators of the nuclear weapons manufacturing plant released plutonium and other hazardous substances onto the properties of class members. According to the court, there was no significant risk that jury based its exemplary damages determination on a desire to punish operators for causing injury to anyone not before court. As a consequence, the jury's award of exemplary damages did not violate operators' due process rights, even though jury instruction referred to conduct done without regard to "rights and safety of others."

The Oregon court's opinion in Phillip Morris suggested that trial courts have no independent duty to protect the due process rights of a defendant faced with a jury's punitive damage award. This perspective was echoed in Kauffman v. Maxim Healthcare Services, Inc.30 In Kauffman an employee brought a retaliation action alleging violations of § 1981, and the New York State Human Rights Law. The jury returned a verdict finding employer liable for retaliation and awarding $137,935 in compensatory damages and $1.5 million in punitive damages.

Citing the Supreme Court's remand in Philip Morris,31 the defendant contended that submission of Plaintiff's punitive damages claim to the jury was erroneous because the claim was, in part, based upon discrimination directed at persons who were not party to the litigation. Like the Oregon court in Phillip Morris, the district court acknowledged the Constitution's Due Process Clause forbids a State to use a punitive damages award to punish a defendant for injury that it inflicts upon strangers to the litigation, but that a plaintiff may show harm to non-parties to demonstrate "a different part of the punitive damages constitutional equation, namely, reprehensibility."32

The court nevertheless declined to consider the defendant's argument that the court's jury instructions were not clear in light of the Supreme Court's guidance in Philip Morris. The district court held that the defendant had failed to request a jury instruction based on the holding of Philip Morris case or object to the court's instruction on that basis. According to the court, the defendant's claim that the jury was allowed to award punitive damages based upon injuries to strangers to the litigation was thus "unpreserved."

The court's decision makes it clear that it shares the Oregon court's position that courts have no independent obligation to ensure punitive damage awards are not based speculative injuries to non-parties.33 In support of this position, the court correctly notes that the U.S. Supreme Court's final opinion on Phillip Morris advised "In particular, we believe that where the risk that misunderstanding is a significant one - because, for instance, of the sort of evidence that was introduced at trial or the kinds of argument that plaintiff make to the jury - a court, upon request, must protect against that risk." 34

Taken together, these cases suggest that the constitutional prohibition against punitive damage awards based upon speculative damage to strangers to the litigation is illusory. Plaintiffs are free to proffer such evidence and argue it throughout the trial to establish the 'reprehensibility" of defendant's conduct. Trial courts apparently have no independent duty to fashion instructions to address the danger posed by reprehensibility evidence and argument. Instead, defendants who wish to enforce their constitutional rights must take care to request instructions that do so. As the decision of the Oregon court demonstrates, defendant's instructions must be perfect, as any facile basis for the trial court to reject those instructions will waive the defendant's constitutional rights. Once the trial court rejects the defendant's instructions, the court is under no obligation to fashion its own instruction to protect the defendant's constitutional rights or even advise defendant how the rejected instruction is defective.

The Phillip Morris decisions have been viewed a contest between the U.S. Supreme Court and a state appellate court. The U.S. Supreme court has held there are Due Process limits to punitive damage awards. The Oregon appellate court has rejected any such limitations.

In defense of its position on Due Process, including the limits on the ratio between the compensatory and punitive damages, the U.S. Supreme Court has stated that it is acting in the position of a common law court of last review, faced with a perceived defect in a common law remedy.35 While the Supreme Court has repeatedly declined to impose a bright-line ratio which a punitive damages award cannot exceed, it has held that in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process. In Pacific Mut. Life Ins. Co. v. Haslip,36 the Court concluded that an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety. The court cited that 4-to-1 ratio again in Gore.37 The Court further referenced a long legislative history, dating back over 700 years, providing for sanctions of double, treble, or quadruple damages to deter and punish.38 In State Farm Mutual Automobile Insurance Company v. Campbell,39 the Supreme Court held "[W]hile these ratios are not binding, they are instructive. They demonstrate what should be obvious: Single-digit multipliers are more likely to comport with due process, while still achieving the State's goals of deterrence and retribution, than awards with ratios in range of 500 to 1."

In its remand to the Oregon appellate court, the U.S. Supreme Court held "[w]e believe that the Oregon Supreme Court applied the wrong constitutional standard when considering Philip Morris' appeal. We remand this case so that the Oregon Supreme Court can apply the standard we have set forth. Because the application of this standard may lead to the need for a new trial, or a change in the level of the punitive damages award, we shall not consider whether the award is constitutionally grossly excessive. We vacate the Oregon Supreme Court's judgment and remand the case for further proceedings not inconsistent with this opinion.

The "standard" that the Oregon Supreme Court applied was its calculation concerning the ratio of punitive to compensatory damages. In its decision, the Oregon appellate court stated:

[t]he jury in assessing the amount of punitive damages was entitled to draw reasonable inferences as to the number of smokers in Oregon who had been defrauded during the past decades and would be affected in the future by defendant's conduct, if that conduct were not deterred. Based on the evidence before it, and, particularly, the pervasiveness of defendant's advertising scheme in Oregon, it would have been reasonable for the jury to infer that at least 100 members of the Oregon public had been misled by defendant's advertising scheme over a 40-year period in the same way that Williams had been misled. Such a conservative calculation of compensatory damages based on William's actual damages and the potential magnitude of damage to the public thus would cause the ratio between compensatory and punitive damages, whatever it is, to fall within State Farm's 4-to-1 boundary.

But even if the $79 million award is deemed to exceed a single-digit ratio, it is difficult to conceive of more reprehensible misconduct for a longer duration of time on the part of a supplier of consumer products to the Oregon public than what occurred in this case. We think that the reprehensibility of defendant's conduct far exceeds that of TXO where the Court upheld a 10-to-1 ratio, or in Bocci, where we upheld a 7-to-1 ratio. Here, in contrast to those cases, the number of potentially defrauded and injured victims is much greater. As the State Farm Court stated in the above-quoted language, there are no bright-line ratios or rigid benchmarks that a punitive damage award cannot exceed. We think the unique facts in this case, when compared to the circumstances considered by the Supreme Court and this court in other cases, would justify more than a single-digit award under the Due Process Clause.


There seems little doubt that the remand to the Oregon Supreme Court was intended to prompt a reconsideration of the Oregon's Court's attempt to sidestep the Due Process limits in the U.S. Supreme Court's decision in Campbell. In its previous decision, the Oregon Court first attempted to argue that the award was within Due Process limitations because the "real" ratio based upon the potential damage to strangers to the litigation was closer to 4 to 1. As an alternative to this dubious assertion, the Oregon Court asserted that the Due Process limits outlined by the U.S. Supreme Court simply didn't apply to limit the punitive damage award in the case given the "reprehensible" nature of the defendant's conduct. In its remand, the U.S Supreme Court made it clear that punitive damage awards, and the calculation of the ratio between punitive and compensatory damages, could not be based on the potential damage to strangers to the litigation. The Oregon Court's response was that this Due Process violation had been waived by the defendant's failure to proffer a "perfect" jury instruction to protect itself from a patently unconstitutional jury award.

In effect, the Oregon appellate court has taken the position that courts in that state have no role in curtailing patently unconstitutional awards of punitive damages. Instead, the application of constitutional protections is simply part of an adversarial game between defendants on one side and plaintiffs' counsel and state courts hostile to any Due Process limitations on the other. Some state legislatures have reacted to this increasingly dysfunctional system by limiting punitive damages by law. Other states, like Oregon, have reacted by passing legislation that gives the state the lion's share of every punitive damage award, increasing the incentive to turn a blind eye to jury awards that ignore the constitutional rights of defendants.

While the reason for the U.S. Supreme Court's capitulation in Phillip Morris is a mystery, the impact is not. The Oregon Supreme Court stands victorious in its war of attrition with the U.S. Supreme Court, a punitive damage award 96.7 times the jury's award of economic and non-economic damages, and based in part upon unspecified claims of damage to unknown persons not before the court, stands undisturbed. The state government of Oregon, of which the Oregon Court is a part, stands to rake in a profit of approximately $47,700,000 from the alleged Due Process violation. If the U.S. Supreme Court has not abandoned this area of Due Process jurisprudence, its next decision needs to provide not guidance but boundaries.


1 Philip Morris USA Inc. v. Williams, 129 S.Ct. 1436 (U.S. 2009).

2 Philip Morris USA v. Williams, 127 S.Ct. 1057 (U.S. 2007).

3 BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996). State Farm Mutual Automobile Ins. Co. v. Campbell, 538 U.S. 408 (2003). In Campbell the Supreme Court recognized the States' legitimate interests underlying punitive damages, but found excessive awards of punitive damages do not further a legitimate state purpose and constitute an arbitrary deprivation of property in violation of the Due Process Clause of the Fourteenth Amendment. See also: John J. , Crossing the Line: Punitive Damages and the Supreme Court, Mealey's Litigation Report – Insurance Bad Faith, Volume 16, Issue 2, May 15, 2002, and John J. and William R. Lewis, The Campbell Cap, Mealey's Litigation Report – Insurance Bad Faith, Volume 17, Issue 2, May 21, 2003.

4 Williams v. Philip Morris Inc., 48 P.3d 824, (Or. App. 2002).

5 Williams v. Philip Morris, Inc., 61 P.3d 938 (Or. 2002).

6 Philip Morris USA Inc. v. Williams, 540 U.S. 801 (2003).

7 State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408 (2003).

8 Williams v. Philip Morris Inc., 92 P.3d 126 (Or. App. 2004).

9 Williams v. Philip Morris Inc., 127 P.3d 1165, (Or., 2006).

10 Philip Morris USA v. Williams, 549 U.S. 346, 357 (U.S. 2007).

11 Ibid.

12 The most significant potential beneficiary of the punitive damage award was the State of Oregon. Under the terms of O.R.S. § 31.735 (1) (a), forty percent of a punitive damage award is paid to the Plaintiff. Sixty percent goes to the Criminal Injuries Compensation Account of the Department of Justice Crime Victims' Assistance Section. The attorney for the prevailing party takes his or her share from the amount due the Plaintiff. Regardless of the agreement between the Plaintiff and his or her counsel, the attorneys share is limited to no more than 20 percent of the punitive damage award, or half the amount due the Plaintiff.

13 On Writ of Certiorari to The Supreme Court of Oregon, Reply Brief for the Petitioner, 2008 WL 4791927 (U.S.).

14 Philip Morris USA Inc. v. Williams, 129 S.Ct. 1436 (U.S. 2009).

15 Gore supra, at 575.

16 State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. at 423.

17 Ibid.

18 Williams v. Philip Morris Inc., supra, 127 P.3d at FN 3.

19 Philip Morris USA v. Williams, 127 S.Ct. supra at 1065.

20 Philip Morris USA v. Williams, 549 U.S. 346, (U.S. 2007).

21 In Palmer v. Asarco Inc., 2007 WL 666592, (N.D.Okla. 2007) the court reference Phillip Morris solely out of annoyance with counsel. The Court stated:

FN2. Defendants have attached a copy of Phillip Morris to their motion. However, it is not necessary for defendants to include a copy of this case with every motion on the issue of punitive damages. The Court was well aware of this opinion on the day it was decided and, at this point, defendants are cluttering the Court's CM-ECF system by attaching the case as an exhibit. Aside from the fact that the Court has Westlaw and would read Supreme Court decisions before issuing an opinion on federal constitutional law, Phillip Morris has been published in the Supreme Court Reporter and copies are available to the general public.

22 The court's decision followed the court's initial opinion in Grefer v. Alpha Technical, 901 So.2d 1117 (La.App. 4 Cir., 2005) which was reversed and remanded by the United States Supreme Court in Exxon Mobil Corporation. v. Grefer, 549 U.S. 1249 (U.S. 2007) for further consideration in light of its decision in Philip Morris USA v. Williams, 549 U.S. 346 (U.S. 2007).

23 BMW of North America, Inc., v. Gore, 517 U.S. 559 (U.S. 1996).

24 Grefer v. Alpha Technical, 901 So.2d 1117 1148-1152. (La. App. 4 Cir. 2005)

25 Exxon Mobil Corporation. v. Grefer, 549 U.S. 1249 (U.S. 2007)

26 Grefer v. Alpha Technical, 965 So.2d 511 (La. App. 4 Cir. 2007) citing Philip Morris, 549 U.S. at ----, 127 S.Ct. at 1062, citing BMW of North America, Inc., v. Gore, 517 U.S. 559, 568, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996).

27 Grefer v. Alpha Technical, 967 So.2d 523, 2007-1800 (La. 11/16/07) (La. 2007).

28 Exxon Mobil Corp. v. Grefer, 128 S.Ct. 2054 (U.S. La. 2008).

29 Philip Morris USA v. Williams, 549 U.S. 346, 127 S.Ct. 1057, 166 L.Ed. 2d 940 (2007).

30 Kauffman v. Maxim Healthcare Services, Inc., 509 F. Supp. 2d 210 (E.D.N.Y. 2007).

31 Philip Morris v. Williams, 127 S.Ct. 1057, 1063 (U.S. 2007).

32 Kauffman v. Maxim Healthcare Services, Inc., supra citing Morris v. Williams, 127 S.Ct. 1057, 1063 (U.S. 2007) at 1064.

33 Unlike the Oregon court in Phillip Morris, however, the District Court in Kauffman v. Maxim Healthcare Services, Inc., supra, did reduce the punitive damage award. The Court held:

"In view of these goals and the Gore factors discussed above, the punitive damages award in this case was excessive. Punitive damages in the amount of five hundred fifty one thousand four hundred seventy dollars ($551,470.00) (a ratio of 4 to 1) would be sufficient to punish Defendant and deter similar wrongful conduct, would be consistent with the reprehensibility of the conduct, and would be proportionate to the actual injury suffered by Plaintiff."

34 Philip Morris, 127 S.Ct. at 1065.

35 Exxon Shipping Co. v. Baker, 128 S.Ct. 2605 (U.S. 2008).

36 Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 42 (1991). "To the extent an award is grossly excessive, it furthers no legitimate purpose and constitutes an arbitrary deprivation of property." See also, John J. and Matthew W. Peaire, Anger and Punishment, Mealey's Litigation Report – Insurance Bad Faith, Volume 16, Issue 18, January 22, 2003.

37 Gore, 517 U.S. at 581, 116 S.Ct. 1589.

38 Id. at 581, and n.33, 116 S.Ct. 1589.

39 State Farm Mutual Automobile Insurance Company v. Campbell, 538 U.S. 408 (U.S. 2003).

September 08, 2015 PublicationThe Ongoing Struggle Over Removal Of First-Party Bad Faith Cases In Florida

The critical fact that seems to have been glossed over by all of the courts considering this question is the fact that once a final judgment has been entered by a Florida trial court, the court loses jurisdiction to do anything further.

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April 27, 2015 PublicationRicky's Believe It Or Not: Part Two

In the January 26, 2015 edition of this publication, I shared a collection of excerpts from documents authored by attorneys. Given the sheer volume of paper which crosses my desk in reviewing claims for coverage and bad faith, I inevitably come across some very humorous (though not intentionally so) mistakes in the various documents reviewed. This month, I share some of the funniest entries I've seen in deposition transcripts and medical records.

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January 26, 2015 PublicationRicky's Believe It Or Not

As an attorney for more than sixteen years, and a practitioner of insurance bad faith for nearly eleven years, I have seen virtually every kind of bad faith set-up one could imagine. I have shared my observations through various articles published in this fine periodical as well as other publications. The law of insurer bad faith is obviously one which is constantly in flux. Therefore, it would be a simple matter to wax eloquent upon the latest pronouncement from the high court of one of our many state and federal courts. However, I feel compelled to digress from the usual stately discussion of the intricacies of bad-faith law and share some of the more amusing things I have come across during my review of tens of thousands of documents contained in claim files, medical records and correspondence, done in connection with representing insurers in this field.

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December 22, 2014 PublicationChallenging Consent Judgments As Unreasonable Or Tainted By Bad Faith

Generally, if an insurance company refuses to defend its insured against a claim, the insured may protect himself by entering into a stipulated agreement with the claimant and holding the insurance company responsible for paying the claimant the agreed-to amount.

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November 24, 2014 PublicationThe Coverage Action 'Fixed' Bad Faith Damages: Are The Total Damages Binding?

Florida state and federal courts struggle with excess damage verdicts in first-party bad-faith actions arising out of uninsured motorist/underinsured motorist (UM) coverage. Recent case decisions produce mixed results for insurers. But mention UM coverage, bad faith, and total damages, and Florida Statute Section 627.727(10) immediately comes to mind. Comments by two judges framed the Section 10 debate.

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October 27, 2014 PublicationThree Is A Crowd: Revisiting The Third Party Beneficiary Doctrine

This article examines the third party beneficiary doctrine in conjunction with the approaches courts follow with regard to the collection of an excess judgment from a liability insurer.

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September 22, 2014 PublicationCourts' Different Views On Additional Insureds' Duties Under Liability Policy Notice Provisions

Liability policies typically require the insured to provide prompt notice of a claim or suit. Notice is regarded as a condition precedent to the insurer's duty to defend or indemnify. The notice provisions in a typical liability policy seem straightforward. However, issues surrounding notice become complicated when an additional insured, who is typically not a party to the insurance contract and sometimes unnamed in a policy, is involved. Under those situations, courts have had to address, among other issues, the sophistication and resources of the additional insured, whether the additional insured is aware that coverage potentially exists or even that policies potentially exist, whether the jurisdiction requires the additional insured to actually tender the claim or suit or whether another insured's tender of the claim or suit is sufficient and whether there was late notice or no notice at all by the additional insured. Different jurisdictions have reached different results. 

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August 25, 2014 PublicationWall Of Confusion: GEICO General Insurance Company v. Bottini And Its Ill-Begotten Progeny

On July 20, 2012, a three-judge panel of Florida's Second District Court of Appeal released what, on its face, appeared to be a relatively innocuous opinion in Geico General Insurance Company v. Bottini . The Bottini appeal arose as a result of Geico's appeal of a jury verdict in the amount of $30,872,266 rendered against it in an uninsured/underinsured motorist (‘‘UIM'') case. Consistent with precedent, the trial court entered a judgment against Geico in the amount of the policy's limit of liability, $50,000. Because the huge verdict had the effect of fixing the plaintiff's damages in a subsequent bad faith case, Geico naturally sought review of that verdict. The panel opinion concluded simply, ‘‘Based on the evidence presented, we are satisfied that even if Geico were correct that errors may have affected the jury's computation of damages, in the context of this case and the amount of the judgment, any such errors were harmless.''

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June 26, 2014 PublicationUninsured Motorist Bad-Faith Claims: Separate Action, Separate Trial, Separate Damages

First-party bad-faith claims arising from uninsured motorist (UM) coverage are separate and independent actions, too. If the uninsured motorist coverage action is truly separate and distinct from bad faith, one naturally expects a separate trial on bad-faith liability and extracontractual damages. However, there is a unique problem confronting first-party bad-faith claims arising from uninsured motorist coverage under Florida Statute Section 627.727(10). One decision characterizes the problem as a ‘‘conundrum'' created by Florida law.

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May 22, 2014 PublicationBurden Of Proof Issues In Consent Judgments

When a carrier refuses to defend its insured, the insured may consent to entry of a stipulated judgment. 1 In most jurisdictions the insured (or claimant) bears the burden of proof to show coverage exists as a prerequisite to recovery of an excess judgment. 2 The burden of proving coverage for a consent judgment can sometimes create problems. Consent judgments raise many other issues beyond the scope of this article. 3  

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April 25, 2014 PublicationAn Insurance Carrier's Good Faith Obligations Toward Its Insureds In Liability Settlements Where Not All Of the Insureds Are Released

Generally, liability insurers must secure a release of all of their insureds when settling claims against their insureds. However, some courts have recognized circumstances where an insurer may settle for an insured at the exclusion of another while still maintaining its good faith duties toward all of its insureds. Other courts have seemingly rejected the notion that an insurer can ever settle for one of its insureds at the exclusion of others. These release issues occur most prevalently in automobile accidents involving insured owners and additional insured drivers.  

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March 27, 2014 PublicationAnother Item For Your Checklist: The Bad Faith Concerns Related To Overreaching Proposed Releases

A common scenario: claimant's counsel issues a time limit demand for policy limits and the insurer decides to accept the demand and tender the limits. Once the decision is made to accept the demand, the insurer should go through its checklist of concerns to make sure that each element of the time demand is met, while ensuring that the insured is adequately protected.

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March 13, 2014 PublicationBad Faith And Ordinary Negligence: Distinguishing The Excusable From The Culpable

Bad faith and ordinary negligence typically involve two very different standards of care. In most jurisdictions, courts agree that proof of bad faith requires a showing of insurer culpability greater than ordinary negligence.

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December 19, 2013 PublicationRecent Cases Discussing The Advice Of Counsel Defense: The Good, The Bad, And The Discovery

The gravamen of a third-party claim of bad faith is that the insurer failed to settle a claim against an insured when it had the opportunity to do so. The essence of the claim is that the insurer acted solely on the basis of its own interests, failed to properly and promptly defend the claim, and thereby exposed the insured to an excess judgment. However, a claim based on insurer negligence is insufficient to establish bad faith

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November 21, 2013 PublicationThis Mediation Is Confidential, Right?

Mediation is an effective dispute resolution tool because it allows participants to openly discuss all aspects of a dispute without the fear of recourse or retribution. Confidentiality is a critical component of this process. Litigants and insurers participating in mediation often proceed under the assumption that all communications and conduct occurring during mediation will be cloaked with protection. However, exceptions to confidentiality are slowly eroding what is commonly referred to as the absolute ‘‘mediation privilege.''

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October 24, 2013 PublicationSeparating Fact From Fiction: Strategies For Contesting The Excess Consent Judgment

Few legal maneuvers generate greater skepticism – among courts and insurers – than the excess consent judgment, an increasingly common settlement device used In liability cases.

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September 26, 2013 PublicationSome Considerations In Addressing Time-Limit Demands

Liability insurance carriers should be prompt and proactive when they receive a time-limit demand from a claimant. Time is usually not on the carrier's side when it comes to these settlement communications.

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August 22, 2013 PublicationCausal Friday: Better To Be Lucky Than Good

Sometimes it is better to be lucky than good, as the insurers in the following cases learned. These cases demonstrate that, even where the facts indicate that the insurer acted in bad faith, it is still possible for the insurer to escape extra-contractual exposure. In the absence of a causal link between the excess judgment and the insurer's actions, bad faith liability cannot exist as a matter of law.

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July 25, 2013 PublicationAn Insurer's Liability For A Hospital Lien After Settlement Of A Claim That Impairs The Lien

Over forty states have hospital lien laws. Those laws typically allow hospitals to recover against parties, including insurers, who impair their liens. In many states, the hospital lien laws do not clearly identify the type and extent of damages a hospital can recover against a party who impairs a hospital lien. The damages a hospital can recover from a party who impairs a lien depends upon the language of the applicable hospital lien law and the courts' interpretations of that law. Results vary from state to state. 

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June 27, 2013 PublicationWhy Sue For Bad Faith When Consequential Damages Are Available?

Bad faith aside, insurers often assume a claim's ‘‘total" exposure under the insurance contract is the policy's limit.  Courts traditionally allow insureds to recover contractual damages based on the limit, plus legal interest.  However, a new trend is emerging in some jurisdictions.

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May 23, 2013 PublicationIs The Bad Faith Claim A Part Of The Package?

In an effort to create yet another way to present a claim for bad faith against an insurance company, plaintiff attorneys have been submitting ‘‘package deal'' demands on behalf of multiple claimants who have all incurred damages as a result of the same occurrence.

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April 25, 2013 PublicationRevisiting The Litigation Privilege And Its Application In Bad-Faith Cases

Over the last 25 years, courts have wrestled with the issue of whether to apply an absolute privilege to preclude bad-faith lawsuits based on an insurance company's conduct during the litigation of an underlying first-party or third-party claim. Some courts still refuse to recognize a bad-faith claim against an insurance company based upon its post-litigation conduct.  However, the prevailing trend seems to suggest that courts will find that some of the insurer's conduct remains relevant and admissible, while the conduct of the insurer's attorneys in defending the claim remains privileged.

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March 28, 2013 PublicationWho Is Entitled to the Claims File?

The United States Supreme Court has recognized the "attorney-client privilege" as "one of the oldest recognized privileges for confidential communications," the purpose of which is to encourage "full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and the administration of justice."

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February 28, 2013 PublicationNavigating The Southern Bad-Faith Buffet: Extra-Contractual Liability In The Absence Of Breach Of Contract

In the Southeast, catastrophic natural disasters have become all too common, and the physical and financial consequences are borne by the entire region. Five of the top ten costliest hurricanes to hit the United States have impacted North Carolina, and with approximately $159.6 billion in insured coastal assets, North Carolina continues to have significant loss exposure.

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January 31, 2013 Publication‘Bad-Faith' Discovery: Claim Files, Training Materials, Personnel Files, And The Kitchen Sink

A recent discovery order in the federal court case of Signature Development, LLC v. Mid-Continental Casualty Company is illustrative of our liberal discovery. Note, this liability insurer has yet to be found liable or guilty of any wrongdoing.  Signature alleges, however, that the corporate defendant insurer breached the contract of insurance, committed ‘‘bad-faith,'' breached its fiduciary duty to its insured, committed unfair trade practices, intentionally inflicted emotional distress and vexatiously refused to pay. Based upon these allegations alone, the court addressed the scope and burden of discovery. 

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November 21, 2012 PublicationMediation (Resolving Cases With Extra-Contractual Exposure)

By definition, mediation begins with ‘‘me.'' Once conflicting parties have resorted to litigation, they naturally act purely in their own respective self-interest. When a mediation involves allegations of insurer ‘‘bad faith,'' this is especially so. The parties are initially polarized. 

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October 25, 2012 PublicationSquare Pegs In Round Holes: When The Adjustment Process Meets The Evidence Code

If given the chance, most property adjusters would skip the aspect of their job involving litigation. Avoiding lawyers, depositions, and, of course, trials would alleviate much stress. Unfortunately, dealing with lawyers and litigation is an unavoidable job hazard for most adjusters.

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September 27, 2012 PublicationThe Troubles Of Trafalgar : Bad Faith In the Absence Of Breach Of Contract

How can a first-party insurer be legally liable for insurance ‘‘bad faith'' if it has already been found not to be liable for breach of the insurance contract? According to at least one Florida appellate court, by paying an Appraisal Award timely.

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August 23, 2012 PublicationScary Stuff: Insurance Claim Files And Exceptions To The Attorney-Client Privilege

Are all attorney-client communications contained in such claim files that were thought to be confidential now discoverable because the insurer lost the underlying first-party claim, litigation, or appeal

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July 26, 2012 PublicationThe Vanishing Right To Federal Jurisdiction In Bad Faith Claims In Florida

On April 25, 2012, the United StatesDistrict Court for the Southern District of Florida issued its opinion in Moultrop v. GEICO General Ins. Co., remanding a bad faith claim to state court pursuant to the one-year ‘‘repose'' provision of 28 U.S.C. § 1446(b). The Moultrop decision is one more in a growing line of cases which refuse insurers access to a federal forum based on the repose provision, under the anomalous reasoning that the right to removal expired before the cause of action for bad faith accrued. Unfortunately for the insurers, 28 U.S.C. section 1447(d) precludes appellate review of an order granting a motion to remand.

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May 24, 2012 PublicationProtecting Confidential Communications: Application Of The Attorney-Client Privilege In First-Party Insurance Bad-Faith Cases

Discovery of the insurance company's entire claim file—including confidential communications between the insurer and its attorney—is often the first target on the insured's agenda in a first-party bad-faith lawsuit. In any other context, a party's request for discovery of the opposing party's confidential attorney-client communications would be viewed by courts as a brazen and inappropriate attempt to obtain information obviously protected by the attorney-client privilege; however, in the context of bad-faith litigation, this type of request has been dignified by courts who often look for ways to permit discovery of the insurer's attorney-client communications.

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April 26, 2012 PublicationCreative Methods Used To Set-Up ‘Bad Faith' Claims — Use Of Multiple Coverage Demands

In the past decade, the bad-faith environment has rapidly shifted from a useful tool used by consumers to protect themselves from arguably egregious actions to an elaborate trap set by personal injury plaintiff attorneys to reap outrageous awards from seemingly innocent conduct by claims professionals. Insurance companies now fear multi-million dollar verdicts based on policies written for insureds who did not want more than the absolute minimum coverage allowed. Based on technicalities, clever plaintiff attorneys attempt to convince courts to rewrite insurance policies, allowing for unlimited recoveries.

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March 22, 2012 PublicationA Liability Insurer's (Almost Absolute) Right To Settle Claims Without The Insured's Consent

Many cases hold that a liability insurer can settle a claim against its insured without the insured’s consent because the policy language gives an insurer the right to settle even when an insured may not want to settle.1 For the most part, courts in California, Florida, and Louisiana allow insurers to settle claims without the insured’s consent where the policy gives the insurer the right to settle as it deems expedient. However, courts may nonetheless consider whether a settlement may have adversely impacted the insured to determine whether an insurer acted in good faith.

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February 23, 2012 PublicationBullock v. Philip Morris USA, Inc.: Where ‘Reprehensibility' As An Exception To Constitutional Protections And the Ratio Guidepost Includes The Wealth Of The Defendant

On November 30, 2011, the California Supreme Court exercised its discretion and let stand a $13.8 million punitive damage award that was more than 16 times the compensatory damages awarded by the jury. The case, Bullock v. Philip Morris, 1 (Bullock) involved a smoker diagnosed with lung cancer who filed suit against the cigarette manufacturer, seeking damages based on products liability, fraud, and other theories.

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January 26, 2012 PublicationWho Killed Reverse Bad Faith? And Why It Could Make A Comeback

In every state in the union an insured can seek some form of compensation for an insurer’s ‘‘bad faith’’ in adjusting a claim.Yet only one state, Tennessee, currently allows an insurance company to recover damages caused by the insured’s bad faith.This imbalance has allowed ‘‘bad faith’’ litigation to become big business.The tendency of courts to treat insureds like a disadvantaged class has created an uneven playing field for insurance companies in claims adjustment.

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December 22, 2011 PublicationA Wolf In Sheep's Clothing (Insurers Should Be Vigilant In Florida)

[ Editors note: Alan J. Nisberg, Esq., is a partner with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial and appellate attorney, specializing in extra-contractual, class action and complex coverage litigation. This commentary, other than the quoted material, expresses the authors opinions -  not the opinions of Butler or Mealey's. Copyright © 2011 by the author. Responses are welcome. ] 

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November 23, 2011 PublicationProximate Causation In Third-Party Bad Faith: Not Every Bad Decision Is A Bad-Faith Suit

Proximate causation is an element of a claim for bad faith. An often-overlooked element, but an element nonetheless. Even claims with grievous claim-handling errors and high excess judgments can still be very defensible if there is no proximate causation between the two. This article examines the element of the bad-faith cause of action that is most often glossed over. 

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October 27, 2011 PublicationRecent Application Of State Farm v. Campbell In Bad-Faith Cases

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 25, #10 (September, 2011). © 2011 

[ Julie A. Simonson is an associate with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. She is active in the firm's Extra-Contractual and Liability Departments. Any commentary or opinions do not reflect the opinions of Butler or Mealey's. Copyright © 2011 by Julie A. Simonson. Responses are welcome. ]

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August 25, 2011 PublicationApplying The Litigation Privilege In Bad-Faith Cases

[BrianD.Webb,Esq.,is a partner with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial and appellate attorney specializing in extra-contractual and complex coverage litigation. This commentary expresses the author's opinions–not the opinions of Butler or Mealey's. Copyright#2011 by Brian D. Webb. Responses are welcome.] 

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July 28, 2011 PublicationThe Insurer's Bill Of Rights (A Balance Of Power)

[Editor's Note: Alan J. Nisberg is a partner in the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial attorney and appellate lawyer, specializing in extra-contractual, class action, and complex coverage litigation. This commentary, other than the quoted material, expresses the author's opinions - not the opinions of Butler or Mealey's. Copyright#2011 by the author. Responses are welcome.] 

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June 23, 2011 PublicationChoice-Of-Law Principles Affecting Insurance Bad-Faith Claims

[R. Steven Rawls is a partner and Ryan K. Hilton is a senior associate with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. This commentary expresses the author's opinions–not the opinions of Butler or Mealey's. Copyright © 2011 by R. Steven Rawls and Ryan K. Hilton. Responses are welcome.] 

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February 24, 2011 PublicationThe Duty to Initiate Settlement Negotiations: Where Does it Begin and How Far Does it Go

In some jurisdictions, including Florida, the courts recognize a duty in some circumstances for a liability insurer to initiate settlement negotiations with a third-party claimant before the claimant has ever made a demand. This duty is a relatively recent invention in the common law and has yet to be fully defined. While most articles on the subject tend to focus on whether or not this duty should exist in the first place, this article skips that threshold question and delves into the particulars that apply in the jurisdictions that recognize it. What triggers the duty? What is required of the insurer to discharge it? What are the defenses to a claim for bad-faith failure to initiate settlement negotiations? This article tackles these emerging questions and more in attempt to define this nascent duty.

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December 23, 2010 PublicationDoes Policy Reformation Create A Retroactive Bad-Faith Claim?

[Editor's Note: Laura A. Turbe-Capaz is a senior associate in the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee, and Miami. She is an experienced trial attorney in the firm's Extra-Contractual, Third-Party Coverage, and Liability Departments. Copyright#2011 by Laura A. Turbe-Capaz. Responses are welcome.] 

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December 09, 2010 PublicationSplitting The Baby: The Insurer's Duty To Notify The Insured Of The Need For An Allocated Verdict

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #15 (December 9, 2010). © 2010  

[Editor's Note: Fay E. Ryan is a partner the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee and Miami. She is an experienced trial attorney in the firm's Extra-Contractual, Third-Party Coverage, and Liability Departments. Kimberly N. Gorak is a senior associate in the Tampa office of Butler , also practicing in the firm's Extra-Contractual, Third-Party Coverage, and Liability Departments. Any commentary or opinions do not reflect the opinions of Butler or Mealey's. Copyright © 2010 by Fay E. Ryan and Kimberly N. Gorak. Responses are welcome .]

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November 24, 2010 PublicationPitfalls For The Unwary: The Use Of Releases To Preserve Or Extinguish Any Potential Bad-Faith Claims Between The Primary And Excess Insurance Carriers

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #14 (November 24, 2010). © 2010 

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September 23, 2010 PublicationWe Said What We Meant And We Meant What We Said! — Enforcing Contract Language Despite Assertions Of Bad Faith And Insurer 'Misconduct' During The Adjustment Of The Claim

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #10 (September 23, 2010). © 2010  

[Editor's Note: John V. Garaffa is a Partner and Jason M. Seitz is an associate with the law firm of Butler Weihmuller Katz Craig LLP in Tampa, Florida.  Any commentary or opinions do not reflect the opinions of Butler or Mealey's Publications. Copyright © 2010 by Jason M. Seitz and John V. Garaffa. Responses are welcome.]

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August 26, 2010 PublicationChinese-Drywall Cases And Their Impact On Liability-Insurance Carriers In Settling Multiple Claims In Good Faith Against Their Insureds In Certain State Courts

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #8 (August 26, 2010). © 2010  

[Editor's Note: Steve Rawls is a partner and Ryan K. Hilton is a senior associate with the law firm of Butler Weihmuller Katz Craig LLP in Tampa, Florida. Any commentary or opinions do not reflect the opinions of Butler or Mealey's Publications. Copyright © 2010 by R. Steve Rawls and Ryan K. Hilton. Responses are welcome.]

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July 29, 2010 PublicationBad Faith - Variations On A Theme

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #6 (July 29, 2010). © 2010  

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May 27, 2010 PublicationBad Faith and Beyond: A Business Law Primer For Insurers

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #2 (May 27, 2010). © 2010  

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May 13, 2010 Publication(Almost) Twenty Years After Powell: Case Studies On A Liability Insurer's Duty To Initiate Settlement Negotiations

The Florida Third District Court of Appeal’s 1991 decision in Powell v. Prudential Property & Casualty Insurance Co. recognized a duty, in some circumstances, for a liability insurer to initiate settlement discussions with a third-party claimant who has not made a demand. The case proved to have a strong ripple effect, bringing about a sea change in bad-faith jurisprudence for the next twenty years. This article examines the expansion of Powell from a unique facts-driven anomaly to an entire branch of bad-faith jurisprudence and discusses early indications that the courts may be retreating again to applications more in line with the original case.

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March 25, 2010 PublicationBreaking Down Privileges: Discovery of the Claim File In Florida Bad-Faith Actions

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 23, #22 (March 25, 2010). © 2010  

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February 25, 2010 PublicationExtracontractual Recovery Without Bad Faith

Insurance intermediaries (insurance agents and insurance brokers) are especially vulnerable to claims by insureds. While bad-faith actions continue to be the favored method of pursuing recovery beyond a policy limit, some litigants turn to claims against insurance intermediaries (and the insurers they represent) for extracontractual recovery. In addition to bad-faith law, insurers need to know what kinds of claims can be brought in relation to the procurement of the insurance policy itself and what defenses can be raised. This article delves into this often-misunderstood area of the law and illuminates some legal issues with which every insurer should be familiar.

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January 28, 2010 PublicationA Look Back At Some Of 2009s Significant Bad Faith Decisions

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 23, #18 (January 28, 2010). © 2010

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October 22, 2009 PublicationDoes An Insured Owe A Duty Of Good Faith To Its Insurer When The Insured Is Responsible For Defense Costs In A Self-Insured Retention?

Many businesses are increasingly utilizing insurance policies with large self-insured retention endorsements in order to exercise better control over the defense of claims. In these circumstances, an issue may arise regarding whether an insured who is responsible for defense costs under a self-insured retention ("SIR") owes a duty of good faith to its insurer.

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August 27, 2009 PublicationFairly Debatable?

On August 5, 2009, the South Dakota supreme court joined an exceedingly small minority of courts in the United States that have imposed a duty to conduct a reasonable investigation into first-party claims in order to avoid "bad-faith" liability.2 As they say, the road to Hell is paved with good intentions. This decision certainly affirms the truth of that old saw

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April 23, 2009 PublicationArbitrary and Capricious

In Grilletta v. Lexington Insurance Company,8 the United States Court of Appeals for the Fifth Circuit reviewed the insurer's handling of a Hurricane Katrina property claim.9 Mr. Xavier Grilletta and Mr. Randy Lauman owned a vacation lakehouse on the southeastern shore of Lake Pontchartrain, a lake bordering New Orleans to the north. 

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March 26, 2009 PublicationFlorida's Bad Faith Quagmire: Is Summary Judgment Ever Available?

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 22, #22 (March 26, 2009).

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February 26, 2009 PublicationIs Abnormal Becoming The New Normal In Alabama?

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 22, #20 (February 26, 2009).

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November 25, 2008 PublicationUnreasonable Consent Judgments; What Next?

The scene is all too familiar: an insured, disenchanted with its insurer's refusal to defend an action the insured believes is within coverage, decides to enter into a "consent judgment" with the plaintiff, in return for which, the plaintiff agrees only to pursue satisfaction of the "judgment" against the insurer. 

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August 28, 2008 PublicationTorts for Tots (Bad Faith And Other Independent Torts)

The responsibility of caring for a child is not one to be taken lightly. Our society demands vigilance from those who bring new life into rld, and rightly so. We are held to a higher standard in dealing with our offspring than with others. The special relationship between a parent and a child is built upon trust and an expectation that one (the parent) will give security tothe other (the child). So too is the bond between insurer and insured.

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July 15, 2008 PublicationExxon Shipping Co. v. Baker: Sailing Into The Confluence Of Common Law And Constitutional Standards For Punitive Damages

On June 25, 2008, the United States Supreme Court issued its much anticipated opinion in Exxon Shipping Co. v. Baker. The Supreme Court reduced the punitive damage award from $2.5 billion dollars to $507 million dollars, an amount approximately equal to the jury's award of compensatory damages. While the decision certainly warmed the hearts of Exxon's previously discomfitted stockholders, the Court's opinion provides only limited encouragement to defendants involved in the current punitive damage lottery.

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June 17, 2008 PublicationConsequential Damages Under the Insurance Contract -- The New "Bad Faith?"

The ability of an insured to recover consequential damages under an insurance contract allegedly caused by failure or delays in the insurer making payments has traditionally been controversial. Jurisdictions have been divided in their approach as noted in the following annotation cited by the district court in Indiana

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January 22, 2008 PublicationRipe for Campbell Review: A Florida Uninsured Motorist Claimant's Statutory Right to Recover Excess Verdict Damages in a Bad Faith Action

In many jurisdictions, jurors can award punitive damages to punish or penalize an insurer for improper claims handling, in addition to any compensatory damages caused by an insurer’s bad faith. Such jury awards of punitive damages now are subject to scrutiny under State Farm Mutual Automobile Insurance Company v. Campbell.1 As a result of Campbell, insurers have one final check against excessive punitive damages awards by juries.

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December 18, 2007 PublicationPunitive Damages - the Rationale of Ratios

Since the Supreme Court’s decision in State Farm Mutual Automobile Insurance Company v. Campbell, courts have struggled to define when the Campbell court’s presumptive limit of 9 to 1 ratio of punitive damages to compensatory damages is appropriate. The Supreme Court stated that the "most important indicium of the reasonableness of a punitive damages award" was the highly subjective measure of the "degree of reprehensibility." Wrestling with such an amorphous concept trial courts and appellate courts have sought to justify various punitive damage awards on the basis of a sliding scale, doing little more than subjectively comparing the "reprehensibility" in the case being reviewed, to other recent cases decided before it. The result is a marked disparity from one court to the next as to what constitutes behavior falling within the five (5) factors of reprehensibility discussed in Campbell.

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July 24, 2007 PublicationOxymoronic ("Tortious Breach of Contract")

This is one of a series of articles under the by line “Butler on Bad Faith” originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 21, #6, p. 32 (July 24, 2007).

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June 19, 2007 PublicationWilliams v. Philip Morris Inc. II – The Fog of Legal Rationale

On February 20, 2007, the United States Supreme Court issued its much-anticipated second opinion in the negligence and fraud suit brought by the widow of Jesse Williams against Philip Morris. Mrs. Williams had asserted that the company had purposefully taken actions to obscure the dangers of smoking and, as a result, her husband was deceived into believing smoking was not harmful, a 47 year delusion that ultimately led to his illness and death.

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March 20, 2007 PublicationCaveat Insuror

On December 21, 2006, the Florida Supreme Court released its opinion in Dadeland Depot, Inc. v. St. Paul Fire & Marine Ins. Co.[FN1] In Dadeland, a bare majority of the high Court, led by Justice Lewis, held that an obligee under a performance bond qualifies as an "insured" within the meaning of section 624.155, Florida Statutes (1999). The Court's decision resulted from the following question certified to it by the Eleventh Circuit Court of Appeals:

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September 19, 2006 PublicationRemanded in Light of State Farm v. Campbell: The Opportunity For Further Illumination Presented by Williams v. Philip Morris Inc.

On May 30, 2006, the U.S. Supreme Court again granted a petition for writ of certiorari in the ongoing dispute between Philip Morris and the widow of Jesse Williams, an Oregon resident who died of lung cancer after smoking cigarettes for about 47 years.

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June 15, 2006 PublicationSelected Third-Party Bad Faith Liability Standards Governing Failure to Settle Cases

Under liability insurance policies, insurance companies assume the obligation of defending their insureds. In so doing, carriers can settle and foreclose their insured's exposure or refuse to settle, leaving the insured potentially exposed to damages that exceed the policy limits.  Most courts find that this obligation places insurers and insureds in a fiduciary (or fiduciary-type) relationship.  Accordingly, courts recognize that an insurer owes a duty to the insured to refrain from acting solely on the basis of the insurer's own interests in settlement. This duty extends to situations where an insurer has an opportunity to settle a third-party liability claim against its insured within policy limits and requires an insurer to pay an excess judgement against an insured, where the carrier in good faith should have settled.
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April 18, 2006 PublicationAchilles' Heel: First-Party Property "Bad-Faith" Damages

Insurance "bad-faith" is recognized throughout the United States. In the setting of first-party property insurance, the relationship between the insured and insurer commences contractually. However, that contractual relationship can also provide exposure for tort damages in a first-party "bad-faith" action. Indeed, the threat of facing a first-party property "bad-faith" tort action commonly influences insurers to resolve litigation out of fear, rather than for substantive purposes based on the merits. One of the "Achilles' Heels" of such causes of action is the inability of the insured to prove any measurable "bad-faith" damages. The identification and measurement of "damages" in first-party property "bad-faith" actions varies greatly depending on the jurisdiction. This commentary will discuss certain jurisdictional differences relating to damages in first-party "bad-faith" actions, exclusive of punitive damages.[FN1]

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February 21, 2006 PublicationThe Implied Covenant of Good Faith and Fair Dealing

Until the 20th Century, insurance contracts were treated the same as any other contract, with recovery generally limited to the damages contemplated by the parties when they entered into the contract. Insurance contracts, like any other, were enforced by their explicit terms, and courts were reluctant to substitute their own judgment for the terms upon which the parties agreed absent some independent tort or injustice. By the end of the 19th Century, however, the judiciary in the United States began to recognize a general obligation of good faith performance implied in every contract.  By the 1930s, the implied covenant of good faith became a standard doctrine. This duty of good faith and fair dealing originated to resolve disputes over agreements that were not explicit on pivotal contract terms, or left discretionary power in the hands of one of the contracting parties.

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June 07, 2005 PublicationAn Insurer's Liability For Punitive Damages In An Excess Judgment

Ging v. American Liberty Insurance Company, 423 F.2d 115 (5th Cir. 1970) is a case often cited for the proposition that third party insurers who act in bad faith could be held liable for punitive damages awarded against their insureds. However, the strength of this proposition appears to depend upon the extent to which a jurisdiction would permit the insurability of punitive damages. Those jurisdictions that permit coverage for punitive damages would also likely permit recovery of those damages later as a result of the carrier's bad faith. Jurisdictions whose public policy precludes insuring against punitive damage awards, may be more reluctant to permit recovery in a later bad faith action, depending upon the nature of the liability giving rise to the punitive damage award.

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April 19, 2005 PublicationDetours: Campbell Stops At The Willow Inn

Dealing with punitive damage claims is like driving down a road that is constantly under repair. The road is dangerous, uncomfortable, and full of detours. Although the United States Supreme Court has issued a rather clear and accurate map to help us through this rocky road, in some respects the map is already outdated, just as the road darkens and your interior auto light dims.

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March 22, 2005 PublicationThe Timely Demise of Excess Judgments (Probate Nonclaim Statutes)

Imagine your insured is at fault in an accident that kills her and causes devastating injury to another individual. You (the insurer) fail to meet a settlement demand within policy limits. Liability is clear and excess exposure is inevitable. The claimant files a civil lawsuit naming the "estate" of the insured as the defendant. However, the estate of the insured is not set up yet. Having no entity to actually serve with the complaint, the claimant petitions the probate court for administration of the decedent's estate, has a personal representative appointed, and immediately serves legal process on that representative. A multi-million dollar excess judgment is obtained in the civil action.

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January 18, 2005 PublicationPiece Of Mind: The Utah Supreme Court's Response To Campbell

Given that the Utah Supreme Court (“Utah”) previously reinstated a $145 million punitive damages award in favor of the Campbells, it is not surprising that on remand from the U.S. Supreme Court, this same state high court goes to great lengths to justify the largest punitive damages award it believes could possibly survive further constitutional review.

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November 16, 2004 PublicationHospital Lien Laws and Personal Injury Settlements

Many jurisdictions have hospital lien laws. These laws ensure payment to hospitals for the beneficial services they provide. Some jurisdictions liberally interpret these laws so that technical deficiencies in establishing or seeking enforcement do not defeat payment to the hospitals. Other jurisdictions are less likely to ignore such deficiencies.

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July 07, 2004 PublicationThe Continuing Need for De Novo Review of Punitive Damage Awards -- Liggett Group, Inc. v. Engle

In Liggett Group Inc. v. Engle, the Florida's Third District Court of Appeal reversed the largest punitive damage award in history. The circumstances of the award indicate it would have bankrupted the defendants and was, in essence, a civil death sentence. If that were the only error, Engle would merely mark another notch in the continued upward spiral of American jury awards. However, the compounded procedural and constitutional errors in Engle make it particularly useful for those who wish to examine the pros and cons of the current system of punitive damages. 

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January 21, 2004 PublicationDo Liability Insurers Have A Duty To Make An Offer Where There Is No Claim Against The Insured?

A liability insurer has a duty to handle and settle claims made against its insured in good faith. Courts have grappled with whether this duty requires an insurer to make a settlement offer when there is no claim against the insured.

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October 15, 2003 PublicationJuggling Multiple Claims With Inadequate Limits

Everyone knows that an insurer has to act in good faith to its insured when settling claims with third parties. However, when an insurer is faced with multiple claims exceeding the limits of coverage, the insurer is faced with tough choices. Insurers are frequently called upon to defend these choices in “bad-faith” actions. Can an insurer get summary judgment on the issue of “bad-faith” in multiple claimant/inadequate limits cases? Will the insurer be forced to litigate the “bad-faith” issue through a trial? This article attempts to answer these questions and provide guidance to insurers on meeting their duty of good faith when met with multiple claims, the sum total of which exceed policy limits.

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August 13, 2003 PublicationReflections – Thirty Years After Gruenberg v. Aetna Ins. Co.

It has long been accepted that parties to an insurance contract have an obligation to deal with each other fairly and in good faith. As early as 1914, this obligation was found to be grounded within an implied covenant within the contract between the insurer and its insured.  If a denial of benefits under the policy was ultimately resolved by a suit on the contract of insurance, a policyholder who prevailed would receive the amount due plus interest. The recognition of a cause of action for the tortious breach of the duty of good faith and fair dealing in the context of the first-party contract of insurance is relatively recent.

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July 16, 2003 PublicationWhat is a "Reasonable" Settlement When There Are Multiple Claimants?

Sometimes several people sustain injuries in an accident. This article addresses a recent decision of Florida's Fourth District Court of Appeal, Farinas v. Florida Farm Bureau General Insurance Company, that discusses what liability insurers should do when several people sustain injuries in an accident caused by the insured and the value of most, if not all, of each individual claim exceeds policy limits. This article discusses the basis for the Farinas holding and identifies some questions raised by Farinas.

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June 18, 2003 PublicationAppraising Windstorm Claims

Once again the annual “hold-your-breath” season is upon us. In Hartford, New York, and London weather channels are beating “sitcoms” on the “Nielson” ratings. Internet strikes on weather.com are out-numbering those for kournikova.com – well, maybe this is a slight exaggeration. But the point remains; that is, CAT losses, especially windstorm, commonly called Hurricanes, make or break a property insurer's profitability, not just in the year of the occurrence, but typically with a two to three year tail.

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April 16, 2003 PublicationThe Current State of Comparative Bad Faith

In most every jurisdiction, the basis for a claim of insurer bad faith is the recognition of a duty of good faith and fair dealing inherent in any contract of insurance. See, e.g., Boston Old Colony v. Gutierrez, 386 So. 2d 783 (Fla. 1980). The focus in such cases is usually the question of whether or not the insurer has violated that duty. Inevitably, the question arises as to whether or not the actions of the insured can be considered bad faith and, if so, whether such actions can be raised as an affirmative defense to a claim of insurer bad faith. 

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March 19, 2003 Publication"Advice of Counsel" – Defense or Defeat

The involvement of legal counsel to provide advice concerning the settlement of property and liability claims has become increasingly commonplace. This is primarily due to the general proliferation of litigation and specifically "bad-faith" claims. As the involvement of legal counsel becomes more prevalent, so does the "defense" of "advice of counsel." This commentary will address this so-called "defense" in the context of "bad-faith" cases.

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February 19, 2003 PublicationInstitutional Bad Faith: Individual Or Class Action Litigation (All For One? - Or - One For All?)

In 1844, Alexandre Dumas, one of the most famous French writers of the nineteenth century, shared his vision of comradery and unified ambition. In his classic, The Three Musketeers, set under the seventeenth century rule of Louis XIII, a small association of elite combatants swore their allegiance to a common purpose . . . and to each other: All for one, and one for all! Is this sense of nobility and uniformity present in the battle cry of plaintiff lawyers brandishing their swords in modern day litigation against the insurance industry?

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January 22, 2003 PublicationAnger And Punishment

Horace once wrote: “Anger is a brief madness.” Such human condition apparently has not changed in over 2000 years.

USA Today's January 9, 2003 editorial page began with the topic sentence: “Horror stories abound about huge damage awards turning courts into lotteries, transforming plaintiffs and their lawyers into instant winners.” In addressing a recent Ohio Supreme Court decision, the editorial stated

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December 18, 2002 PublicationCan It Be 'Bad Faith' For An Insurer To File A Declaratory Action?

In recent months, insurance company clients of the author have faced allegations that the filing of a declaratory action, by an insurer, to determine or cut off coverage, is bad faith. This is a somewhat novel and, as it turns out, disfavored cause of action. To begin with, a “declaratory judgment action is the preferred manner of deciding a dispute between an insured and insurer over the construction and effect of the terms of the insurance contract.”

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October 23, 2002 PublicationTime Bombs

Insurers find nothing more frustrating than paying for unearned indemnification dollars. In a first-party context this may result from unreported values causing a deflated premium. In other words, the insurer's actual exposures require more premium than charged -- usually over many policy years. In a third-party context this unearned protection is the result of an excess judgment that the liability carrier is required to pay. In most jurisdictions this is the consequence of the liability insurer's failure to settle within policy limits when it had the opportunity to do so. 

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September 18, 2002 PublicationSpoliation As Bad Faith

What happens when an insurer's employee, insured, adjuster or attorney alters or destroys critical evidence? Can spoliation of evidence also constitute bad faith? Although there is no published decision directly on point, it appears that some courts may be willing to extend an insurer's exposure to include extra-contractual damages for such conduct

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April 17, 2002 PublicationSeventh Circuit Court Of Appeals Finds "Independent" Insurance Broker To Be Intermediary Of Insured, Barring Coverage And Bad Faith Claims

The Seventh Circuit recently addressed the question of whether an independent insurance broker, who provided clients to the insured, was their intermediary, thus barring coverage and bad faith claims. (First Insurance Funding Corporation v. Federal Insurance Company, No. 01-2855 (7th Cir. March 28, 2002)).

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November 21, 2001 PublicationRecognizing Subtle Exposures To Avoid Bad Faith Claims

“The insurer does not . . . insure the entire range of an insured's wellbeing outside the scope of and unrelated to the insurance policy, with respect to paying third party claims. It is an insurer, not a guardian angel.”

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October 17, 2001 PublicationJustices: Please Take This Case!

Two recent state court decisions jeopardize the right of insurers to consult legal counsel when considering whether to pay or deny the claim of a policyholder. The Arizona and Ohio state supreme courts have issued opinions eroding, even abrogating, the attorney client and work product privileges. In one of these decisions, Boone v. Vanliner, 744 N.E.2d 154 (Ohio 2001), the insurer has petitioned the United States Supreme Court to issue the writ of certiorari, hear the case and reverse the Ohio Supreme Court. The undersigned urges the United States Supreme Court to take the Vanliner case for the reasons stated below.

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September 19, 2001 PublicationAdditional Insured Coverage And Bad Faith

Coverage determinations regarding the nature of policy duties that liability insurers owe to additional insureds may create bad faith exposure for the unwary insurer. Bad faith liability frequently arises when an insurer fails to recognize the scope of defense and indemnification obligations it owes to an additional insured. Issues also arise when additional insureds compete with named insureds for limited policy proceeds which cannot adequately protect the interests of both. This article highlights the source of the dilemma – the scope of the coverage afforded to an additional insured – and provides illustrations of bad faith exposure in the wake of claims asserted against additional insureds.

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April 18, 2001 PublicationResolution of the Underlying Claim as a Prerequisite to Bad Faith

In every jurisdiction that has considered the issue, a claim for bad faith does not accrue until there has been a final determination of the underlying claim for insurance benefits or third party damages. Taylor v. State Farm Mutual Automobile Ins. Co., 913 P.2d 1092 (Ariz. 1996); Blanchard v. State Farm Mutual Automobile Ins. Co., 575 So. 2d 1289 (Fla. 1991). Thus, before a plaintiff can sue an insurance company for bad faith, he must first finally resolve the claim which he contends the insurance company failed to settle in good faith. What constitutes a resolution of that claim varies with the type of claim asserted and the jurisdiction in which it is brought, but it can generally be broken down into three categories: excess judgment, settlement of the underlying claim, and judgment below policy limits.

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March 21, 2001 PublicationDiminished Value In Auto Damage Claims

We have seen, in recent years, a spate of actions for bad faith, and class actions, on the issue of so-called diminished value. These suits claim payment by the insurance company of the actual cash value of a property loss - or the cost to repair a loss - does not make the insured whole. This is because of some intangible quality in the property that cannot be restored by repair. Before the loss it was pristine or original. Afterward it is corrupted or compromised. It is worth less in the market.

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February 21, 2001 PublicationPossible Bad Faith In The Allocation Of Coverage For Third Party Continuous Loss Claims

An insured causes damage or injury that results in a third party claim for continuous loss spanning three years. The third party makes a claim under the policy in effect at the time of the loss. The policy covers the same three years as the loss and provides $300,000.00 for each year. In other words, the policy provides a total of $900,000.00 aggregate coverage over three years. We will assume the claim is settled for $300,000.00.

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October 24, 2000 PublicationRaising the Coverage Defense in the Bad Faith Case

In representing insurers in bad faith litigation, from time to time one will find a coverage issue that was not raised in the underlying litigation. The question to be addressed in this article is whether the coverage issue may be raised for the first time as a defense to the bad faith litigation.

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August 22, 2000 PublicationIs It Bad Faith to Settle Covered Claims Only?

It is beyond dispute that the duty to defend, under liability insurance, is contractual, and is broader than the duty to indemnify. National Grange Mut. Ins. Co. v. Continental Cas. Ins. Co., 650 F. Supp. 1404 (S.D.N.Y. 1986). Even if some allegations of the complaint clearly are outside the scope of coverage, the insurance company is obligated to defend the entire suit. Id. See also, Aerojet-General Corp. v. Transport Indemnity Co., 948 P.2d 909 (Cal. 1997).

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July 25, 2000 PublicationLevel The Playing Field: Abate Or Stay The Bad Faith Action Pending Resolution Of The Underlying Liability Or Coverage Case

Before resolution of a first-party action for coverage or a third-party action to establish an insured's liability, a plaintiff will often initiate an action for bad faith. By doing so, the plaintiff attempts to gain an unfair advantage in discovery and at trial. This article outlines some of the reasons why the bad faith action should be abated in its entirety or, at the very least, stayed pending resolution of the underlying claim.

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June 20, 2000 PublicationThe Public Adjuster's Perspective

Mr. Lesser is a prominent public adjuster. His business office is located in Miami Beach, Florida. The views and opinions stated by Mr. Lesser in this interview are his own. Neither Mr. Craig, nor Butler , necessarily approve or agree with any of them.

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May 19, 2000 PublicationContractors' Bonds: Who Can Sue The Surety For Bad Faith?

A contractor's performance and payment bond creates rights and obligations among three parties ­ the principal, the obligee and the surety. The principal may be the general contractor or a subcontractor. The obligee (under a performance bond) usually is the owner of the project or (under a payment bond) the subcontractors, materialmen and equipment suppliers. The surety most often is an insurance company or financial institution engaged, among other things, in the business of issuing performance and payment bonds.

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April 18, 2000 PublicationThree Reasons Why Loss Reserves Ought Not Be Admissible In A Bad Faith Case

In the trial of a bad faith case, plaintiff often tries to put into evidence the reserves the insurance company set for the claim. This article contends that evidence ought not be admissible. It will outline three reasons why not.

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March 01, 2000 PublicationIssue Revisited: Who Can Sue The Surety For Bad Faith Under A Construction Bond?

In this journal, in May 2000, the author discussed the then recent decision in Ginn Construction Co. v. Reliance Insurance Co., 51 F. Supp. 2d 1347 (S.D. Fla. 1999). He argued that, contrary to a suggestion in Ginn, an obligee under a general contractor's performance bond ought not be allowed to sue the surety for bad faith. This article will look at some decisions handed down since. The trend is toward no bad faith liability by a surety to either an obligee or a principal under a surety bond.

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February 15, 2000 PublicationPerfunctory Defense

per-func-to-ry   per-fúngk'te­re   adj.   Done or acting routinely andwith little interest or care. The American Heritage Dictionary, NewSecond College Edition (1983).

The Scenario

Consider a common scenario. An insurance company issues a liability policy. The policyholder does something, or fails to do something, as a result of which a partyis injured. The injured party becomes the plaintiff, and the policyholder the defendant,in a tort action. The insurance company reviews the tort action and sees right awaythat probably it is not covered. It retains a defense attorney to handle the tort action butsends a reservation of rights letter to the policyholder and files a separate declaratoryaction to determine coverage. So far so good. See, e.g., Insurance Co. of the West v.Haralambos Beverage Co., 195 Cal. App. 3d 1308, 1319 (1987).

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December 21, 1999 PublicationMalicious Defense

This is one of a series of articles under the by line "Butler on Bad Faith" originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 13, #16, p. 25 (December 21, 1999). © Copyright Butler 1999.

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November 16, 1999 PublicationWhy A First Party Insurer Is Not A Fiduciary

Courts, commentators, lawyers and others have applied the word "fiduciary" to insurance companies and insurance claims in a loose manner. The result has been bad law and confusion over if and when an insurer is a fiduciary. This article will argue that an insurer does not, and ought not, owe a fiduciary duty to an insured who has presented a first party claim.

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October 19, 1999 PublicationThe Duty of Good Faith: Continuing Into Litigation

First-party bad faith cases are typically based on conduct or events (e.g., settlement offers, investigations and evaluations) occurring during the time period after a claim is made but before any litigation is commenced. Once a breach of contract or declaratory action is filed, it is generally understood that the insured and insurer stand in an adversarial relationship which presumably entitles each party to zealously pursue its litigation tactics and strategy. Thus, courts generally will not permit an insurer's litigation conduct to be admitted as evidence of bad faith. Over the years, however, a significant number of courts have held an insurer owes a continuing duty of good faith to an insured throughout the litigation process and, therefore, an insurer's post-filing conduct may be admitted as evidence of bad faith. This article is a brief review of some of the leading cases addressing the continuing duty of good faith and its ramifications affecting insurance companies and defense counsel.

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September 21, 1999 PublicationGood Faith Settlement of Claims in Excess of Policy Limits Against Multiple Insureds


Insurers and insureds alike may find themselves in the dark when claims against multiple insureds exceed policy limits. Only a few jurisdictions explicitly have addressed how policy proceeds should be allocated in this situation. The jurisdictions that have addressed the issue have split into two general camps. Some hold that carriers must allocate proceeds proportionately among all insureds. Other jurisdictions hold that a carrier need only act in "good faith" and may settle on behalf of fewer than all insureds. The manner of proportional allocation and the characteristics of a "good faith" settlement under such circumstances are not well described in the case law.

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August 17, 1999 PublicationMultiple Claims Exceeding the Policy Limits

When courts and state legislatures expand the duties owed by liability insurers to insureds there is a commensurate expansion of the grounds for extracontractual claims. One area of expansion has been in cases involving multiple third-party claimants - with liability clear and damages exceeding the policy limits. These cases make difficult issues for claims professionals.

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July 20, 1999 PublicationAdvice of Counsel: Insurance Companies' First and Last Line of Defense / Mealey's Litigation Reports: Bad Faith

The dynamic nature of bad faith law throughout the country practically mandates that insurers have ongoing legal advice to protect the interests of the company, the shareholders and all insureds. Such advice can prevent unwitting misconduct by the insurer. The "advice of counsel defense" in the context of insurance bad faith litigation issimply an insurer asserting, as proof that it did not act in bad faith, that it reasonably relied on the advice given by its legal advisors.

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July 01, 1999 PublicationStandard of Care in First Party Bad Faith Actions: Is "Fairly Debatable" Fair?

Since the early 1970s, when first-party bad faith actions came into being, a considerable body of law has developed on the standard of care for insurers to avoid liability. In creating and defining such standards, courts have struggled to balance the interests of insureds and insurers. This article is a general review of those decisions and standards.

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March 16, 1999 PublicationStatute of Limitations in a Bad Faith Action: Which One Applies and When Does It Accrue?

Determining which statute of limitations governs a cause of action against an insurer for bad faith is complicated. It depends on whether the action is a first or third party action. It depends also on whether the controlling jurisdiction deems the action to be one sounding in tort or contract.

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January 19, 1999 PublicationDuty of Insurers to Advise Insureds of Policy Benefits

This article considers whether an insurer has a duty to advise an insured of policy benefits not claimed. Some courts require insurers to protect an insured's interests affirmatively by informing the insured of available benefits. Other courts have refused to impose this duty upon insurers. Recent cases suggest a trend toward imposing this duty.

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December 15, 1998 PublicationFederal Preemption of Extracontractual Claims Under Flood Insurance Policies

During the past year, numerous areas in the United States have experienced severe and, at times, unprecedented flooding. Whether the flooding occurred as a result of the active Atlantic hurricane season or the effect of "El Nino" on national weather patterns, the result for insurers is the same: an increase in the number of claims under flood insurance policies. With this comes a corresponding increase in the likelihood of extracontractual or bad faith claims.

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December 14, 1998 PublicationSupplement to Federal Preemption of Extracontractual Claims Under Flood Insurance Policies

This is a supplement to the December 1998 article published in Mealey's Litigation Reports: Bad Faith on "Federal Preemption of Extracontractual Claims Under Flood Insurance Policies" following the U.S. Third Circuit Court of Appeals reversal of its decision on rehearing in Van Holt v. Liberty Mutual Fire Insurance Co. This supplement was originally published in Mealey's Litigation Report: Bad Faith, Vol. 12, #18, p. 27 (Jan. 19, 1999). Copyright Butler 1999.

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November 17, 1998 PublicationThe Expanding Scope of Discovery in Bad Faith Cases

Bad faith litigation is complex and the stakes are high. In such cases, the discovery process has become critical as litigants struggle for advantage. The litigation often raises issues outside the facts of the particular case or claim. The conduct of the insurance company as a whole sometimes is placed on trial.

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October 20, 1998 PublicationDoes a Liability Insurer Have a Duty to Initiate Settlement Negotiations?

Liability insurance policies typically provide the insurer with complete control over the defense and settlement of third-party claims against the insured. This control imposes upon the insurer a duty to exercise good faith in settling claims. When the claimant makes a reasonably prudent offer to settle within the policy limits, courts generally agree the good-faith duty owed an insurer will require the insurer to settle the case. 

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August 18, 1998 PublicationChoice of Law in Bad Faith Cases

The substantive law of bad faith is not uniform from state to state. Some states treat bad faith as a breach of contract; some as a tort. In some states, punitive damages are available. In others, they are not. Some allow claims for emotional distress, while others reject them.

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July 21, 1998 PublicationRecovery of Damages for Emotional Distress in Tort, Contract and Statutory Bad Faith Actions

Emotional distress damages may be the most significant aspect of any bad faith action in jurisdictions that allow them. This article outlines the several theories that justify the recovery of such damages. It discusses also the impact of a recent Florida Supreme Court decision which authorized recovery for emotional distress under that state's bad faith statute.

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Key Points