Jessen v. National Excess Insurance

SCARBOROUGH, Justice, dissenting.

The award of $50,000 punitive damages in this case, affirmed by the majority, must fail for a number of reasons. In making its award, the jury was instructed to rely on a negligence standard that is overbroad and an evidence standard that is insufficient.

The negligent failure of an insurer to conclude a claim investigation can subject the insurer to a claim for compensatory damages. Punitive damages depend on the nature of a defendant’s mental state and are not recoverable if a defendant’s conduct is merely negligent. See Tuttle v. Raymond, 494 A.2d 1353, 1360 (Me.1985); W. Prosser, Handbook on the Law of Torts § 2, at 9-10 (4th ed. 1971). In the case before us the trial court determined that the conduct of a defendant insurer was not malicious or fraudulent. Such a determination by a trial court should remove the issue of punitive damages from jury consideration.

The current New Mexico jury instructions on punitive damage awards, SCRA 1986, 13-1827, are confusing to judges and jurors alike. A jury is instructed to award punitive damages if it finds “the acts of defendant were [willful, wanton, malicious, reckless, grossly negligent, fraudulent and in bad faith].” SCRA 1986, 13-1827. In “Directions for Use”, the jury is told: “Bracketed words should be selected as supported by the evidence.” Id. These instructions are poorly drafted and invite misunderstanding. In this regard, I agree with the Arizona court in Linthibum v. Nationwide Life Ins. Co., 150 Ariz. 326 , 723 P.2d 675, 680 (1986):

Having juries decide whether to award compensatory vs. punitive damages based on vague verbal - distinctions between mere negligence, gross negligence and reckless indifference often futile and nothing more than semantic jousting by opposing attorneys. Further, it leads to misapplication of the extraordinary civil remedy of punitive damages which should be appropriately restricted to only the most egregious of wrongs.

Whether “gross” or “reckless,” a negligence standard for punitive damages is overbroad. Contra Loucks v. Albuquerque Nat’l Bank, 76 N.M. 735 , 418 P.2d 191 (1966). I agree with the Supreme Judicial Court of Maine that a “gross” negligence standard is too broad and vague and can result in unfair and inefficient punitive damages awards. Tuttle, 494 A.2d at 1361 . Likewise, a “reckless” negligence standard can “allow virtually limitless imposition of punitive damages.” Id. Instead, there should be a more narrow focus on a defendant’s mental state rather than on outward conduct. D. Dobbs, Handbook on the Law of Remedies § 3.9, 205 (1973); Gurule v. Illinois Mutual Life and Casualty Co., 152 Ariz. 600 , 734 P.2d 85 (1987); Linthicum v. Nationwide Life Ins. Co., 150 Ariz. 326 , 723 P.2d 675 (1986).

The decision of whether to award punitive damages should turn upon a defendant’s state of mind. Gurule, 152 Ariz. at 602 , 734 P.2d at 87 . A defendant must have been “consciously aware of the wrongfulness or harmfulness of his conduct ... in deliberate contravention to the rights” of a plaintiff before punitive damages can be awarded. Linthicum, 150 Ariz. at 326 , 723 P.2d at 679 . If a defendant did not act with what the Arizona Supreme Court has described as an “evil mind”, a plaintiff can be awarded compensatory damages but not punitive damages. The requisite “evil mind” can be established by evidence that a defendant, acting with a knowing, culpable mind: (1) intended to injure a plaintiff or (2) consciously pursued a course of conduct despite knowing it created a substantial risk of significant harm to a plaintiff.

Bad faith alone by a plaintiff can sustain a compensatory damages award. Punitive damages, however, should not be awarded “unless there is something more than the conduct required to establish the tort.” Id. at 332 , 723 P.2d at 681 . Contra, Boudar v. E.G. & G., Inc., 106 N.M. 279 , 742 P.2d 491 , (1987). “[I]n bad faith cases, unless the evidence established that, in addition to bad faith, defendant acted with an evil mind, punitive damages are unnecessary because compensatory damages adequately deter.” Gurule, 152 Ariz. at 601 , 734 P.2d at 86 .

Awarding punitive damages primarily furthers the same objectives which underlie criminal law. Id. Negligence alone cannot support awards of punitive damages because of their quasi-criminal nature. The purpose of punitive damages is not to compensate the plaintiff, but to punish the defendant and to deter “conduct involving some element of outrage similar to that usually found in crime.” Restatement (Second) of Torts, § 908 Comment b (1979); see also W. Prosser, Handbook on the Law of Torts § 2, at 9 (4th ed. 1971).

Recently there has been considerable national debate over punitive damages awards in civil cases. Annotation, Standard of Proof As to Conduct Underlying Punitive Damage Awards — Modem Status, 58 A.L.R. 4th 878 (1987). Challenges to punitive damages usually focus on whether they violate: (1) the eighth amendment prohibition against excessive fines 1 or (2) the fifth and fourteenth amendments due process guarantees. 5 M. Minzer, J. Nates, C. Kimball, D. Axelrod & R. Gold-stein, Damages in Tort Action, § 40.15[1] — [3] (1988). Punitive damages awards are similar to criminal convictions, and defendants should be accorded procedural safeguards similar to those in criminal cases, including a burden of proof higher than the civil standard. Id. at § 40.15[1]; see also J. Ghiardi & J. Kircher, Punitive Damages Law and Practice, § 3.03 (1984).

We currently allow a punitive damages award if a plaintiff can meet a preponderance of the evidence burden of proof. United Nuclear Corp. v. Allendale Mutual Ins., 103 N.M. 480, 485 , 709 P.2d 649, 654 (1985). I believe a greater burden of proof should be required whereby a plaintiff can recover compensatory damages upon proof by a preponderance of the evidence but can be awarded punitive damages only upon proof by clear and convincing evidence. E.g., Linthicum, 150 Ariz. 326 , 723 P.2d 675 (1986); Tuttle v. Raymond, 494 A.2d 1353 (Me.1985); Wangen v. Ford Motor Co., 97 Wis.2d 260 , 294 N.W.2d, 437 . Before awarding punitive damages a factfinder would thus be required to find there was clear and convincing evidence a defendant acted fraudulently, or with malicious intent as construed in Curtiss v. Aetna Life Ins. Co., 90 N.M. 105 , 560 P.2d 169 (Ct.App.), cert. denied, 90 N.M. 7 , 558 P.2d 619 (1976).

For the reasons set forth, I dissent from the majority opinion.

. See Massey, The Excessive Fines Clause and Punitive Damages: Some Lessons From History, 40 Vand.L.Rev. 1234 (1987); Jeffries, A Comment on the Constitutionality of Punitive Damages, 72 Va.L.Rev. 139 (1986); The Constitutional Case for Reforming Punitive Damages Procedures, 69 Va.L.Rev. 269 (1983).