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Pac. Mut. Life Ins. Co. v. Haslip - 499 U.S. 1

Rule:

Alabama's common law rule is that a corporation is liable for both compensatory and punitive damages for the fraud of its employee effected within the scope of his employment.

Unlimited jury discretion or unlimited judicial discretion in the fixing of punitive damages may invite extreme results that jar one's constitutional sensibilities. There is no mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case. General concerns of reasonableness and adequate guidance from the court when the case is tried to a jury properly enter into the constitutional calculus.

Facts:

Petitioner insurer's agent solicited and wrote policies, including health insurance, for a municipality and misappropriated premium payments. Respondent insureds filed suit for fraud after discovering no health insurance coverage existed. The trial jury was instructed it could award punitive damages if it determined there was liability for fraud. The jury returned verdicts against insurer and agent for both liability and punitive damages. The insurer appealed. The state supreme court, in a split decision, affirmed the trial court. The Supreme Court of the United States granted the insurer's petition for certiorari as the state supreme court expressed doubts as to whether the punitive damages award was in violation U.S. Const. amend. XIV due process.

Issue:

Was the insurer liable for the acts committed by its agent, and was the trial court's award of punitive damages valid under the due process clause of the Fourteenth Amendment?

Answer:

Yes.

Conclusion:

The Court determined that the insurer had prior notice of possible frauds by agent, and that state common law allowed corporate liability for compensatory and punitive damages for fraud where its employee, in this case agent, effected fraud within the scope of employment. The Court determined the state common law advanced the state's goals of deterrence and retribution, and was part of traditional state tort law, hence the punitive damages award was not a due process violation. Further, the Alabama Supreme Court had established post-trial review of punitive damages awards to ensure that such awards were not grossly out of proportion to the severity of the offense.

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