499 U.S. 1 (1991), 89-1279, Pacific Mutual Life Insurance Company v. Haslip

Docket NºNo. 89-1279
Citation499 U.S. 1, 111 S.Ct. 1032, 113 L.Ed.2d 1, 59 U.S.L.W. 4157
Party NamePacific Mutual Life Insurance Company v. Haslip
Case DateMarch 04, 1991
CourtUnited States Supreme Court

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499 U.S. 1 (1991)

111 S.Ct. 1032, 113 L.Ed.2d 1, 59 U.S.L.W. 4157

Pacific Mutual Life Insurance Company



No. 89-1279

United States Supreme Court

March 4, 1991

Argued Oct. 3, 1990

No. 89-1279



After respondents' health insurance lapsed when one Ruffin, an agent for petitioner insurance company and another, unaffiliated insurance company, misappropriated premiums issued by respondents' employer for payment to the other insurer, respondents filed an action for damages in state court, claiming fraud by Ruffin and seeking to hold petitioner liable on a respondeat superior theory. Following the trial court's charge instructing the jury that it could award punitive damages if, inter alia, it determined there was liability for fraud, the jury, among other things, returned a verdict for respondent Haslip of over $1 million against petitioner and Ruffin, which sum included a punitive damages award that was more than 4 times the amount of compensatory damages Haslip claimed. The Supreme Court of Alabama affirmed, specifically upholding the punitive damages award.

Held: The punitive damages award in this case did not violate the Due Process Clause of the Fourteenth Amendment. Pp. 9-24.

(a) Holding petitioner responsible for Ruffin's acts did not violate substantive due process. The jury's finding that Ruffin was acting within the scope of his apparent authority as an agent of petitioner when he defrauded respondents was not disturbed by the State Supreme Court and is amply supported by the record. Moreover, Alabama's longstanding common law rule that an insurer is liable for both compensatory and punitive damages for the intentional fraud of its agent effected within the scope of his employment rationally advances the State's interest in minimizing

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fraud, since that rule creates a strong financial incentive for vigilance by insurers. Thus, imposing liability on petitioner under the respondeat superior doctrine is not fundamentally unfair. Pp. 12-15.

(b) Since every state and federal court considering the question has ruled that the common law method for assessing punitive damages does not in itself violate due process, it cannot be said that that method is so inherently unfair as to be per se unconstitutional. The method was well established before the Fourteenth Amendment was enacted, and nothing in the Amendment's text or history indicates an intention to overturn it. Pp. 15-18.

(c) Nevertheless, unlimited jury or judicial discretion in the fixing of punitive damages may invite extreme results that are unacceptable under the Due Process Clause. Although a mathematical bright line cannot be drawn 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. Pp. 18.

(d) The punitive damages assessed against petitioner, although large in comparison to the compensatory damages claimed by Haslip, did not violate due process, since the award did not lack objective criteria and was subject to the full panoply of procedural protections. First, the trial court's instructions placed reasonable constraints on the exercise of the jury's discretion by expressly describing punitive damages' purposes of retribution and deterrence, by requiring the jury to consider the character and degree of the particular wrong, and by explaining that the imposition of punitive damages was not compulsory. Second, the trial court conducted a post-verdict hearing that conformed with Hammond v. City of Gadsden, 493 So.2d 1374 (Ala.), which sets forth standards that ensure meaningful and adequate review of punitive awards. Third, petitioner received the benefit of appropriate review by the State Supreme Court, which applied the Hammond standards, approved the verdict thereunder, and brought to bear all relevant factors recited [111 S.Ct. 1036] in Green Oil Co. v. Hornsby, 539 So.2d 218 (Ala.), for ensuring that punitive damages are reasonable. Pp. 18-24.

553 So.2d 537 (Ala.1989), affirmed.

BLACKMUN, J., delivered the opinion of the Court, in which REHNQUIST, C.J. and WHITE, MARSHALL, and STEVENS, JJ., joined. SCALIA, J., post, p. 24, and KENNEDY, J., post, p. 40 filed opinions concurring in the judgment. O'CONNOR, J., filed a dissenting opinion, post, p. 42. SOUTER, J., took no part in the consideration or decision of the case.

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BLACKMUN, J., lead opinion

Justice BLACKMUN delivered the opinion of the Court.

This case is yet another that presents a challenge to a punitive damages award.


In 1981, Lemmie L. Ruffin, Jr., was an Alabama-licensed agent for petitioner Pacific Mutual Life Insurance Company. He also was a licensed agent for Union Fidelity Life Insurance Company. Pacific Mutual and Union are distinct and nonaffiliated entities. Union wrote group health insurance for municipalities. Pacific Mutual did not.

Respondents Cleopatra Haslip, Cynthia Craig, Alma M. Calhoun, and Eddie Hargrove were employees of Roosevelt City, an Alabama municipality. Ruffin, presenting himself as an agent of Pacific Mutual, solicited the city for both health and life insurance for its employees. The city was interested. Ruffin gave the city a single proposal for both coverages. The city approved and, in August, 1981, Ruffin prepared separate applications for the city and its employees for group health with Union and for individual life policies with Pacific Mutual. This packaging of health insurance with life

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insurance, although from different and unrelated insurers, was not unusual. Indeed, it tended to boost life insurance sales by minimizing the loss of customers who wished to have both health and life protection. The initial premium payments were taken by Ruffin and submitted to the insurers with the applications. Thus far, nothing is claimed to have been out of line. Respondents were among those with the health coverage.

An arrangement was made for Union to send its billings for health premiums to Ruffin at Pacific Mutual's Birmingham office. Premium payments were to be effected through payroll deductions. The city clerk each month issued a check for those premiums. The check was sent to Ruffin or picked up by him. He, however, did not remit to Union the premium payments received from the city; instead, he misappropriated most of them. In late 1981, when Union did not receive payment, it sent notices of lapsed health coverage to respondents in care of Ruffin and Patrick Lupia, Pacific Mutual's agent-in-charge of its Birmingham office. Those notices were not forwarded to respondents. Although there is some evidence to the contrary, see Reply Brief for Petitioner B1-B4, the trial court found, App. to Pet. for Cert. A2, that respondents did not know that their health policies had been canceled.


Respondent Haslip was hospitalized on January 23, 1982. She incurred hospital and physician's charges. Because the hospital could not confirm health coverage, it required Haslip, upon her discharge, to make a payment upon her bill. Her physician, when he was not paid, placed her account with a collection agency. The agency obtained a judgment against Haslip and her credit was adversely affected.

In May, 1982, respondents filed this suit, naming as defendants Pacific Mutual (but not Union) and Ruffin, individually and as a proprietorship, in the Circuit Court for Jefferson

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[111 S.Ct. 1037] County, Ala. It was alleged that Ruffin collected premiums but failed to remit them to the insurers, so that respondents' respective health insurance policies lapsed without their knowledge. Damages for fraud were claimed. The case against Pacific Mutual was submitted to the jury under a theory of respondeat superior.

Following the trial court's charge on liability, the jury was instructed that, if it determined there was liability for fraud, it could award punitive damages. That part of the instructions is set forth in the margin.[1] Pacific Mutual made no objection on the ground of lack of specificity in the instructions, and it did not propose a more particularized charge. No evidence was introduced as to Pacific Mutual's financial worth. The jury returned general verdicts for respondents against Pacific Mutual and Ruffin in the following amounts:

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Haslip: $1,040,000[2] Calhoun: 15,290

Craig: 12,400 Hargrove: 10,288

Judgments were entered accordingly.

On Pacific Mutual's appeal, the Supreme Court of Alabama, by a divided vote, affirmed. 553 So.2d 537 (1989). In addition to issues not now before us, the court ruled that, while punitive damages are not recoverable in Alabama for misrepresentation made innocently or by mistake, they are recoverable for deceit or willful fraud, and that, on the evidence in this case, a jury could not have concluded that Ruffin's misrepresentations were made either innocently or mistakenly. Id. at 540. The majority then specifically upheld the punitive damages award. Id. at 543.

One Justice concurred in the result without opinion.[3] Ibid. Two Justices dissented in part on the ground that the award of punitive damages violated Pacific Mutual's due process rights under the Fourteenth Amendment. Id. at 544-545.

Pacific Mutual, but not Ruffin, then brought the case here. It challenged punitive damages in Alabama as the product of unbridled jury discretion and as violative of its due process rights. We stayed enforcement of the Haslip judgment, App. to Pet. for Cert. E2, and then granted certiorari, 494 U.S. 1065 (1990),

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to review the punitive damages procedures and award in [111 S.Ct. 1038] the light of the long-enduring debate about their propriety.[4]

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This Court and individual Justices thereof on a number of occasions in recent years have expressed doubts...

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