PUNITIVEDAMAGESARTICLE
005
“Arellano likely caused the value of punitive damages
claims to increase in Arizona, particularly where the
punitive conduct is rather reprehensible. To limit
awardable punitive damages, the defense should focus on
reducing the impact of the allegedly egregious conduct on
the reprehensibility scale.”
and Cas. Ins. Co., 230 Ariz. 592, 610, 277 P.3d 789, 807 (App.
2012). Within this reprehensibility scale, acts of violence or
threats of bodily harm are the most reprehensible, followed by
acts taken in reckless disregard for others’ health or safety,
affirmative acts of trickery and deceit, and finally, acts of
omission and mere negligence. Hudgins v. Southwest Airlines,
Co., 221 Ariz. 472, 490, 212 P.3d 810, 828 (App. 2009).
Turning toward the second guidepost – the disparity between
actual or potential harm and the punitive damages award –
“single digit multipliers are more likely to comport with due
process, and a factor more than four comes close to the line
of constitutional impropriety.” Id. at 491, 212 P.3d at 829. That
said, there is no bright line ratio that is accepted. A high ratio
is justified if a particularly egregious act results in a small
amount of damages or such damages are difficult to compute.
State Farm, 538 U.S. at 425. Conversely, when compensatory
damages are substantial, then a lesser ratio, perhaps only
equal to compensatory damages, can reach the outermost limit
of the due process guarantee. Id.
Finally, the third guidepost instructs that the court compare the
punitive damages award to authorized civil penalties in similar
cases. Insofar as comparable civil penalties exist, an award of
punitive damages should be in line with such penalties. This is
normally the least useful of the guideposts.
The Court of Appeals’ Analysis in Arellano
Arellano involved breach of contract and bad faith claims
based on the denial of a claim for life insurance benefits. Mrs.
Arellano purchased a $150,000 life insurance policy for her
husband, which she was told was “immediately in effect” with
the payment of the policy premium. In light of Mr. Arellano’s
hypertension and the fact that his age was incorrectly stated
on the application, Primerica required an underwriting medical
interview. But when its outside vendor contacted Mr. Arellano
for the interview, Mr. Arellano stated that his wife had already
purchased a policy from a different company. The vendor
issued an alert to Primerica that Mr. Arellano cancelled the
application, but Primerica did not contact the Arellanos to
resolve whether it had, in fact, been cancelled.
Shortly thereafter, Mr. Arellano suddenly died, and his wife
submitted a claim for death benefits. Primerica denied the
claim, asserting there was no policy or coverage because Mr.
Arellano failed to complete the medical interview. Mrs. Arellano
sued Primerica and asserted various claims, including breach
of contract, bad faith and forgery (based on an attempt to
reduce the $150,000 policy limit to $100,000). The jury found
in favor of Mrs. Arellano, awarding her $82,000 on the bad
faith claim and $1,117,572 on the punitive damages claim. On
appeal, Primerica asserted that the punitive damages award
was excessive and violated due process.
To evaluate whether the award of punitive damages was
excessive, the Arizona Court of Appeals utilized the Gore
guideposts described above. Focusing first on reprehensibility,
it concluded that Primerica’s actions reached the middle to
high range on the reprehensibility scale. Specifically, the Court
of Appeals noted that the jury found Primerica had forged the
Arellanos’ signatures in an attempt to reduce the life insurance
policy from $150,000 to $100,000. It also noted that Primerica
accepted the premium payment without properly obtaining
the Arellanos’ signatures, failed to provide copies of the
application for the Arellanos to verify information, and failed
to follow up with the Arellanos after the medical interview was
cancelled.
Turning toward the disparity between the harm and the
punitive damages awarded, the Court of Appeals found that
a 13:1 ratio of punitive damages to compensatory damages
was excessive and violated due process. Finally, the Court
of Appeals compared A.R.S. § 20-456.B (which allows for a
$50,000 civil penalty for unfair practices and fraud) to the
punitive damages award of more than $1,000,000. It noted
that the civil penalty and