Value of “Potential Harm” Is Important In Assessing Whether Punitive Damage Award Is Excessive

In one of the first district court decisions applying the U.S. Supreme Court’s State Farm test, the trial court affirmed an award of punitive damages against an insurer for bad faith where the ratio of punitive damages to compensatory damages was 75:1 ($150,000 versus $2,000). In The Willow Inn, Inc. v. Public Serve Mutual Insurance Company, No. Civ. A. 00-5481, 2003 WL 21321370, 2003 U.S. Dist. LEXIS 9558 (E.D. Pa. May 30, 2003), the compensatory damages were low because the insurance carrier ultimately paid the claim, albeit two years late. The district court concluded that the award comported with the Supreme Court’s recent holding in State Farm because (1) the amount of punitive damages awarded was equal to the value of the plaintiff’s original insurance claim, and thus, this translated into a ratio of 1:1; and (2) the statute permits the recovery of attorneys’ fees, and fee awards in this amount have been upheld.