As readers doubtlessly are aware, in State Farm v. Campbell the U.S. Supreme Court provided lower courts with substantial guidance on the constitutionally permissible ratio between the punitive damages and the harm to the plaintiff. In particular, the Court admonished that generally the ratio should not exceed the single-digit range and stated that, when compensatory damages are “substantial,” often a 1:1 ratio will mark the constitutional line. As a result of that guidance, the calculation of the denominator of the ratio of punitive damages to harm has become increasingly important, presenting courts with a range of interesting issues.
Nickerson v. Stonebridge Life Insurance Co., which is currently pending in the California Supreme Court, involves one such issue. In California, an insured who can persuade a jury that an insurer denied his claim for policy benefits in bad faith is entitled to recover as “compensatory damages” the amount of attorneys’ fees he incurred in pursuing payment of the policy benefits (but not in pursuing the bad-faith claim or punitive damages). Generally, the amount of attorneys’ fees is set by the court after trial, though nothing precludes the parties from agreeing to allow the jury to set the fees.
In Nickerson, the California Court of Appeal declined to include the attorneys’ fees in the denominator of the ratio of punitive damages to actual or potential harm for the simple reason that the jury was not aware of the fees, which accordingly played no affirmative role in its determination of the amount of punitive damages. The California Supreme Court granted review to consider whether attorneys’ fees set by a court post-verdict may be added to the denominator of the ratio of punitive damages to actual or potential harm.
On behalf of the Chamber of Commerce of the United States, my colleagues Don Falk, C.J. Summers, and I recently submitted an amicus brief in support of the respondent insurer.