6th Circuit: Tennessee’s cap on punitive damages unconstitutional

In 2011, the Tennessee General Assembly passed the Civil Justice Act, which set limits on non-economic damages and punitive damages in civil lawsuits. Punitive damages are those meant to punish wrongdoing. Punitive damages were capped by the act at twice the amount of compensatory damages or $500,000, whichever is greater.

When Tamarin Lindenberg sued Jackson National Life Insurance Co. for refusing to pay out a life insurance policy, she sought punitive damages. In breach of contact cases, punitive damages can be awarded for intentional, fraudulent or reckless behavior by the defendant.

The insurer told Lindenberg she had “obviously waived her beneficiary status” to her deceased husband’s life insurance policy. It insisted she obtain waivers from her children. This was found to be bad faith by the insurance company. The jury also appears to have found the insurance company’s actions to be intentional, reckless or fraudulent.

The jury awarded her $350,000 in compensatory damages, $87,500 for the insurer’s bad faith, and $3 million in punitive damages.

The federal judge in the case, however, deferred to the Tennessee Civil Justice Act and reduced the punitive damages award from $3 million (the amount the jury awarded after hearing all the facts) to $700,000 (the predetermined cap set by the State legislature). Lindenberg appealed to the Sixth Circuit, which ruled the punitive damages cap unconstitutional under the Tennessee Constitution. Specifically, the cap was ruled to be in violation of the right to a trial by jury.

In rendering its 2-1 decision, the Sixth Circuit Court of Appeals reviewed historical evidence from Tennessee and North Carolina, since Tennessee’s Constitution borrows heavily from that of North Carolina (of which much of Tennessee used to be a part). It found that both states had historically treated punitive damage awards as fundamentally within the purview of the jury and thus part of the right to a jury trial. The Tennessee Constitution’s Declaration of Rights section provides that “the right of a trial by jury shall remain inviolate,” the court noted.

Our own Jerry Summers was quoted in praise of the ruling, arguing it “fortunately set aside another effort by the Tennessee General Assembly to close the courthouse” and pointing out that punitive damages typically only come into play in extreme cases. The facts have to be pretty bad for the judge to even allow the jury to consider punitive damages, and then the jury must be convinced that the facts are bad enough to justify imposing punitive damages.

The decision officially sent the case back to the trial court, a U.S. District Court in Memphis, for reconsideration of the punitive damage award. Before that happens, however, the losing insurance company or the State are likely to either request a rehearing before all of the Sixth Circuit judges or else request the U.S. Supreme Court to take a look at the case.

For now, this case is a crucial victory for plaintiffs across Tennessee who are victimized by the outrageous behavior of other parties. Although technically not binding on Tennessee state courts, the decision still provides persuasive authority for future victims seeking punitive damages.

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