Liberty Mut. Fire Ins. Co. v. JT Walker Indus., Inc., No. 2:08-02043-MBS, 2014 WL 6773517 (D.S.C. Dec. 2, 2014).[1]
The U.S. District Court for the District of South Carolina sets aside a jury’s verdict awarding punitive damages to a bad faith plaintiff where there was insufficient evidence to support a finding that the insurer acted with willful, wanton, or reckless disregard for the insured’s rights.
MI Windows & Doors, Inc., a subsidiary of J.T. Walker Industries, Inc. (collectively, “MI”) was a manufacturer of windows and doors. Liberty Mutual Fire Insurance Company (“Liberty”) insured MI under six commercial general liability policies. After MI was named as a defendant in five property damage lawsuits alleging manufacturing defects in MI products, the defense of the suits was tendered to Liberty. Over MI’s objection, Liberty settled each of the underlying suits. Liberty sued MI for breach of contract to recover the amount of the settlements, in accordance with the deductible under MI’s policies. MI countersued for breach of contract and bad faith.
The jury returned a verdict in favor of both parties. It ruled in Liberty’s favor on its breach of contract claim and held MI liable for $894,416, the amount billed by Liberty to MI for the five settlements. The jury ruled in MI’s favor on the bad faith claim and awarded $12.5 million in punitive damages. The trial court set aside the jury’s verdict, holding that because MI had failed to prove any actual or consequential damages as a result of Liberty’s bad faith, it was not entitled to recover any punitive damages. On appeal, the Fourth Circuit disagreed, reasoning that an absence of ascertainable damages does not preclude punitive damages. The Fourth Circuit remanded for the district court to determine whether the evidence supported the jury’s finding that Liberty acted “willfully, wantonly, or recklessly” in settling the underlying claims. If the district court found such evidence, it would then have to consider whether punitive damages were appropriate and whether the jury’s verdict was excessive.
On remand, the district court concluded that there was insufficient evidence in the record to support the recklessness finding necessary to support an award of punitive damages. The district court emphasized that such a jury finding is scrutinized under the clear and convincing evidence standard. The court reasoned there was no such evidence supporting the jury’s verdict because Liberty’s settlements eliminated the potential for greater liability for MI in the underlying cases. Indeed, had MI lost in even one of the underlying actions, its liability may have been far greater than all of the settlements combined, in part because MI potentially was subject to joint and several liability with other defendants, including developers and contractors.
The court further noted that the total amount of the settlements was less than the estimated costs of defense and the reserve amounts set by Liberty. Moreover, the court found no evidence to suggest that any of the underlying claims could have been resolved for less than the actual settlement amounts even at trial. Accordingly, the court held that there was no basis for a jury to conclude by clear and convincing evidence that Liberty “consciously failed to exercise due care.”
Because it found there was insufficient evidence to support the jury’s finding that Liberty acted in willful, wanton, or reckless disregard of the rights of MI, the jury award of punitive damages was struck down. Having struck the punitive damages award, the court did not need to reach the issue of whether the amount of the award was constitutional.
