A Blow to Big Business

By ANDREA SACHS.

On Jan. 23, 1982, Cleopatra Haslip was admitted to a hospital emergency room. While the diagnosis was disturbing -- a kidney infection -- Haslip rested more easily knowing that her insurance policy would cover her medical expenses. But she soon discovered that the insurance agent, Lemmie Ruffin, had pocketed her payments, leaving her with no protection. Haslip, a mother of five who made $8,800 a year as an employee of Roosevelt City, Ala., found herself stuck with $3,500 in medical bills. As a result, her credit rating was ruined and she was successfully sued by her doctor. Enraged, Haslip filed a lawsuit against Ruffin and his employer, Pacific Mutual Life Insurance Co. The jury was more than sympathetic: it found that Pacific Mutual had reason to suspect Ruffin's fraud, and awarded Haslip $1 million, including $840,000 in punitive damages.

In a decision that business groups found crushing, the Supreme Court last week upheld Haslip's judgment. The court found by a 7-to-1 vote that the large punitive-damage award against the insurance company did not violate the 14th Amendment's due-process clause. Writing for the majority, Justice Harry Blackmun conceded that "unlimited jury discretion . . . in the fixing of punitive damages may invite extreme results that jar one's constitutional sensibilities." But, Blackmun concluded, "we need not, and indeed we cannot, draw a mathematical bright line between the constitutionally acceptable and the constitutionally unacceptable that would fit every case."

Although business groups have met with failure in earlier attempts to seek relief from the court, they were heartened by indications that, given an appropriate case, the Justices might rule in their favor. Their disappointment last week was shared by Justice Sandra Day O'Connor. "Juries are permitted to target unpopular defendants, penalize unorthodox or controversial views, and redistribute wealth," she wrote in a dissenting opinion. "Multi-million- dollar losses are inflicted on a whim."

The weight of the decision fell most heavily on Big Business and the insurance industry, which pays most punitive judgments. In all, 80 industry and professional organizations had filed 24 amicus briefs on behalf of Pacific Mutual, claiming that punitive awards have soared because of unbridled jury discretion. "It's become a form of legal lottery," says Washington attorney Theodore Olson. "Plaintiffs ask for huge awards, hoping they'll hit the jackpot."

He has a point. Punitive damages are intended as a form of quasi-criminal retribution against wrongdoers in civil cases. They exist to deter future misdeeds. "Punitive damages are not intended to compensate the victim," says Edward Cooper, a professor at the University of Michigan law school. "Instead, they are meant to punish especially bad conduct." Such judgments are most often awarded in product-liability and personal-injury cases.

Consumer advocates applauded the court's decision. Linda Lipsen, legislative counsel of the Consumers Union, suggested that insurance companies and others "should spend more time figuring out how to make their products safe and less time trying to escape their responsibilities under law." Another happy group: plaintiffs' lawyers, who often receive a hefty percentage of punitive damages in contingency-fee cases against wealthy defendants. *

In the wake of last week's decision, business groups are apt to step up pressure on state legislatures to limit the amounts of punitive damages. According to the American Tort Reform Association, 10 states have already set limits on punitive damages. But the only way to guarantee uniform rules would be through an act of Congress, which is highly unlikely.

With reporting by Jerome Cramer/Washington