Carolyn Whitaker had a $25,000 life insurance policy. The policy lapsed in 1996. Yet, every month she dutifuly sent in her $50 premium for nearly five years. So, the poor woman was defrauded by the insurance agent of about $3000.
Well, Ms. Whitaker sued (as is her right) the agent and Southwest Life Insurance Co. A jury just recently found in her favor. The verdict? A total of $1.6 billion dollars. Yes, folks, that billion with a capital B.
The insurance company and the agent were each ordered to pay $10 million each in compensatory damages and $800 million each in punative damages.
Excuse me, $10 million in compensatory damages? Just how much interest did the jury think that Ms. Whitaker’s CD paid? Did they think she had a sure-fire investment scheme to turn $3000 into $10 million? Aren’t compensatory damages supposed to just cover the damages (which should have been $3000 plus reasonable interest)?
And $1.6 billion in punative damages? What the heck? Did someone die because she didn’t have the $3000? I agree that the agent owes her something in punative damages; and possibly the company too [if it can be proved that they were in on it and acted maliciously], but even so! $1.6 billion?!
Becuase of Alabama law, punative damages are limited to three times the compensatory damages, so that portion of the damages will be dropped to a mere $60 million dollars. Even $60 million is waaaay to much. Personally, I don’t think she deserves more than $15,000 in punative damages, but that’s just my opinion.
Since Enron , Worldcom, and a host of others I look for this to become the norm. People in business defrauding costumers will pay dearly. Is it fair? Not really but all they had to do was play by the rules and there would have been no problem. The rate of return on the ladys 3000 is pretty impressive.
Yes, this jury is nuts. And it has nothing to do with “fair.” They want to be fair, but they don’t know what fair is. Why? Because they have no concept of money. Really. The average American does not have the single smallest concept of how big or much a billion anything is. No idea. It’s a number. It’s a Whole Lotta Money. That’s all they know. And I’m not saying Joe Stupid American. I’m saying, most Americans, with their tenuous grasp of math and only the dimmest idea of proportionality. Lest I sound all superior, I include myself in this group.
And it’s not just the punitive damages that are the problem. $20 million for compensatory damages for a $25,000 life insurance policy/breach of contract? How could that be possible? How could this woman have suffered actual damages totally $20 mil? I just don’t see it.
Juries don’t understand the value of large sums of money, but they sure as heck know they’re not giving away their own money. A little bit of ignorance + the desire to punish a wrongdoer + a deep pocket defendant = indefensibly huge verdicts.
This is why people argue that the jury system should be abolished. And this is why I sometimes have a very hard time explaining why it’s really a good idea.
My prediction? The plaintiff’s counsel knows there’s no way in hell this verdict will be sustained. The defense counsel knows explicitly that a jury will slap them, but hard – because one just did. Result? The case will settle while appeal is pending, for a hell of a lot more money than the plaintiff ever thought she’d get, but a hell of a lot less than the defendants might otherwise end up paying.
I think that the reasoning behind such awards is that the company has to feel some pain. It’s not just a matter of what’s fair to the plaintiff…if the company only had to pay back the defrauded monies plus reasonable interest, more than likely the suits would have shrugged and thought that the punishment was worth the gamble. But if the company has to really pull in its belt a few notches because it willfully defrauded this woman (and I’d be really, really surprised if she was the only person so defrauded), then the company, and similar companies, will not be willing to take such a big risk for a relatively small reward.
Actually, I’d like to see some mandatory jail time for the agent and whoever else was responsible for defrauding her.
But Lynn there is a bigger issue here. Insurance companies are not monolithic individuals with infinitely deep pockets. Let’s just leave aside the appeals process and other things that are going to bring this verdict back to earth with a thump and just consider the effects if the verdict had to be paid.
Let me start by saying that the individual responsible for perpetrating the fraud, and any management who were involved, or who encouraged an atmosphere in which such fraud was perpetrated or turned a blind eye to it deserve to be punished at an appropriate level, no doubt about it. And the company deserves to have any profits it made out of the scheme taken from it, and even to cop fines or punitive damages to a level that makes it sit up and take notice.
But.
1.6 billion dollars is to a level that would be way beyond that and seriously into the level at which what would happen is that one innocent would get more money out of this than could possibly be just, while other innocents would be punished for something they did not do. $1.6 billion is to a level where this companies other commitments to other people would suffer. Anyone with other products from the company (such as perhaps other insureds) might well suffer if their returns on policies are dependant on the companies overall profitability. Insureds may find their policies worthless or worth less if the company goes under (or nearly goes under). Investors would suffer. And don’t think investers are just rich assholes who you don’t care about. The biggest investors are institutions: your pension fund and so on.
Don’t think for a moment that this sort of nonsense would just result in one deserving person getting payday, and another evil bastard getting a slap in the face.
It would (if carried through) result in one person becoming obscenely, utterly undeservedly rich at the expense of the wider community.
It is just ridiculous, and it is a significant failing of the US court system that juries are even able to give such verdicts, albeit that they are ultimately overturned.
Let me bookend this by saying once again the individual responsible for perpetrating the fraud, and any management who were involved, or who encouraged an atmosphere in which such fraud was perpetrated or turned a blind eye to it deserve to be punished at an appropriate level, no doubt about it. And the company deserves to have any profits it made out of the scheme taken from it, and even to cop fines or punitive damages to a level that makes it sit up and take notice. But that is all.
I recall reading once about how juries, particularly in Alabama and Mississippi, would give ridiculous jury awards. The reasoning was something along the line that they hoped someone else would do the same for them if they were up against the system. It had nothing to do with fair, although I don’t doubt that one or more jurors was trying to be “fair”. I also don’t doubt that the people who actually serve on a jury might be a little unfamiliar with the concept of big numbers. What do you think the odds are that people who are sickened by the thought of runaway juries are the best at being able to avoid being stuck in a lengthy trial?
US courts have a reputation for awarding huge compensasions compared to EU courts. (at least, that’s my personal view).
But this is really fucked up. Lynn, you have a point about the company feeling some pain, but this is driving them out of business completely.
And if they go out of business, this also screws all the other customers of this insurance company.
I wonder if the insurance company was doing the same thing to other unsuspecting customers. If that’s the case, the huge dollar amount might be easier to understand. Although I must say, even “I” think it’s over the top, and I hate these muthafuckas with every fiber of my being. Generally speaking.
But this was a civil case, not a criminal case. There isn’t a whole lot of information in the story, but it appears that there is no criminal case. No one will be held accountable for fraud. No one will go to jail. Part of the reason you get these huge awards in civil court is because there isn’t enough evidence to support a criminal case. You must prove a crime beyond a reasonable doubt. In a civil case the result is based upon the preponderance of evidence. Whoever tells the best story wins a civil case.
Disclaimer: IANAL, that’s just my best understanding of it.
We need a system whereby the wronged individual can receive just compensation and reasonable punitive damages, but one that also punishes these companies and the individuals in them adequately for their fraudulent behaviour.
I agree that $1.6 billion is beyond the realms of sanity, but as Lynn says, if the companies don’t get slugged hard when they get caught doing this sort of thing, they are likely to see the occasional small judgment as just another cost of doing business, and will continue their unethical practices.
Why is it that when some guy breaks into your house and runs away with your DVD player, he gets charged with burglary, but when a company defrauds you of your money over an extended period of time, you have to take them to civil court to get redress? That’s a largely rhetorical question–i am aware of the differing burdens of proof in civil and criminal cases–but it seems to me that there isn’t even enough of an attempt by the authorities to prosecute these cases in a criminal trial. Arrest a few of these people and lead them away in handcuffs in front of the news cameras–maybe that will deter them.
Perhaps it is the perception of the authorities about the nature of the crimes. White collar crimes verses violent crimes and property crimes. In this case, no one was hurt. No ones personal space was invaded. No one lives in fear of another persons criminal actions. This makes it a much lower priority in the eyes of the police and prosecutors and their limited resources.
So then let’s start giving $100,000 speeding tickets. Sure, we all agree that you shouldn’t speed. So, if you speed (and are found guilty, of course), let’s see that the motorist gets “slugged hard” and they won’t continue their “unethical practices.” People will think twice before speeding again, that’s for sure.
My point is that the punishment has to fit the crime. Stealing $3000 is bad, but “slugging” the company for such a huge amount is so far beyond normalcy that it’s as insane as the $100,000 speeding ticket. I agree that the woman deserves $3000 + interest for compensatory damages (isn’t that what compensatory damages are – to pay back for the damage?) and that she deserves something for punative damages as well. But let’s keep this in perspective folks. The punishment so far outweighs the crime so as to make the whole concept meaningless.