ANNETTE KINGSLAND ZIEGLER, J.
¶ 1 This is a review of an unpublished decision of the court of appeals, Kimble v. Land Concepts, Inc., No. 2011AP1514, unpublished slip op., 2012 WL 4815574 (Wis. Ct.App. Oct. 11, 2012), affirming the judgment of the Door County Circuit Court,
¶ 2 First American argues that the punitive damages award against it was excessive and violated its right to due process under the United States and Wisconsin constitutions.
¶ 3 John E. and Jane E. Stevenson ("Stevensons")
¶ 4 We conclude that the punitive damages award in this case was excessive and deprived First American of its right to due process. We therefore reverse the court of appeals' decision and remand this case to the circuit court for entry of a judgment against First American in the amount of $239,738.49.
¶ 5 On October 26, 2004, Robert L. Kimble and Judith W. Kimble ("Kimbles") purchased a lakefront lot located in the Town of Nasewaupee in Door County ("Kimble Lot") from Dorene Dempster ("Dempster") and Mark Herrell ("Herrell").
¶ 6 The deed executed by Dempster and Herrell conveying the Kimble Lot to the Kimbles warranted that the property was benefitted by two easements. One easement purported to grant the Kimble Lot use of a private driveway connecting it to County Highway M across property to the north ("North Easement"). That private driveway had not been used in many years
¶ 7 On October 27, 2004, First American issued the Kimbles a title insurance policy for the Kimble Lot. The policy obligated First American to defend and indemnify the Kimbles for any covered loss, including losses resulting from "[u]nmarketability of the title" and "[l]ack of a right of access to and from the land." The policy did not insure any specific route of access.
¶ 8 In early 2008, the Kimbles listed their property for sale with a real estate agent.
¶ 9 On March 18, 2008, DeNamur provided Schenker with the deeds and other recorded documents purportedly granting the North and West Easements to the Kimbles' predecessors in title. In a follow-up message to Schenker on March 28, DeNamur noted that there appeared to be a problem with the deeds purporting to grant and convey the North Easement. DeNamur asked Schenker whether she should "continue to dig for more documentation?" Schenker never asked for more research.
¶ 10 On March 31, 2008, Schenker, on behalf of First American, sent the Kimbles a letter which addressed the access issue. Schenker indicated in his letter that he believed the West Easement was defective.
¶ 11 On May 27, 2008, the Kimbles forwarded Schenker a copy of a letter they intended to send to Land Concepts asserting their right to use the cut-off road. The Kimbles asked Schenker whether the letter jeopardized their title insurance policy. On May 28, 2008, Schenker assured the Kimbles that it did not, again implicitly
¶ 12 On June 13, 2008, the Kimbles received a response letter from Land Concepts, wherein Land Concepts threatened to "close the access over [its] property" if the dispute was not "promptly resolved." On June 18, 2008, the Kimbles contacted Schenker regarding the threatened closure. The Kimbles asked Schenker whether First American would insure the North Easement under the title policy if the Kimbles constructed a new driveway following the route of that easement.
¶ 13 On June 25, 2008, Schenker reiterated to the Kimbles that their title policy did not insure any particular route of access. Schenker again asserted that the North Easement provided access and stated, "[w]hether there is some legal defense to prevent the Kimbles from using it, which falls under some exclusion or exception in the policy, we do not know." Schenker further recommended that the Kimbles have a survey of the North Easement performed before constructing any driveway.
¶ 14 The Kimbles continued to market their property throughout 2008, relying on Schenker's assurances that it had good access to the highway. Land Concepts continued to dispute the Kimbles' right of access, but did not follow through on its threat to physically close the cut-off road.
¶ 15 On January 12, 2009, the Kimbles received a cash offer to purchase their property. The sale was made contingent on the access issue being resolved. Despite an extension on the original 30-day time limit, the Kimbles were unable to negotiate a resolution with Land Concepts and lost the sale.
¶ 16 On June 3, 2009, the Kimbles filed suit against Land Concepts and the Stevensons. The Kimbles sought a declaration that the North Easement was valid and sought a prescriptive easement for their use of the cut-off road. The Kimbles also claimed that Land Concepts, in recording the West Easement, had slandered the title to the Kimbles' property.
¶ 17 On October 23, 2009, the Kimbles amended their complaint adding breach of warranty claims against Dempster, Herrell, and the Stevensons, and a breach of contract claim against First American for failing to defend the title to their property.
¶ 18 On July 21, 2010, the Kimbles settled their claims against all the defendants except First American. As part of the settlement, the Kimbles and the Stevensons paid Land Concepts $40,000 to secure an easement over the route of the existing cut-off road. The Stevensons paid an additional $10,000 to the Kimbles for an assignment of the Kimbles' rights under the title insurance policy, including any claims against First American.
¶ 19 On August 6, 2010, the Stevensons filed a cross-claim against First American, alleging breach of contract and breach of fiduciary duty and bad faith in First American's refusal to defend the title to the Kimble Lot.
¶ 20 On December 1, 2010, First American filed a motion for declaratory and summary judgment, asking the court to dismiss the Stevensons' cross-claim. First American argued that the Stevensons were not "insureds," and thus had no rights under the title policy. First American also contended that the Kimbles were not permitted to settle their claims against other defendants without the written consent of First American. First American asserted that the title policy was void as a result.
¶ 21 The Stevensons argued that the Kimbles were permitted to assign their
¶ 22 On January 18, 2011, the circuit court denied First American's motion for declaratory and summary judgment. The court concluded that the assignment of rights from the Kimbles to the Stevensons was proper and that there were issues of fact to be tried regarding the Stevensons' breach of contract and breach of fiduciary duty and bad faith claims.
¶ 23 On February 4, 2011, the Stevensons filed a motion in limine which asked the court to exclude any evidence of the monetary terms of the settlement agreements between the Kimbles and the other defendants.
¶ 24 On February 21, 2011, First American filed a motion in limine asking the court to exclude evidence that the Kimbles' title was unmarketable as a result of the access problems. First American argued that, while the access issues might have impaired the value of the property, they did not constitute a defect in the title.
¶ 25 On March 1, 2011, the circuit court granted the Stevensons' motion in limine to exclude evidence of the terms of the settlement between the Kimbles and the other defendants. Additionally, the circuit court denied First American's motion in limine to exclude evidence of unmarketability. In denying First American's motion, the court determined that the issue of marketability was a legal question to be determined by the court prior to trial. The court concluded that title to the Kimble Lot was rendered unmarketable by the access dispute. As a result, the court concluded that coverage was triggered under the title insurance policy. The court determined that it was for the jury to decide whether First American's decision not to defend the Kimbles under the policy constituted breach of contract and breach of fiduciary duty and bad faith.
¶ 26 On March 2, 2011, the jury trial began. At trial, the Stevensons presented evidence that First American was obligated to defend the Kimbles' title and failed to do so. The Stevensons further presented evidence that First American knew the North Easement was defective and concealed that information from the Kimbles. First American presented evidence that it had a good faith belief that the North Easement provided access, and that as a result, its failure to disclose the defect to the Kimbles was merely a mistake.
¶ 27 On March 3, 2011, the jury returned a verdict in favor of the Stevensons. The jury found that First American breached its contract and exercised bad faith in refusing to defend the Kimbles' title. The jury awarded the Stevensons $50,000 in compensatory damages for the breach of contract, and $1,000,000 in punitive damages to punish First American's bad faith.
¶ 28 On March 24, 2011, First American filed three motions after the verdict with the circuit court.
¶ 29 The Stevensons opposed First American's post-verdict motions. The Stevensons argued that the jury's award was appropriate, and that First American's conduct justified punitive damages. Further, the Stevensons argued that the jury's punitive damages award was not excessive.
¶ 30 On June 14, 2011, the circuit court granted First American's motion regarding the compensatory damages award, reducing it to $29,738.49. The court denied First American's other motions, however, allowing the bad faith finding and the punitive damages award to stand. The court then entered judgment against First American in the amount of $1,029,738.49.
¶ 31 On June 29, 2011, First American filed its notice of appeal. On July 11, 2011, First American filed a motion with the circuit court requesting the court stay the effect of the judgment pending appeal. On August 3, 2011, the circuit court granted First American's motion.
¶ 32 Before the court of appeals, First American made four arguments. First, it argued that the Kimbles were not permitted to assign their rights under the title insurance policy to the Stevensons. Second, First American argued that the circuit court improperly determined that coverage under the policy was invoked prior to trial. Third, First American argued that there was insufficient evidence to support the jury's finding of bad faith. Finally, First American argued that the punitive damages award was excessive.
¶ 33 The Stevensons argued that the Kimbles' assignment of their rights under the insurance policy was valid, and that the circuit court properly found coverage under the title policy as a matter of law. The Stevensons also contended that First American's conduct supported the jury's finding of bad faith, and that the punitive damages award was not excessive.
¶ 34 On October 11, 2012, the court of appeals affirmed the circuit court. Kimble, No. 2011AP1514, slip op., ¶ 1. First, the court of appeals concluded that the Kimbles were permitted to assign their rights under the title policy to the Stevensons, and that they had not violated the terms of the policy in agreeing to a partial settlement. Id., ¶¶ 16-17. Second, the court of appeals affirmed the circuit court's determination that, as a matter of law, there was coverage under the title policy. Id., ¶¶ 24-28. Third, the court appeals affirmed the circuit court's determination that the jury's finding of bad faith was supported by sufficient evidence. Id., ¶¶ 33-35. Finally, the court of appeals summarily affirmed the jury's punitive damages award, finding First American's argument regarding excessiveness of the award to be "insufficiently developed." Id., ¶ 41.
¶ 36 On September 3, 2013, the Stevensons filed a motion for summary disposition in this court, arguing that by filing its post-verdict motion late, First American had waived its right to appellate review. See Wis. Stat. §§ 805.14(5) and 805.15(1). We held the motion in abeyance.
¶ 37 "[T]he constitutional issue of punitive damages merits de novo review." Trinity Evangelical Lutheran Church & Sch.-Freistadt v. Tower Ins. Co., 2003 WI 46, ¶ 47, 261 Wis.2d 333, 661 N.W.2d 789 (citing Cooper Indus., Inc. v. Leatherman Tool Grp., Inc., 532 U.S. 424, 431, 121 S.Ct. 1678, 149 L.Ed.2d 674 (2001)). "[I]n determining whether a jury's award [is] excessive, ... the reviewing court properly review[s] the entire record `ab initio' ...." Id., ¶ 48 (citing Mgmt. Computer Servs. v. Hawkins, Ash, Baptie & Co., 206 Wis.2d 158, 192 n. 32, 557 N.W.2d 67 (1996)).
¶ 38 We recognize that our prior case law, particularly Jacque v. Steenberg Homes, Inc., 209 Wis.2d 605, 563 N.W.2d 154 (1997), has created confusion with respect to the standard of review in punitive damages cases. Jacque, however, predates both Cooper, wherein the United States Supreme Court clarified that de novo is the appropriate standard of review, and Trinity, wherein this court explicitly adopted that standard. While judges "serve as gatekeepers before sending a question on punitive damages to the jury," Strenke v. Hogner, 2005 WI 25, ¶ 40, 279 Wis.2d 52, 694 N.W.2d 296,
¶ 39 As an initial matter we address the argument, raised by the Stevensons in their motion for summary disposition, that First American lost its right to appeal the punitive damages award when it failed to timely file its post-verdict motion under Wis. Stat. § 805.16(1).
¶ 41 The circuit court's inability to consider a post-verdict motion, however, does not deprive this court of appellate jurisdiction. Failure to comply with Wis. Stat. § 805.16 "limit[s] the issues that may be asserted as a matter of right on the appeal...." Wales, 138 Wis.2d at 510-511, 406 N.W.2d 426. "A trial court's failure to conform with sec. 805.16, Stats., however, does not strip this court of its discretionary power[]" to review the case. Brandner v. Allstate Ins. Co., 181 Wis.2d 1058, 1071, 512 N.W.2d 753 (1994).
¶ 42 The merits issue in this case is of constitutional dimension and has been fully briefed and argued by both parties. We therefore exercise our discretion and address whether the punitive damages award against First American was unconstitutionally excessive.
¶ 43 Punitive damages are not intended to compensate the plaintiff, but rather are awarded "to punish the wrongdoer, and to deter the wrongdoer and others from similar conduct." Trinity, 261 Wis.2d 333, ¶ 50, 661 N.W.2d 789. "Punitive damages may properly be imposed to further a State's legitimate interests in punishing unlawful conduct and deterring its repetition." BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 568, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996).
¶ 44 In Wisconsin, punitive damages are authorized by statute, see Wis. Stat. § 895.043, and may be awarded "if evidence is submitted showing that the defendant acted maliciously toward the plaintiff or in an intentional disregard of the rights of the plaintiff." Wis. Stat. § 895.043(3). The judge has the duty to act as the "gatekeeper" when determining whether the issue of punitive damages is properly before the jury. Strenke, 279 Wis.2d 52, ¶ 40, 694 N.W.2d 296. Once the judge has determined that the issue of punitive damages is properly before the jury, whether to actually award punitive damages "in a particular case is entirely within the discretion of the jury." Jacque, 209 Wis.2d at 626, 563 N.W.2d 154. Both the judicial determination regarding whether punitive damages is a proper jury question and the size of the jury's punitive damages award are subject to review. The Due Process Clause of the Fourteenth Amendment "imposes substantive limits on the size of a punitive damages award." Trinity, 261 Wis.2d 333, ¶ 49, 661 N.W.2d 789 (citing Mgmt. Computer Servs., 206 Wis.2d at 193, 557 N.W.2d 67).
¶ 46 The United States Supreme Court has applied a three-part test to determine whether an award of punitive damages is excessive. See BMW, 517 U.S. at 574-75, 116 S.Ct. 1589; State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003). This test asks the reviewing court to weigh: "(1) the degree of egregiousness or reprehensibility of the conduct; (2) the disparity between the harm or the potential harm suffered and the punitive damages award; and (3) the difference between the punitive damages and the possible civil or criminal penalties imposed for the conduct." Trinity, 261 Wis.2d 333, ¶ 52, 661 N.W.2d 789 (citing BMW, 517 U.S. at 575, 116 S.Ct. 1589).
¶ 47 Wisconsin case law calls on courts to apply a substantively identical test applying six factors rather than three:
Trinity, 261 Wis.2d 333, ¶ 53, 661 N.W.2d 789; Mgmt. Computer Servs., 206 Wis.2d at 194, 557 N.W.2d 67. Wisconsin courts are called upon to analyze only "those factors which are most relevant to the case, in order to determine whether a punitive damages award is excessive."
¶ 48 "`[T]he most important indicium of the reasonableness of a punitive damage[s] award is the degree of reprehensibility of the defendant's conduct.'" Trinity, 261 Wis.2d 333, ¶ 57, 661 N.W.2d 789 (quoting Jacque, 209 Wis.2d at 628, 563 N.W.2d 154). "This principle reflects the accepted view that some wrongs are more blameworthy than others." BMW, 517 U.S. at 575, 116 S.Ct. 1589.
538 U.S. at 419, 123 S.Ct. 1513 (citation omitted); see also BMW, 517 U.S. at 576-77, 116 S.Ct. 1589.
¶ 50 Turning to the case at issue, we must acknowledge that First American's conduct in the case at issue is reprehensible. First American knew that the North Easement did not provide access to the Kimble Lot and that there was no reasonable alternative access point, and yet refused to honor its obligation to assist the Kimbles in defending their title. First American further withheld the information it had in its possession from the Kimbles, causing them to waste valuable time and resources. These circumstances support an award of punitive damages.
¶ 51 In that regard, it is noteworthy that none of the reprehensibility factors identified by the Supreme Court in Campbell are present in this case. The damage suffered by the Kimbles was indisputably economic, not physical. First American's bad faith did not endanger the health or safety of any person. There is no indication in the record that the Kimbles were financially vulnerable.
¶ 52 Further, the degree of reprehensibility in this case falls short of that found in prior Wisconsin cases supporting substantial punitive damages awards.
¶ 53 For example, in Trinity, the insurance company defendant denied a claim based on an omission in coverage, despite knowing that the omission in the policy was the result of its own error. 261 Wis.2d 333, ¶¶ 7-8, 661 N.W.2d 789. This court held that the insurance carrier not only "engaged in prohibited conduct while knowing or recklessly disregarding the lack of a reasonable basis for denying the claim," but further was a recidivist, having previously been the subject of a lawsuit involving precisely the same kind of conduct. Id., ¶¶ 57-59. These facts allowed the defendant to be subjected to a more
¶ 54 Here, there is no indication from the record that First American engaged in repeated conduct. Neither does the record support any finding of malicious intent. First American's conduct, while "sufficiently reprehensible to give rise to tort liability, and even a modest award of exemplary damages does not establish the high degree of culpability that warrants a substantial punitive damages award." BMW, 517 U.S. at 580, 116 S.Ct. 1589.
¶ 55 "When compensatory damages are awarded, the reviewing court is to consider whether the [punitive damages] award bears a reasonable relationship to the award of compensatory damages." Trinity, 261 Wis.2d 333, ¶ 63, 661 N.W.2d 789. "Wisconsin law expressly rejects the use of a fixed multiplier, either a fixed ratio of compensatory to punitive damages or of civil or criminal penalties to punitive damages, to calculate the amount of reasonable punitive damages." Id. (citations omitted). "However, we have held that in the appropriate case, a comparison of the compensatory damages and the punitive damages award is important." Id. (citing Jacque, 209 Wis.2d at 629, 563 N.W.2d 154).
¶ 56 In the case at issue, the compensatory damages ultimately awarded were $29,738.49. Using the compensatory damages award as a baseline thus represents a ratio of approximately 33:1. Such a ratio is transparently problematic under the United States Constitution.
¶ 57 The Supreme Court, however, has declared that reviewing courts can consider not only the compensatory damages award, but also "`the harm likely to result from the defendant's conduct.'" BMW, 517 U.S. at 581, 116 S.Ct. 1589 (quoting TXO Prod. Corp. v. Alliance Res. Corp., 509 U.S. 443, 460, 113 S.Ct. 2711, 125 L.Ed.2d 366 (1993)). Similarly, where it is relevant and appropriate, our prior case law supports consideration of "potential damage" that might have been caused by a defendant's acts. Trinity, 261 Wis.2d 333, ¶ 53, 661 N.W.2d 789.
¶ 58 The Stevensons argue that the appropriate figure to use in assessing the disparity, in light of the sale the Kimbles lost during the dispute, is the full $1,300,000 sale price of the Kimbles' home. We disagree. The Stevensons can point to no indication in the record that the full value of the Kimbles' property was ever in danger.
¶ 59 For example, in TXO, the petitioner fraudulently attempted to undermine the title to a tract of land in order to avoid paying royalties for oil and gas extraction. 509 U.S. at 448-50, 113 S.Ct. 2711. The respondent received a judgment for common law slander of title in its favor, including $19,000 in compensatory damages and $10,000,000 in punitive damages. Id. at
¶ 60 Similarly, in Trinity, this court accepted that the appropriate figure for comparison was not the $17,000 compensatory damages award, but rather was the $490,000 in potential damages at risk in the underlying negligence suit.
¶ 61 Notably, the "potential harm" in both of these cases is grounded in record and is not merely speculative. Had the plaintiff in Trinity lost its case, $490,000 was the amount it would have had to pay. Had the petitioner's scheme in TXO succeeded, it was undisputed that the respondent would have been deprived of millions of dollars in royalties. These analyses were firmly rooted in fact, and the amounts in question were derived from the record.
¶ 62 Here, the Stevensons invite this court to depart from the facts of the record and speculate that, had the Kimbles failed to discover First American's bad faith, they would have been completely unable to sell their property, rendering it valueless. We decline this invitation. Many factors enter into a completed sale of real estate, and to attribute full responsibility for the lost sale to First American is highly speculative. There is no clear indication in the record of what impact the access dispute had on the value of the Kimbles' property.
¶ 63 We share Justice Kennedy's concern that, without a meaningful standard, a court can end up "relying upon nothing more than its own subjective reaction to a particular punitive damages award in deciding whether the award violates the Constitution." TXO, 509 U.S. at 466-67, 113 S.Ct. 2711 (Kennedy, J., concurring).
¶ 64 Fortunately, there is no need to speculate about potential harm, or to rely on subjective reactions, in order to appropriately assess the disparity in this case. The record reveals that the Kimbles spent $40,000 to purchase the access to their property that their title policy was supposed to insure.
¶ 65 "[I]n practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process." Campbell, 538 U.S. at 425, 123 S.Ct. 1513. Even a punitive damages award of just four times compensatory damages can come "`close to the line'" of violating due process. BMW, 517 U.S. at 581, 116 S.Ct. 1589 (quoting Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 23, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991)).
¶ 67 In sum, the award in this case does not bear a "reasonable relationship" to either the compensatory damages award or the potential harm faced by the Kimbles. We conclude, therefore, that the award does not comport with due process.
¶ 68 Finally, "we engage in a comparison of the punitive damages award and the civil or criminal penalties that could be imposed for comparable misconduct." Trinity, 261 Wis.2d 333, ¶ 66, 661 N.W.2d 789 (citing Jacque, 209 Wis.2d at 630, 563 N.W.2d 154). In this case, as in Trinity, First American could be subject to a criminal penalty, including a fine of up to $10,000, for the violation of "any insurance statute or rule of this state." Wis. Stat. § 601.64(4). The Stevensons argue that First American violated Wis. Admin. Code § Ins. 6.11(3)(a), which prohibits unfair settlement practices.
¶ 69 In this case we conclude, as we did in Trinity, that "a criminal penalty has `less utility' when used to determine the dollar amount of the punitive damages award." 261 Wis.2d 333, ¶ 68, 661 N.W.2d 789 (citing Campbell, 538 U.S. at 428, 123 S.Ct. 1513). We nonetheless note that "[t]he existence of a criminal penalty does have bearing on the seriousness with which a State views the wrongful action." Id., ¶ 66 (quoting Campbell, 538 U.S. at 428, 123 S.Ct. 1513).
¶ 70 Applying the relevant factors to the case at issue, we conclude that the punitive damages award against First American is excessive. First, First American's conduct "is sufficiently reprehensible to give rise to tort liability, and even a modest award of exemplary damages does not establish the high degree of culpability that warrants a substantial punitive damages award." BMW, 517 U.S. at 580, 116 S.Ct. 1589. Second, there is no especially egregious conduct supporting a high ratio punitive damages award. Absent such egregious conduct, even the 7:1 ratio imposed in Trinity would be unconstitutionally excessive. Finally, the existence of an
¶ 71 We conclude, in consideration of the case law, that the appropriate amount of punitive damages in this case is $210,000. Comparing the amount of this award to the $69,738.49 amount of compensatory and potential damages results in a ratio of approximately 3:1, below the ratio we upheld in Trinity, and just below the constitutional "line" mentioned by the Supreme Court in BMW, 517 U.S. at 581, 116 S.Ct. 1589, and Haslip, 499 U.S. at 23, 111 S.Ct. 1032. Because "[t]he precise award in any case, of course, must be based upon the facts and circumstances of the defendant's conduct and the harm to the plaintiff," Campbell, 538 U.S. at 425, 123 S.Ct. 1513, we conclude that this amount effectively punishes First American's misconduct, while acknowledging that its conduct did not rise to level of egregiousness found in prior punitive damages cases.
¶ 72 We conclude that the punitive damages award in this case was excessive and deprived First American of its right to due process. We therefore reverse the court of appeals' decision and remand this case to the circuit court for entry of judgment against First American in the amount of $239,738.49.
The decision of the court of appeals is reversed, and the cause is remanded to the circuit court.
¶ 73 DAVID T. PROSSER, J., did not participate.
SHIRLEY S. ABRAHAMSON, C.J., (dissenting).
¶ 74 The majority opinion reaches a shocking result: It makes First American's wrongdoing an efficient way of doing business. For all its reprehensible conduct, First American in fact pays less by acting in bad faith and wrongfully refusing to pay the Kimbles' claim than it would have paid had it honored the claim in good faith after discovering its error. Under the majority opinion, the combined punitive and compensatory damages amount to $239,738.49 — a sum smaller than the title insurance policy limit of $370,000. This result directly contravenes the entire purpose of punitive damages — making wrongdoers pay and deterring future wrongful conduct.
¶ 75 Trinity Evangelical Lutheran Church & School-Freistadt v. Tower Insurance Co., 2003 WI 46, 261 Wis.2d 333, 661 N.W.2d 789, is the leading case for determining whether punitive damages are unconstitutionally excessive as a violation of due process. The majority opinion dutifully recites the Trinity factors.
¶ 77 The test in Trinity applies six factors to assess whether a punitive damages amount is justified:
Majority op., ¶ 48; Trinity, 261 Wis.2d 333, ¶ 53, 661 N.W.2d 789.
¶ 78 It is perverse not to apply the Trinity test to the instant case. The instant case is on all fours with Trinity. In both cases an insurance company refused to pay the insured's claim (breach of contract); the court found that the insurance company breached the insurance contract; the insurance company was found to have acted in bad faith; and the fact-finder found that the misconduct justified a punitive damage award.
¶ 79 In Trinity, the court held that due process was satisfied by a punitive damages amount of $3,500,000 based on a potential harm of $490,000, a 7:1 ratio.
¶ 80 Because the majority opinion fails to apply Trinity properly, I dissent.
¶ 81 The first factor of the Trinity test is the grievousness of the acts. The insurance company's misconduct was substantially the same in Trinity and in the present case:
¶ 82 The Trinity court held that the insurance company's misconduct constituted a "continuing, egregious, and flagrant pattern of disregard toward [the insurance company's] duty owed to its insured," which justified the punitive damages in that case.
¶ 83 The majority opinion in the present case characterizes First American's conduct as not as reprehensible as that of the insurance company in Trinity. Majority op., ¶¶ 53-55, 71.
¶ 84 The majority opinion's conclusion does not square with the facts of the two cases.
¶ 85 First, as in Trinity, the legislature has made the insurance company's misconduct a crime, demonstrating the public policy of this state regarding the misconduct's reprehensibility. See majority op., ¶ 69; accord Trinity, 261 Wis.2d 333, ¶ 57, 661 N.W.2d 789.
¶ 86 Second, as in Trinity, First American's misconduct was repeated; First American was a recidivist.
¶ 87 The majority opinion erroneously states that First American's misconduct was "an isolated incident," and that "there is no indication from the record that First American engaged in repeated conduct." Majority op., ¶ 51. On the contrary, First American in the instant case demonstrates a pattern of repeated misconduct. After discovering its initial error, First American had many opportunities to remedy its misconduct and instead continued to act improperly:
¶ 88 The majority opinion maintains that the repeated misconduct here is less reprehensible than the repeated misconduct in Trinity because the insurance company in Trinity had committed similar misconduct in another case 30 years previously. Majority op., ¶ 53.
¶ 89 Yet the key factor for the reprehensibility of the insurance company's misconduct in Trinity was not that a 30-year-old prior court case existed or that the insurance company knew about it, but rather that the insurance company's "decisions, acts, and omissions ... illustrate a continuing, egregious, and flagrant pattern of disregard toward [the insurance company's] duty owed to its insured...." Trinity, 261 Wis.2d 333, ¶ 62, 661 N.W.2d 789.
¶ 90 The record in the present case demonstrates that First American exhibited a similar continuing, egregious, and flagrant pattern of misconduct.
¶ 91 The second factor is whether there was "intentional malice."
¶ 92 The majority opinion in the present case states that "there is no indication of intentional malice on the part of the First American or its employees." Majority op.,
¶ 93 The jury in the instant case found sufficient grounds to justify a finding that punitive damages should be awarded, based on the evidence presented and the jury instructions. The jury instructions stated that the jury should award punitive damages if it found that "the defendant acted maliciously toward the plaintiff or in an intentional disregard for the rights of the plaintiff."
¶ 94 The Trinity test's third factor (ratio of compensatory damages to punitive damages) and fourth factor (potential damage to the plaintiff) are linked.
¶ 95 Trinity examined the ratio between potential harm and punitive damages to determine the appropriateness of the award. Trinity, 261 Wis.2d 333, ¶ 65, 661 N.W.2d 789. "Wisconsin law expressly rejects the use of a fixed multiplier...." Trinity, 261 Wis.2d 333, ¶ 63, 661 N.W.2d 789.
¶ 96 Despite the lack of a fixed multiplier, Trinity provides a benchmark for the court. If a 7:1 ratio of punitive damages to potential harm ($3,500,000 punitive; $450,000 potential harm) and a 200:1 ratio of punitive damages to actual damages ($3,500,000 punitive; $17,570 actual damages) were permissible in Trinity, the instant
¶ 97 The amount of potential harm is calculated by analyzing "`the harm likely to result from the defendant's conduct as well as the harm that actually has occurred.'" TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443, 460, 113 S.Ct. 2711, 125 L.Ed.2d 366, (1993) (quoted source omitted).
¶ 98 In the instant case, the Kimbles were harmed. They had an offer to buy their property for $1.3 million. They wanted to sell. They chose to reduce the asking price to secure the sale because they needed to care for aging parents who had lost their home. The Kimbles introduced evidence that the sale failed because of the lack of road access, a defect in marketable title that had been insured by First American.
¶ 99 The Kimbles had purchased title insurance to protect them from damages arising out of the unmarketability of their title. The policy limit was $370,000. The value of the property with marketable title was about three times the policy limit.
¶ 100 The majority opinion erroneously asserts that a consideration of the loss of value of Kimbles' home would force the court "to depart from the facts of the record and speculate that, had the Kimbles failed to discover First American's bad faith, they would have been completely unable to sell their property, rendering it valueless." Majority op., ¶ 62.
¶ 101 Yet this potential harm is borne by the record. The lack of access constituted "unmarketability of the title."
¶ 102 In Trinity, the facts were similar. The insured in Trinity would have incurred a potential loss of up to $490,000 (damages in the auto accident case), had the insurance company successfully continued to deny Trinity Church's claim. The majority opinion in Trinity used the $490,000 figure for evaluating the punitive damages award.
¶ 103 In the instant case, the Kimbles would have potentially incurred a loss of up to $1.3 million, the sale price of the property if they had marketable title, and would not have recovered First American's title policy limits ($370,000), had First American successfully denied the Kimbles' claim.
¶ 104 The majority opinion refuses to use the $1.3 million sale price or $370,000 policy limit figures to calculate punitive damages. Instead the majority opinion adopts the reasoning of the dissent in Trinity.
¶ 105 Justice Sykes' dissent in Trinity argues that the insured "was never at risk for the auto accident damages, because either the agent (that is, his error and omissions carrier) or [the insurance company] was responsible for the mistake in the insurance application. The actual compensatory
¶ 106 The majority opinion in the present case follows Justice Sykes' approach by severely limiting what is actual and potential harm, rather than employing the correct Trinity majority opinion approach of using "the harm that is likely to result."
¶ 107 When title is not marketable, the significantly reduced value of the property and the inability of an insured to collect from the title insurance company are exactly "the harm[s] that [are] likely to have occurred" when a title insurance company fails to pay a worthy claim. Thus, the proper potential harm is at least the policy limits of $370,000, if not the lost sale of the house ($1.3 million), or both, rather than the mere $40,000 used by the majority opinion.
¶ 108 As to the proper ratio here, the majority opinion relies upon its mistaken "reprehensibility of conduct" analysis to justify a lower ratio than the Trinity 7:1 ratio of punitive damages to potential harm and the 200:1 ratio of punitive damages to actual damages that this court held constitutional. Trinity, 261 Wis.2d 333, ¶¶ 65, 68, 105, 661 N.W.2d 789; majority op., ¶ 66.
¶ 109 Even though the misconduct of First American here is essentially analogous to the misconduct in Trinity and may even be more egregious, the majority opinion applies only one guiding principle: High numbers for compensatory and punitive damages are bad; low numbers are good.
¶ 110 The majority settles on its 3:1 ratio for no ostensible reason other than that it is lower than the 7:1 and 200:1 ratios in Trinity and the 4:1 ratio in Pacific Mutual Life Insurance Co. v. Haslip, 499 U.S. 1, 23-24, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991). Yet in Pacific Mutual Life Insurance Co., the United States Supreme Court held that the 4:1 ratio was "close to the line," not over it.
¶ 111 The majority opinion also looks to a newly adopted state statute, which fixes $200,000 or a 2:1 ratio of punitive damages to compensatory damages as the limits for punitive damages awards. Majority op., ¶ 66 n.23. The statute is irrelevant. The majority opinion deliberately defies the legislative direction that the statute does not apply to the present case. Furthermore, the constitutional due process doctrine that we must apply in the present case rejects a fixed amount for punitive damages or a fixed multiplier. "Excessive" for due process purposes is a "fluid concept" that takes "substantive content from the particular context[] in which the standard[] [is] being assessed."
¶ 112 What was good enough for the Trinity court seems to no longer be good enough for the majority opinion in the present case.
¶ 113 The fifth Trinity factor is "a comparison of the punitive damages award and the civil or criminal penalties that could be imposed for comparable misconduct." Trinity, 261 Wis.2d 333, ¶ 66, 661 N.W.2d 789. I agree with the majority opinion
¶ 114 Nevertheless, the prohibited conduct's punishment by criminal sanctions under Wis. Stat. § 601.64(4) evinces the legislative determination of the reprehensibility of First American's misconduct.
¶ 115 The sixth Trinity factor is the wealth of the wrongdoer. The United States Supreme Court has also recognized the wealth of the wrongdoer as a factor to be considered in gauging the constitutionality of a punitive damage award.
¶ 116 The purpose behind the wealth factor is to punish wrongdoers and make the penalty for wrongdoing sufficiently high for wealthy wrongdoers that they are deterred from engaging in future misconduct.
¶ 117 In the instant case, the record demonstrates that in 2010, First American had revenues over $2 billion and net profits of $65 million. First American easily had the ability to pay the $1 million the jury awarded as punitive damages and then some.
¶ 118 Yet in the instant case, the majority opinion's result, as I noted previously, creates a final combined punitive and compensatory damages amount of $239,738.49 — a sum smaller than the title insurance policy limit of $370,000. The majority opinion makes First American's wrongdoing an efficient course of business. First American in fact pays less by acting in bad faith and wrongfully refusing to pay the Kimbles' claim than it would have paid had it honored the claim in good faith after discovering its error. This result directly contravenes the entire purpose of punitive damages, let alone the purpose of awarding punitive damages against a wealthy defendant.
¶ 119 The majority opinion again strays from Trinity. Trinity held, contrary to
¶ 120 The majority opinion dismisses the wealth factor in the present case in a footnote, flouting Trinity and the United States Supreme Court cases. The majority opinion states simply that "it is not significant in this case." Majority op., ¶ 70 n. 25. Why is the wealth of First American not significant in this case? The majority opinion does not explain, other than to cryptically state that "[t]he record indicates that First American would likely be able to pay the amount specified by the jury." Id. Is the majority opinion implying that First American's ability to pay means the punitive damages were too low or that the punitive damages can never be high enough to deter First American's misconduct in the future? Is First American too big, too well-to-do to punish?
¶ 121 The majority opinion has ignored and misapplied the Trinity test to substantially similar facts in the present case and reaches an outcome contrary to Trinity.
¶ 122 The majority opinion achieves a result in which the wrongdoer is enriched by its wrongdoing. First American ends up paying less in damages for acting improperly than it would have paid had it acted properly and paid the claim. This result, in my opinion, cannot stand.
¶ 123 For the foregoing reasons, I dissent.
¶ 124 I am authorized to state that Justice ANN WALSH BRADLEY joins this dissent.
An agent of Tower Insurance erred by not providing Trinity Church the coverage that Trinity Church requested.
Tower Insurance refused to reform the policy to cover Trinity Church (as the law required it to do) and to pay $490,000 on behalf of Trinity Church. Trinity Church sued Tower Insurance for breach of contract, bad faith, and punitive damages.
Tower Insurance paid $490,000 on Trinity Church's behalf.
The Trinity court used the $490,000 figure as harm to Trinity Church to calculate the punitive damages. Had Tower Insurance's misconduct not been discovered, Trinity Church would have had to pay the full $490,000 from its own funds; Tower Insurance would have received a net gain of $490,000. In calculating the harm to Trinity Church, the Trinity court did not take into account that Tower Insurance's agent might ultimately be responsible for paying the $490,000.
Here are the facts in the instant case: First American erred in not providing the Kimbles with their policy limits of $370,000 when First American discovered that the Kimbles' title was not marketable. Had First American's misconduct not been discovered, the Kimbles could not have sold their property, leaving them with a loss of both the $1.3 million sale price of the property and the $370,000 policy limits of the First American title insurance policy. First American would have received a net gain of $370,000.
Yet, government regulations prohibited development on the forest and wetlands, as the defendant's agent testified:
See also Wis. Stat. § 895.043(3).
Majority op., ¶ 43.
Justice Steinmetz articulated the reasoning behind considering the wealth of the parties in his dissent in Brown v. Maxey, 124 Wis.2d 426, 452, 369 N.W.2d 677 (1985) (Steinmetz, J., dissenting). He stated:
