With its 4-2 decision in Kimble v. Land Concepts, Inc., the Wisconsin Supreme Court has held that judges must review de novo potentially excessive punitive damages awards under Wisconsin law. The Court also clarified the process for assessing whether such an award is constitutional under the due process protections of the Fourteenth Amendment and the Wisconsin Constitution, concluding that a 3-to-1 ratio of punitive damages to compensatory damages is constitutionally appropriate in the instant case.
The Kimbles purchased a property, with two purported easements, that had been previously owned by the Stevensons. First American Title Insurance Company (First American) issued a title insurance policy for the Kimble property, which required 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 specify that any specific route of access applied to the property.
In 2008, when the Kimbles listed their property for sale, they received a letter from Land Concepts, Inc., stating that the Kimbles did not own and, therefore, could not convey any access rights to County Highway M (one of the purported easement routes). First American reviewed the file and informed the Kimbles that, while one of the easements appeared to be defective, the other easement continued to provide the lot with access. Accordingly, First American contended, the title remained as insured, and no coverage existed. The letter described the chain of title for which the easement was supported, but it did not mention the issues in connection with that easement identified during the review of the file.
The Kimbles ultimately settled their claims with all defendants except First American. As part of the settlement, the Kimbles and the Stevensons paid Land Concepts $40,000 to secure an easement to access the property. The Stevensons paid an additional $10,000 to the Kimbles for an assignment of the Kimbles’ rights under the title insurance policy, including claims against First American.
Following a trial, the jury awarded the Stevensons $50,000 in compensatory damages for breach of contract, and $1,000,000 in punitive damages to punish First American’s alleged bad faith. The circuit court later granted First American’s motion to reduce the compensatory damages award to $29,738.49, but it declined to disturb the punitive damages award. The Wisconsin Court of Appeals affirmed the decision.
The issue before the Wisconsin Supreme Court was whether the circuit court (and the Court of Appeals) applied the appropriate standard of review to the jury’s award of punitive damages to ensure that the award comported with due process protections provided by the Fourteenth Amendment and the Wisconsin Constitution.
While the U.S. Supreme Court previously has ruled that de novo review is the appropriate standard for ensuring that a punitive damages award comports with due process (see, e.g., Cooper Indus., Inc. v. Leatherman Tool Grp., Inc., 532 U.S. 424 (2001)), Wisconsin law was less clear on the appropriate level of deference on review. See Trinity Evangelical Lutheran Church v. Tower Ins. Co., 2003 WI 46, 261 Wis. 2d 333, 661 N.W.2d 789 (holding that while de novo review is the proper standard for punitive damages awards, the court was “reluctant” to set aside a large jury verdict).
In Kimble, the Court of Appeals, apparently tracking Trinity, reviewed the punitive damages award under an abuse of discretion standard. See Kimble v. Land Concepts, Inc., 2012 WI APP 132, ¶¶ 40 41, 345 Wis. 2d 60, 823 N.W.2d 839 (unpublished) (“In weighing these factors against the facts of a particular case, ‘the evidence must be viewed in the light most favorable to the plaintiff, and a jury’s punitive damages award will not be disturbed, unless the verdict is so clearly excessive as to indicate passion and prejudice.’”)
In a decision authored by Justice Ziegler, the Wisconsin Supreme Court (Court) reversed and remanded the Court of Appeals’ decision, unequivocally adopting de novo review as the proper standard when assessing the magnitude of punitive damages awards to ensure that they comport with due process protections.
The Court found that “none of the reprehensibility factors identified by the Supreme Court in Campbell are present in this case,” explaining that “[t]he damage suffered by the Kimbles was indisputably economic, not physical … [that] First American’s bad faith did not endanger the health or safety of any person … [that] [t]here is no indication in the record that the Kimbles were financially vulnerable … [and that] [t]he conduct complained of was an isolated incident.” Id. at 51. The Court also determined that “while First American’s conduct indisputably involved deception, there is no indication of intentional malice on the part of the company or its employees” and, in light of these factors, “[t]he punitive damages award against First American is therefore suspect.” Id. (citing Campbell, 538 U.S. at 419).
The Court indicated that a bright line ratio is a helpful barometer for assessing the reasonableness of punitive damages awards in light of the Fourteenth Amendment and state law—holding that a 3-to-1 ratio of punitive damages to compensatory damages was constitutionally sound in this case. Because the Stevensons were awarded approximately $29,000 in attorneys’ fees, and they had paid $40,000 for the easement rights at issue in the case, the Court determined that the aggregate of those two amounts was a proper base. Thus, the punitive damages award was reduced from $1,000,000 to $210,000 (or three times the base).
In a strongly worded dissent, Chief Justice Abrahamson, relying heavily on the Trinity decision, rejected the notion of a fixed ratio for the assessment of punitive damages awarded under Wisconsin law. She noted that Trinity provided an appropriate benchmark for this case due to its factual similarities (ratio of 7-to-1 punitive damages to potential harm and 200-to-1 punitive damages to actual damages).
While the Kimble decision harmonizes Wisconsin common law addressing punitive damages with U.S. Supreme Court precedent, its holding is most applicable to those cases filed before February 1, 2011. With 2011 Act 2, the Wisconsin legislature has limited punitive damages awards going forward to twice the amount of any compensatory damages or $200,000, whichever is greater. However, the Kimble decision provides important guidance for application in those cases already in the pipeline before the effective date of Act 2 and certain cases under Act 2. Furthermore, if the Wisconsin legislature later amends or repeals the provision, the decision will provide useful guidance and increased predictability for future punitive damages cases.