499 U.S. 1 (1991)
In 1981, Lemmie L. Ruffin, Jr., an Alabama-licensed agent for petitioner Pacific Mutual Life Insurance Company, also served as a licensed agent for Union Fidelity Life Insurance Company, a distinct and nonaffiliated entity.1 Respondents Cleopatra Haslip, Cynthia Craig, Alma M. Calhoun, and Eddie Hargrove were employees of Roosevelt City, an Alabama municipality.2 Ruffin, presenting himself as an agent of Pacific Mutual, solicited the city for both health and life insurance for its employees and gave the city a single proposal for both coverages from the two insurers.3 The city approved, and in August 1981 Ruffin prepared separate applications for group health coverage with Union and individual life policies with Pacific Mutual, with initial premium payments submitted to the insurers.4
An arrangement was made for Union to send its billings for health premiums to Ruffin at Pacific Mutual's Birmingham office, with premium payments effected through payroll deductions.5 The city clerk each month issued a check for those premiums that was sent to Ruffin or picked up by him.6 Ruffin did not remit to Union the premium payments received from the city; instead, he misappropriated most of them.7 In late 1981, when Union did not receive payment, it sent notices of lapsed health coverage to respondents in care of Ruffin and Patrick Lupia, Pacific Mutual's agent-in-charge of its Birmingham office, but those notices were not forwarded to respondents.8 The trial court found that respondents did not know that their health policies had been canceled.9
Respondent Haslip was hospitalized on January 23, 1982, and incurred hospital and physician's charges.10 Because the hospital could not confirm health coverage, it required Haslip, upon her discharge, to make a payment upon her bill.11 Her physician, when he was not paid, placed her account with a collection agency that obtained a judgment against Haslip, adversely affecting her credit.12 In May 1982, respondents filed this suit in the Circuit Court for Jefferson County, Alabama, naming as defendants Pacific Mutual and Ruffin individually and as a proprietorship.13 The suit alleged that Ruffin collected premiums but failed to remit them so that respondents' health insurance policies lapsed without their knowledge, and damages for fraud were claimed.14 The case against Pacific Mutual was submitted to the jury under a theory of respondeat superior.15
Following the trial court's charge on liability, the jury was instructed that if it determined there was liability for fraud, it could award punitive damages.16 The jury returned general verdicts for respondents against Pacific Mutual and Ruffin in the amounts of $1,040,000 for Haslip, $15,290 for Calhoun, $12,400 for Craig, and $10,288 for Hargrove.17 Judgments were entered accordingly.18 On Pacific Mutual's appeal, the Supreme Court of Alabama affirmed the judgments by a divided vote.19 Pacific Mutual then brought the case to the United States Supreme Court, which granted certiorari to review the punitive damages procedures and award.20
Whether Pacific Mutual could be held liable for punitive damages under respondeat superior for the fraud committed by its agent Ruffin?21
Yes. The established facts show that Ruffin was acting as an employee of Pacific Mutual when he defrauded respondents.24 He used Pacific Mutual letterhead, worked out of its branch office, and presented a single proposal on Pacific Mutual letterhead for both life and health premiums.25 Pacific Mutual derived economic benefit from the life insurance sales, and Ruffin had actual authority to sell Pacific Mutual life insurance.26 The trial court found that Ruffin spoke only of Pacific Mutual and indicated that Union Fidelity was a subsidiary of Pacific Mutual.27
Before the frauds, Pacific Mutual had received notice that Ruffin was engaged in a pattern of fraud identical to those perpetrated against respondents.28 Alabama long has applied this rule in the insurance context, for it has determined that an insurer is more likely to prevent an agent's fraud if given sufficient financial incentive to do so.29 Imposing exemplary damages on the corporation when its agent commits intentional fraud creates a strong incentive for vigilance by those in a position to guard substantially against the evil to be prevented.30
Pacific Mutual was properly held liable for the punitive damages under the doctrine of respondeat superior.31
Whether Alabama's common-law procedures for awarding punitive damages, including jury instructions and post-verdict review, satisfy due process requirements?32
The common-law method for assessing punitive damages does not in itself violate due process.33 Alabama's procedures, including instructions that punitive damages are to punish and deter, and post-trial review by the trial court and Alabama Supreme Court applying the Green Oil factors, provide meaningful standards and adequate guidance to the jury.34
Yes. The established facts show that the jury was instructed that punitive damages are to punish the defendant and for the added purpose of protecting the public by deterring the defendant and others from doing such wrong in the future.35 If punitive damages were to be awarded, the jury must take into consideration the character and the degree of the wrong as shown by the evidence and necessity of preventing similar wrong.36 The trial court conducted a postverdict hearing that conformed with Hammond.37 It found that the conduct evidenced intentional malicious, gross, or oppressive fraud.38 It found the amount of the award to be reasonable in light of the importance of discouraging insurers from similar conduct.39 The Alabama Supreme Court applied the Hammond standards and the Green Oil factors.40 These factors include the relationship between the punitive damages and the harm, the reprehensibility of the conduct, the duration of the conduct, and other factors.41 The court approved the verdict thereunder.42
These standards impose a sufficiently definite and meaningful constraint on the discretion of Alabama factfinders in awarding punitive damages.43
Alabama's common-law procedures for awarding punitive damages satisfy due process requirements.44
Related opinions on this issue
Justice Scalia concurred in the judgment.45 He argued that punitive damages assessed under common-law procedures form part of our living tradition that dates back prior to 1868.46 Therefore the Due Process Clause does not authorize further inquiry into fairness or reasonableness.47
He noted that it has been the traditional practice of American courts to leave punitive damages to the discretion of the jury where the evidence satisfies the legal requirements for imposing them.48 In his view a process that accords with such a tradition necessarily constitutes due process.49 He would approve the procedure challenged here without further inquiry into its fairness or reasonableness because it accords with traditional practice.50
Justice Kennedy filed a concurring opinion.51 He contended that historical acceptance of legal institutions serves to validate them because a long-accepted legal institution would not have survived if it rested upon procedures found to be either irrational or unfair.52 Jury determination of punitive damages has such long and principled recognition as a central part of our system that no further evidence of its essential fairness or rationality ought to be deemed necessary.53
He agreed that the judgment of history should govern the outcome in the case before us.54 Some inconsistency of jury results can be expected, yet nonuniformity cannot be equated with constitutional infirmity.55 The usual protections given by the laws of the particular State must suffice until judges or legislators initiate system-wide change.56
Whether the punitive damages award in this case exceeds constitutional limits under the Due Process Clause of the Fourteenth Amendment?57
A punitive damages award does not violate due process if it is not so excessive as to lack objective criteria.58 Courts consider factors such as the ratio to compensatory damages, the reprehensibility of the conduct, and the state's interest in punishment and deterrence.59 The procedures must also provide adequate guidance.60
No. The established facts show that the jury returned a verdict including punitive damages of not less than $840,000 for Haslip.61 The award is more than 4 times the amount of compensatory damages and more than 200 times the out-of-pocket expenses of respondent Haslip.62 Yet the award bears a reasonable relationship to the harm.63
The conduct was reprehensible as Ruffin collected premiums but did not remit them and the company failed to notify the insureds.64 This caused Haslip emotional distress and other harm.65 The Alabama Supreme Court reviewed the award and affirmed the bulk of it after applying the Green Oil factors.66 While the award is more than 4 times the compensatory damages and much in excess of the fine that could be imposed for insurance fraud, it did not lack objective criteria.67 It does not cross the line into the area of constitutional impropriety.68
The punitive damages award in this case does not exceed constitutional limits under the Due Process Clause of the Fourteenth Amendment.69
Related opinions on this issue
Justice O'Connor dissented.70 She argued that Alabama's common-law punitive damages scheme is void for vagueness because it entrusts the jury with standardless discretion to determine whether to impose punitive damages and in what amount.71 The instructions were as vague as any imaginable and invited individual jurors to rely upon emotion, bias, and personal predilections of every sort.72
She would require Alabama to adopt some method, either through its legislature or its courts, to constrain the discretion of juries in deciding whether or not to impose punitive damages and in fixing the amount of such awards.73 Modest safeguards would make the process significantly more rational without impairing any legitimate governmental interest.74