Ore. SC upholds $8M judgment against insurers

Jessica M. Karmasek Jun. 3, 2011, 1:00pm

SALEM, Ore. (Legal Newsline) -- The Oregon Supreme Court has upheld an $8 million judgment in a class-action lawsuit against a group of insurance companies.

The Court, in its May 19 ruling, affirmed the decision of an appeals court in part and reversed it in part. The Court also affirmed the judgment of the Multnomah County Circuit Court.

Mark Strawn, the lead plaintiff, filed a class action against defendants Farmers Insurance Company of Oregon, Mid-Century Insurance Company and Truck Insurance Exchange, collectively referred to as Farmers in court documents.

Strawn's complaint alleged that Farmers had breached its contractual obligations and committed fraud by instituting a claims handling process that arbitrarily reduced payments for reasonable medical benefits owed under its automobile insurance policies.

A jury returned a verdict for the plaintiffs. Based on that verdict and a post-verdict class claims administration process, the trial court entered a judgment against Farmers for about $900,000 in compensatory damages and $8 million in punitive damages. Farmers appealed.

On appeal, the appeals court concluded that the punitive damages award exceeded federal constitutional limits, but otherwise affirmed the judgment. Both parties petitioned for review.

In its petition, Farmers presented three issues. The first two raise challenges to the liability verdict entered against Farmers. The third issue challenges the punitive damages award, arguing that the appeals court should have reduced the punitive damages award further.

The plaintiffs contend that the appeals court should not have reached the constitutionality of the punitive damages award for procedural reasons, and that the full amount of punitive damages awarded by the jury was within constitutional limits.

The Court, in its majority opinion, rejected Farmers' arguments that seek to set aside the jury's liability determinations on plaintiffs' claims.

On the punitive damages issues, it also concluded that the appeals court should not have reached Farmers' constitutional challenge to the amount of the punitive damages award.

Justice Virginia L. Linder wrote the Court's opinion.

"The trial court articulated two alternative reasons for denying Farmers's motions (waiver and other procedural defects, as well as a conclusion on the merits that the award did not exceed constitutional limits). The trial court further expressly concluded that both bases on which it ruled were independently sufficient to support the trial court's ruling," the Court wrote.

"Logically, that was true. On appeal, Farmers failed to preserve any challenge to the waiver and other procedural grounds on which the trial court's order was alternatively based. Any error by the trial court concerning the constitutionality of the punitive damages award therefore was necessarily harmless."

The Court emphasized that it would not decide whether the trial court's alternative grounds for its ruling were sound.

"The correctness of the trial court's waiver and other procedural analyses are not before us, just as those issues were not before the Court of Appeals," it wrote. "Indeed, it is precisely because the trial court's alternative grounds for ruling were not challenged by Farmers that the issue of the excessiveness of the punitive damages award was not before the Court of Appeals for its determination.

"Likewise, whether that award was constitutionally excessive is not before us. For that reason, the punitive damages award must be affirmed," it concluded.

From Legal Newsline: Reach Jessica Karmasek by e-mail at jessica@legalnewsline.com.

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