National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

The case came to the U.S. Supreme Court on a petition for certiorari from the Ninth Circuit, which had upheld a lower court’s finding that punitive damages were warranted but halved the amount of the award from the original $5 billion.

As the transcript of the argument reveals, the questioning was brisk. The initial focus of the Justices’ inquiry was on whether federal maritime law allowed an award of punitive damages based on the conduct of some other than a senior executive. Although counsel for Exxon conceded that the captain of the Exxon Valdez was a “managerial agent,” he argued that Captain Hazlewood, while more than a mere cabin boy, was not someone who had responsibility over that area of the company’s operations for an award of punitive damages against the company to be justified. There was a clear split among the Justices with respect to whether this is a long-standing tradition in federal maritime law and whether it is appropriate to treat maritime corporations differently from other U.S. corporations in this regard.

Although Exxon is clearly not an insurance case, this aspect of the court’s analysis has interesting implications for insurers in view of the fact that many states, while generally barring insurance for punitive damages, permit coverage where the insured’s liability is vicarious and not the direct result of misconduct by the company itself.

The second question addressed by the Justices was whether punitive damages are warranted under federal maritime law for unintentional oil spills. Exxon pointed out to the court that there had only been four cases of federal maritime punitive damage awards prior to the passage of the federal Clean Water Act. Exxon argued that there was no common law tradition of such awards and that Congress had indicated an unwillingness to sanction such awards by failing to provide a punitive remedy in the Clean Water Act.

Finally, counsel for Exxon argued that deterrence was not a realistic consideration in cases of this sort where there was no evidence of malice or bad motive, no possibility of concealment, no effort to gain a profit and the defendant had already paid vast sums in compensatory damages and for remedial efforts.

Arguing for the plaintiffs, counsel argued that the Exxon Valdes was a discrete business unit of Exxon over which Captain Hazelwood had executive control. Justice Roberts pressed counsel as to why a corporation should be liable for punitive damages if it had a policy a that only appropriate individuals should be hired that, unbeknownst to it, was violated by the employee. Counsel argued that it was insufficient to merely have a paper policy, that policy must be implemented soundly.
The Justices also debated what sort of “guideposts” should determine the amount of awards in federal maritime cases and, in particular, whether the same Gore standards (e.g., reprehensibility) that had guided their “due process” cases should be determinative or whether greater emphasis should be placed on statutory standards such as the Clean Water Act. Counsel for the claimants argued vehemently against any “bright line” ratio notwithstanding the suggestion of certain Justices that a ratio of 5-1 might be appropriate.

As among the Justices, only Chief Justice Roberts and Justice Scalia appeared to clearly be leaning Exxon’s way, with both Justices Ginsburg and Breyer adopting a more hostile attitude to both the legal and procedural aspects of Exxon’s claim.

Given the tone of the Justices’ questioning and the fact that they only accepted certiorari on issues specific to federal maritime law, it seems relatively unlikely that much of their opinion, when it is issued, will have a significant impact upon the manner in which state and federal courts around the country continue to address due process issues involving awards of punitive damages in non-maritime cases.