Correction: Court calculated actual damages at $1,081,189.40.
Mitchell V. Fortis Insurance Company, # 26718 (S.C. September 14, 2009), see Mitchell Decision
This decision out of the South Carolina Supreme Court is remarkable first as a model for intelligent, careful consideration of a difficult legal and factual issue, and second, I have not seen such outrageous conduct by an insurance company since the wild and wooly days before bad faith liability entered American jurisprudence (yes, I am that old).
Briefly the facts: Mitchell, 17, applied for health insurance when he left home and went away to school. The insurance application asked if he had even been diagnosed or treated for any immune deficiency disorder. He answered no and submitted the application to Fortis on May 15, 2001. In April 2002, Mitchell's blood was screened by Red Cross and tested positive for HIV. On May 14, 2002, Mitchell contacted a doctor who confirmed the result and noted in a medical chart that Mitchell tested positive for HIV, was 18 years old, and the date of the confirming test was May 14, 2001 (not 2002).
Mitchell submitted insurance claims for the tests and subsequent treatment. Fortis investigated, found the referral note with the erroneous date, and concluded that Mitchell had lied on his May 15, 2001application. Fortis rescinded the policy and refused payment. There followed a series of communications to Fortis from Mitchell, his doctor, his lawyer, and his mother's insurance agent, all providing ample proof that Mitchell's first inkling that he was HIV-positive was in 2002 and urging, even begging, that Fortis reconsider its decision.
All calls to Fortis were routed to one or another customer service representative who invariably said that there "was nothing [the representative] could do." The Fortis rescission committee that initially made the decision met to consider the appeal and noted only that Mitchell's lawyer had written that Mitchell had not lied because the diagnosis was first made a year after the inception of the policy. Apparently finding lawyers inherently untrustworthy, the committee refused to budge. Evidence developed later in the lawsuit showed that Fortis, contrary to its usual practice, either had failed to log telephone calls to its claims manager, or those logs were deleted. Fortis also twice sent Mitchell altered or illegibile copies of the referral form that contained the wrong date.
Folks, it gets worse. At trial, Mitchell produced evidence that it was Fortis' practice to shut down an investigation once a single piece of evidence was discovered that would support rescission. (Even in Texas, where bad faith is rarely sustained on appeal, this evidence would doom an insurer). Then, a Fortis manager testified that she was not "able to answer" whether she or any of her employees "had a responsibility to find out the truth" about a policyholder's medical conditions. Oy vey!
The jury awarded Mitchell $186,000 in compensatory damages, $36,000 on the breach of contract claim, and $15,000,000 in punitive damages. Fortis appealed the punitive damages award as violative constitutional due process. The South Carolina High Court got down to business.
Ever since the U.S. Supreme Court recognized due process restrictions on state-imposed punitive damages in BMW of North America v. Gore, 517, U.S. 599 (1996), the courts of the land have struggled to find reasonable criteria for evaluating the amount of punitive damages an incensed jury might award. The Mitchell Court applied the three basic criteria stated in Gore: (1) the degree of reprehensibility of defendant’s conduct, (2) the disparity between the actual or potential harm and the amount of the punitive damages (ratio), and (3) comparative penalty awards from other cases.
The South Carolina High Court first found that actual damages should have been calculated at $1,081,189.40, but found that the award, almost 14 times actual damages, was excessive under the Gore criteria. Accordingly, the Court determined that an award of approximately 9 times actuals would not offend due process and would comport with South Carolina's "substantial history of upholding punitive damages wards against insurance companies that fraudulently rescind their customer’s heath insurance policies.” Noting that without the coverage, Mitchell could not afford treatment and would lilkely die of AIDS within a few years, a fact of which Fortis was aware (in fact, Fortis reinstated the policy but only after getting kicked in the slats in court), the Court remitted the award to $10,000,000.
Because the pre-existing exclusion appears to be on everybody's health-care reform list, this case may be among the last of these enormities we will see. Let's hope so.
Comments