Pa. Supreme Ct. Upholds Punitive Damage Award Against Insurance Agency for Poaching from Competitor

A jury’s $2.8 million punitive damage award against an insurance agency and broker that tried to poach a competitor’s staff and book of business was not excessive even though it was more than 10 times the total amount of compensatory damages, the Pennsylvania Supreme Court ruled.

The state high court rejected an argument that the award was constitutionally excessive in light of a US Supreme Court decision that punitive damage awards are suspect if the ratio to compensatory damages exceeds single digits. In a unanimous decision July 19, the court said the punitive-damage awards against insurance agent Matthew Turk, First National Insurance Agency and FNB Corp., remain within the guidelines when calculated on a “per-defendant basis” rather than as a whole.

“The per-defendant ratio assesses the individualized impact intended by the punitive damages awards, whereas the per-judgment approach distorts the analysis by obscuring the due process rights of the individual defendants,” the opinion says. “A composite analysis undoes the jury’s determination of an individual’s reprehensibility and need for deterrence as reflected in the punitive verdict.”

The case stems from First National Insurance Agency’s attempt in 2016 to take business and staff members from a competitor, the Bert Co. which does business as Northwest Insurance Services. FNIA, owned by First National Bank, persuaded Northwest employees to leave Northwest and bring their clients with them.

Northwest got wind of the plot, obtained an injunction and sued. A jury awarded Northwest compensatory damages for breach of contract of $164,943; breach of fiduciary duty, $90,000; civil conspiracy, $164,943; and unfair competition, $250,000.

The largest compensatory damages award for which Turk and First National were jointly and severally liable was $164,943. The largest compensatory damages award for which First National was jointly and severally liable was $250,000.

The jury also awarded a total of $2.8 million in punitive damages, imposed per-defendant as follows: Turk for breach of contract and fiduciary duty, civil conspiracy, $300,000; FNB Corp. for civil conspiracy and unfair competition, $500,000; FNB for civil conspiracy and unfair competition $500,000; and FNIA for civil conspiracy and unfair competition, $1,500,000.

Turk and First National appealed the award on the grounds that the punitive damage amount was unconstitutionally excessive. They cited a 2003 U.S. Supreme Court (State Farm Mutual Automobile Insurance Co. v. Campbell) ruling that indicated that the ratio of punitive damages to compensatory damages should generally be in the single digits and, where compensatory damages are “substantial,” the ratio might be only equal to compensatory damages, or a 1:1 ratio.

They argued that in order to assess the award, the court must use a per- judgment approach that divides the total of punitive damages assessed against them by the total of compensatory damages assessed against the defendants. This approach produces an aggregate ratio of punitive to compensatory damages in this case of 11.2 to 1, which they argued, was unconstitutionally excessive because it exceeds the single digit formula in the State Farm case. Any award above 9:1 should be viewed as presumptively unconstitutional, they insisted.

However, a trial court and the Superior Court rejected the defendants’ math. Rather than using the per-judgment formula to assess the award, they used a per-defendant approach that divides the punitive damages assessed against a defendant by the compensatory damages assessed against that defendant. This resulted in ratios of 1.8 to 1 for Turk; 2 to 1 for FNB; 2 to 1 for FNB Corp. and 6 to 1 for FNIA. Using this per-defendant approach, the trial court concluded that the ratios would be constitutionally sound.

The state’s high court generally endorsed the lower courts’ approach, stressing that the U.S. Supreme Court has warned against setting a “bright-line” or concrete limit on punitive damages. It said the single digit ratio test of State Farm is non-binding.

The state Supreme Court said “the guideposts and factors do not operate mechanically because the facts and circumstances of each case are determinative in assessing the constitutionality of a punitive damages award.”

The Pennsylvania court also noted that consistent with State Farm and subsequent cases, the assessment must consider the potential harm, which was estimated to be $5.4 million in this case if the takeover plot had not been thwarted.

“The jury decided, appropriately based on the evidence, that punishment and deterrence were warranted because the goal of the entire scheme was to destroy a competitor without regard to the existing non-solicitation agreements and by way of months-long planning, surreptitious meetings, disruption of employment arrangements with newly hired employees, and timing the transfer of personnel to FNIA so that the key Northwest employee (who helped mastermind the scheme) was last to leave so that he could broker the fire sale of the remaining business of Northwest,” the court wrote.