WisBar News: Punitive Damages Award Against Title Company is Unconstitutionally Excessive:

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  • WisBar News
    April
    22
    2014

    Punitive Damages Award Against Title Company is Unconstitutionally Excessive

    Joe Forward
    Legal Writer

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    April 22, 2014 – A Wisconsin Supreme Court majority (4-2) has ruled that a punitive damages award of $1 million against a title insurance company was unconstitutionally excessive, despite acknowledging the company’s actions were “reprehensible.”

    The jury’s award, upheld by the circuit and appeals courts, was based on claims that First American Title Insurance Company engaged in bad faith by refusing to defend and indemnify property owners who acquired flawed title to lakefront property in Door County.

    But in Kimble v. Land Concepts Inc., 2014 WI 21 (April 22, 2014), the supreme court majority overturned the award as excessive, a violation of due process rights. The majority reduced the punitive damages award from $1 million to $239,738.

    Background

    In 2004, Robert and Judith Kimble (Kimble) bought a lot in Door County. The deed said the land benefitted from two access easements to the north and west.

    First American issued a title insurance policy that required the insurer to defend and indemnify Kimble for losses resulting from “unmarketability of title” and “[l]ack of a right of access to and from the land.” In early 2008, Kimble tried to sell the property.

    However, a neighboring landowner, Land Concepts Inc., informed Kimble that a purported north easement across its land did not exist. It advised Kimble to notify any prospective buyers that a private driveway to the highway was not legally theirs to use.

    Kimble contacted First American through their attorney. Upon investigation, the insurance agent told the company’s vice president that the deeds conveying one of the easements, the north easement, appeared to have a problem.

    In March 2008, the vice president said the west easement was possibly defective, but the north easement was good and there was no issue to defend or indemnify. Land Concepts continued to dispute that Kimble had legal title to easements on its land.

    Kimble continued to market the property based on First American’s assertion that title was good as to at least one access easement. They received a cash offer, contingent on resolution of the easement issue. But a resolution with Land Concepts failed.

    In 2009, Kimble filed suit against Land Concepts. They wanted a declaration that the north easement was valid with a prescriptive easement on a cut-off road leading there.

    They also filed breach of warranty claims against previous property owners, and a breach of contract claim against First American for failing to defend them.

    In 2010, Kimble settled claims with all but First American. As part of the settlement, previous landowners, John and Jane Stevenson (Stevenson), paid Kimble $10,000 to assign their rights and claims under the Kimble’s First American title policy.

    Stevenson pursued breach of contract, breach of fiduciary duty, and bad faith claims against First American, based on the title company’s refusal to defend Kimble.

    By the time of trial, the circuit court had determined that Kimble’s property was not marketable because of the access dispute, and thus coverage was triggered.

    The jury had to decide whether First American’s refusal to defend Kimble’s title was a breach the of contract and whether First American breached its fiduciary duties in bad faith. Stevenson presented evidence that First American knew the north easement was defective but did not disclose it.

    North American said it had a good faith belief the easement was good, and was only mistaken. The jury gave the Stevenson’s $50,000 for breach of contract, plus $1 million for acting in bad faith. After verdict, the court reduced the compensatory damages but upheld the punitive damages award. The appeals court also upheld the $1 million.

    Majority

    A Wisconsin Supreme Court majority acknowledged that “First American’s conduct in the case at issue is reprehensible,” but ultimately ruled that punitive damages were too much.

    It said First American refused to defend Kimble despite knowing the north easement was defective and there were no alternative easements to access the property. It noted that First American withheld information to the Kimble’s, wasting their time and money.

    The actions warranted punitive damages, the court noted.

    “The question, however, is whether the degree of reprehensibility supports the punitive damages actually awarded,” wrote Justice Annette Ziegler for the unanimous court.

    It noted that First American’s action did not endanger Kimble’s health and safety, and Kimble was not a financially vulnerable party. It said First American was deceptive, but “there is no indication of intentional malice on the part of the company or its employees.”

    At a ratio of 33:1, the court also concluded that the punitive damages award did not bear a reasonable relationship to compensatory damages. “Such a ratio is transparently problematic under the United States Constitution,” Justice Ziegler wrote.

    The majority said the punitive damages award deprived First American of its due process rights and reduced the punitive damages award to $239,738.

    Dissent

    Chief Justice Shirley Abrahamson wrote a dissent, joined by Justice Ann Walsh Bradley. They said the majority reached a “shocking result.”

    “For all its reprehensible conduct, First American in fact pays less by acting in bad faith and wrongfully refusing to pay the Kimbles’ claim then it would have paid had it honored the claim in good faith after discovering its error,” the chief justice wrote.

    The dissenters said the majority failed to properly apply with the test for reviewing punitive damages awards, allowing a result in which “the wrongdoer was enriched by its wrongdoing.” The chief justice said the decision contravenes the purpose of punitive damages.