Sixth Circuit Finds Tennessee's Caps on Punitive Damages Unconstitutional and Upholds $3,000,000 Punitive Damage Award Against Insurance Company

Tamarin Lindenberg had to sue Jackson National Life Co. to recover $350,000 she was owed as the primary beneficiary of a life insurance policy on her ex-husband, Thomas, after he died in 2013. There were contingent beneficiaries listed, to his “surviving children equally”, but there appeared to be no question but that Tamarin was entitled to receive the proceeds of the policy as the primary beneficiary. A district court jury awarded her the $350,000, plus $87,500 (25%) in bad faith damages, and $3,000,000 in punitive damages. The jury found that Jackson Life’s refusal to pay was “either intentional, reckless, malicious, or fraudulent.”

Jackson Life argued that the district court must apply T.C.A. § 29-39-104 and reduce the punitive damages to twice the amount of the compensatory damages. The plaintiff challenged the constitutionality of the cap. The Tennessee Supreme Court declined to answer the certified questions, and the district court reduced the punitive damages to $700,000, rejecting plaintiff’s constitutional challenge.

However, the Sixth Circuit took up the challenge in Lindenberg v. Jackson Nat'l Life Ins. Co., 2018 U.S. App. LEXIS 36097 (12/21/18), and found the caps to be unconstitutional:

“Upon our assessment of Tennessee law, we find that the punitive damages bar set forth in § 29-39-104 violates the individual right to a trial by jury set forth in the Tennessee Constitution. The Declaration of Rights in the Tennessee Constitution provides that “the right of trial by jury shall remain inviolate . . . .” Tenn. Const. art. I, § 6. This broad language does not guarantee the right to a jury trial in every case. “Rather, it guarantees the right to trial by jury as it existed at common law under the laws and constitution of North Carolina at the time of the adoption of the Tennessee Constitution of 1796.” Young v. City of LaFollette, 479 S.W.3d 785, 793 (Tenn. 2015) (internal quotation marks, alteration, and citation omitted). “Among the essentials of the right to trial by jury is the right guaranteed to every litigant in jury cases to have the facts involved tried and determined by twelve jurors.” State v. Bobo, 814 S.W.2d 353, 356 (Tenn. 1991).”

Keeping in mind that Tennessee law appears to limit recovery against insurance companies who are guilty of acting in bad faith to 25% plus attorney’s fees, T.C.A. § 56-7-105(a), the Sixth Circuit also held that the district court properly refused to dismiss plaintiff's punitive damages claim for breach of contract. The Court concluded that the statutory remedy for bad faith was not the exclusive extracontractual remedy for an insurer's bad faith refusal to pay on a policy. The defendant's motion for judgment, as a matter of law, on the plaintiff's statutory bad faith claim was properly denied because Jackson Life’s refusal to pay had no apparent basis under the law. The Court found that clear and convincing evidence demonstrated that the defendant's refusal to pay and its pursuit of litigation with the plaintiff was at least reckless:

“In this case, the jury faced the question of whether Defendant's breach of contract involved egregious conduct. As previously discussed, reasonable minds could find that Defendant's uncertainty defense was merely a post hoc explanation for its refusal to pay on the Policy. Based on the following evidence, reasonable minds could go further, finding that clear and convincing evidence demonstrated that Defendant's refusal to pay was at least reckless.”

Lindenberg is significant, not only for declaring Tennessee’s punitive damages caps to be unconstitutional, but also for illustrating how an insured, who is mistreated by an insurance company, can eventually obtain justice, after years of litigation and appeals.