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Determining the Financial Condition of an Insurance Carrier
Punitive damages long have been awarded 'to punish wrongdoers and thereby deter the commission of wrongful acts … ' Neal v. Farmers Ins. Exch., 21 Cal. 3d 910, 928 n.13, 148 Cal. Rptr. 389, 399 n.13 (1978). In order to accurately determine how large a punitive damage award should be, the financial condition of a defendant must be evaluated. If a punitive damage award is not large enough, then it is not likely to have any deterrent effect. Instead, because it simply would be a cost of doing business, it actually may serve as an incentive to further wrongful conduct. Therefore, in order to accurately determine how much of a punitive damage award is enough, but not too much, the financial condition of an insurance carrier needs to be evaluated. Id. at 928 (the wealth of defendant must be considered or else 'the function of deterrence … will not be served if the wealth of the defendant allows him to absorb the award with little or no discomfort'); Adams v. Murakami, 54 Cal. 3d 105, 111-12, 284 Cal. Rptr. 318, 321 (1991) ('The most important question is whether the amount of the punitive damages award will have deterrent effect ' without being excessive … This balance cannot be made absent evidence of the defendant's financial condition.').
The financial condition of the carrier typically is judged at the time of trial, but it is appropriate to consider the carrier's future financial prospects and ability to borrow money. In Rufo v. Simpson, 86 Cal. App. 4th 573, 103 Cal. Rptr. 2d 492 (2001), for example, the court addressed the propriety of the punitive damages award against O.J. Simpson. Simpson challenged the punitive damage award, arguing that the amount of the award exceeded his net worth. The court of appeal affirmed the trial court's decision, stating:
Although net worth is the most common measure of the defendant's financial condition, it is not the only measure for determining whether punitive damages are excessive in relation to that condition. Id. at 624.
The court noted that there are a variety of factors that can be considered, including a defendant's future financial prospects. See Model Punitive Damages Act '7(a) (listing nine factors to be considered by a jury in determining the amount of punitive damages).
The Article 8 Opt In
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