— $100,000 under the insurance policy for her emotional distress, and

— $66,070.61 in legal fees, interest, and costs.

The jury also awarded King punitive damages of $2.5 million.

(GEICO's obligations to the estate of King's husband had been discharged before the trial.)

The U.S. District Court for the District of Montana declined GEICO's request to reduce the punitive damages award, and the insurer appealed to the Ninth Circuit.

Related: Insurer must pay $2.75M in punitive damages for deception, court rules

The Ninth Circuit's decision

The circuit court reduced the punitive damages award to $1,064,282.44.

In its decision, the Ninth Circuit explained that it reviewed anew the district court's determination that the punitive damages award was constitutionally appropriate. The circuit court then observed that three “guideposts” informed the analysis:

1. The degree of reprehensibility;
2. The disparity between the harm suffered and the punitive damages award; and
3. The difference between the punitive damages award and comparable authorized civil penalties.

With respect to the first factor, the circuit court reasoned that, on the one hand, King had suffered “only economic and emotional harm.” She had not been physically injured and GEICO had not shown “indifference to the health or safety of [Ms.] King or anyone else,” according to the circuit court.

On the other hand, the circuit court continued, the jury's verdict regarding GEICO's liability under the UTPA indicated that the jury believed that GEICO had acted in bad faith.

The circuit court decided that GEICO's conduct, “while not admirable, was of low to moderate reprehensibility.”

Related: State Farm can't get out of stacking-related bad-faith claim

Disparity between actual harm and level of damages

With respect to the second factor, the Ninth Circuit found that the disparity between King's “actual harm” and the level of punitive damages awarded her was “significant.” The circuit court said that it was not bound by any particular formula, but added that when an insurer's conduct was “not particularly egregious” and there were “significant economic damages,” a four-to-one ratio was “a good proxy for the limits of constitutionality.”

The circuit court explained that the ratio between King's actual harm – $266,070.61 – and her punitive damages award – $2.5 million – was roughly nine-to-one. This was “significantly higher than the four-to-one proxy [it applied] in similar contexts,” the Ninth Circuit said.

With respect to the third factor, the circuit court pointed out that the comparable civil penalty in Montana was a fine for violation of the Montana insurance code that could not exceed $25,000 and that a fine on insurance producers or adjusters could not exceed $5,000 per violation. Thus, the Ninth Circuit noted, the maximum relevant civil penalty was “significantly lower than the $2.5 million punitive damages award.”

Therefore, the Ninth Circuit concluded that the $2.5 million punitive damages award was “unconstitutionally excessive” — even though it complied with the Montana law limiting punitive damages to the lesser of $10 million or three percent of the defendant's net worth.

Given the “low to moderate reprehensibility of GEICO's conduct” and the “disparate ratio” between King's actual harm and the punitive damages award, the circuit court applied a four-to-one ratio and directed the district court to remit the punitive damages award to $1,064,282.44.

The case is King v. GEICO Indemity Co.

Related: Appeals court resurrects $5M bad faith lawsuit against insurance company

Steven A. Meyerowitz, Esq., is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. Email him at [email protected].