In Rhodes v. AIG Domestic Claims, Inc., the Massachusetts Supreme Judicial Court recently granted plaintiff’s petition for further appellate review of a case in which the trial court and the Appeals Court accepted the defendant insurer’s argument that the judgment in an underlying tort case against the insured’s policyholder should not be the basis for doubling or trebling to determine the punitive damages under M.G.L. c. 93A. 

Though the statutory language deems the actual damages for the purpose of multiplying as the “judgment on the same an underlying transaction or occurrence,” the trial judge, Judge Gants, (now an Associate Justice on the SJC) found the actual damages caused by bad faith to be the delay in the payment of the judgment, which he calculated to be $500,000.  He also found that there was no injury in the delay in the pre-verdict offer, because plaintiffs testified they never would have accepted an offer that he found was reasonable, and there was no causal nexus between the post-verdict bad faith refusal to settle and the damages reflected in the judgment on the underlying motor vehicle injury case.  Though Judge Gants did not explicitly reach the constitutional issue, he implicitly recognized that if the underlying judgment of $12 million were multiplied, the statutory punitive damages would be 24 or 36 times the compensatory damages and would fail to meet the constitutional due process standard.

Rhodes Decision.pdf (3.68 mb)

Rhodes App. Ct. Decision.pdf (208.87 kb)

Plaintiffs’ lawyers in the BP litigation are embroiled in a battle over whether to rein in Kenneth Feinberg, who manages BP’s $20 billion oil-spill victims’ compensation fund.  According to the Insurance Journal, the 17-member plaintiffs’ steering committee wants a judge to oversee Feinberg and order him to modify the release form claimants must sign before accepting a final payment from the fund to notify victims of their option to sue.  Another group of plaintiffs’ lawyers contend that monitoring Feinberg will interfere with settlement negotiations and slow claims payments.  This group of plaintiffs’ lawyers recently moved to redirect dozens of its clients to make claims to the $20 billion fund.  This move, as discussed in the Wall Street Journal, will benefit BP by saving it money on attorneys’ fees and allowing it to settle claims quietly outside the public arena. 

If U.S. District Court Judge Carl Barbier decides to monitor Feinberg and order him to modify the release form, BP’s defense will be enormously impacted.  A modified release informing victims of their option to sue will likely increase the number of people bringing suit, which consequently results in BP expending more resources in defending lawsuits and negotiating settlements through the litigation process.  Judicial involvement will also impact how Feinberg and BP run the fund, resulting in greater time and financial resources spent on apprising the judicial system of developments in claims to the fund.  Some of BP’s primary reasons for establishing the fund were to avoid litigating victims’ claims and save time and money in settling claims.  Judicial involvement will undermine this purpose.  A decision to monitor the fund will also impact companies’ handling of the aftermath of inevitable future disasters.  Companies will be on the defensive – thinking twice before establishing a fund, being more conservative in deciding the amount of money to set aside in the fund, and determining how to handle claims to the fund.

In Moltner v. Starbucks Coffee Co., the U.S. Court of Appeals for the Second Circuit dismissed 78-year-old Rachel Moltner's $3 million lawsuit against Starbucks Coffee Company.  This is a significant victory for the defense bar.  As this article from the Insurance Journal mentions, several restaurants and coffee retailers have faced lawsuits over hot beverages, most notably the 1994 case in which a jury ordered McDonald's Corporation to pay $2.86 million to Stella Liebeck, who claimed she scalded herself with McDonald's coffee.  Liebeck eventually settled, but her victory paved the way for other customers to bring lawsuits against restaurants serving hot beverages.  Restaurants and coffee retailers have incurred significant costs in legal fees, litigation expenses, and settlements over the past two decades defending against similar suits. 

This dismissal certainly bolsters the defense of restaurant and coffee retailers facing lawsuits by customers spilling hot beverages, and may deter some customers from bringing claims.  In existing cases, defense counsel can use this decision in support of dismissal or to negotiate a lower settlement.  Additionally, counsel can advise their clients that the Second Circuit indicates that the method of "double-cupping" is "well known in the industry as a way of preventing a cup of hot tea from burning one's hand" and is an acceptable preventative measure for burns.  Consumer demand for hot coffee is definitely here to stay, but if the Second Circuit is any harbinger of the future of hot beverage litigation, plaintiffs' victories are not.