“First, any court reviewing a punitive damages award should consider

“First, any court reviewing a punitive damages award should consider the degree of reprehensibility of the defendant’s conduct.” —Toal, Chief Justice 

Facts: On May 15, 2001, Jerome Mitchell, Jr., who was 17 years old, submitted an application for health insurance to Fortis Insurance Company. The application required Mitchell to complete a medical questionnaire, which included the question “Been diagnosed as having or been treated for any immune deficiency disorder by a member of the medical profession?” Mitchell answered “no” to this question. Fortis issued Mitchell a health insurance policy. In April 2002, Mitchell attempted to donate blood to the Red Cross. On May 13, 2002, the Red Cross notified Mitchell that his blood had screened positive for HIV. On the next day, Mitchell contacted Dr. Michael Chandler, whose tests confirmed that Mitchell was HIV positive. On that day, one of Dr. Chandler’s assistants noted on Mitchell’s chart “Gave blood in March—got letter yesterday stating blood tested for HIV.” The handwritten note was erroneously dated May 14, 2001, rather than May 14, 2002. Dr. Chandler referred Mitchell to Dr. Kevin Shea, an infectious disease specialist, for treatment. Fortis soon received claims for Mitchell’s treatment. Fortis launched an investigation to determine whether Mitchell had failed to disclose a pre-existing condition on his insurance policy application. With Mitchell’s permission, Fortis obtained Mitchell’s medical and billing files from Dr. Chandler and Dr. Shea and Mitchell’s blood test results. A Fortis investigator reviewed the files and discovered the erroneously dated note in Dr. Chandler’s files. Based on this note, Fortis’s rescission committee voted to rescind Mitchell’s health insurance policy. Fortis sent Mitchell a letter informing him that his health insurance policy was rescinded due to material misrepresentation. Mitchell tried to contact the rescission committee at Fortis but was told by a representative there was nothing the representative could do about the rescission. Mitchell, who by then was obtaining medical help from the Hope Health free medical clinic, had Hope’s health care manager contact Fortis to explain that Mitchell had not tested positive for HIV until after he purchased the Fortis health insurance policy. A Fortis representative told Hope’s manager “that there was nothing she could do at this time.” Mitchell hired an attorney, and the attorney filed an appeal with Fortis and sent Fortis all of the medical records that proved that Mitchell was first diagnosed with HIV after he had obtained health insurance from Fortis. Fortis upheld their rescission denying coverage. Mitchell sued Fortis for the bad faith rescission of his health insurance. The jury held in favor of Mitchell and awarded him compensatory damages and $15 million in punitive damages. The court of appeals affirmed this decision. Fortis appealed, challenging the finding of a bad faith tort, and alternatively challenging the award of punitive damages. 

Issue: Is Fortis liable for committing a bad faith tort? If so, was the award of punitive damages warranted? 

Language of the Court: First, any court reviewing a punitive damages award should consider the degree of reprehensibility of the defendant’s conduct. Turning to the facts of the instant case, we find ample support in the record to establish that Fortis’s conduct was reprehensible. This case is unique in that Mitchell’s harm—the termination of his health insurance policy—exposed him to great risk of physical danger. It was reasonable to conclude, from the evidence presented, that Fortis was motivated to avoid the losses it would undoubtedly incur in supporting Mitchell’s costly medical condition. Based upon this evidence, we find that Fortis was deliberately indifferent to its contractual obligations and to Mitchell’s health and wellbeing. We remit the punitive damages award to $10 million, resulting in a ratio of 9.2 to 1. We are also certain that a $10 million award will adequately vindicate the twin purposes of punishment and deterrence that support the imposition of punitive damages. Decision The Supreme Court of South Carolina held that Fortis had committed bad faith rescission of Mitchell’s health insurance policy. The court held that the imposition of punitive damages was warranted but reduced the award of punitive damages from $15 million to $10 million. 

Ethics Questions: What is a bad faith tort? Does the fear of a finding of bad faith and being assessed punitive damages make insurance companies act more ethically?