Punitive Damages: Your Worst Nightmare
Metcalf, Slade, Folio: the Magazine for Magazine Management
The frightening vision of a massive punitive damage award could become a living nightmare for some magazine editors and publishers. In 1987, a Federal appellate court upheld a $2,050,000 award of punitive damages against CBS based on a news broadcast on the CBS television station in Chicago, and last year, the United States Supreme Court refused to disturb a $2,000,000 punitive award against the publish of The Pittsburgh Post-Gazette. These sizable awards have caught the attention of more than a few editors.
Some years ago, the Supreme Court implied that it might find punitive damages in a libel context to be unconstitutional as a violation of the First, Fifth and Fourteenth Amendments. Last April, the Court agreed to hear an appeal by a California life insurance company from a 1.04 million Alabama jury award, which included an unspecified amount of punitive damages. Arguments are scheduled for fall 1990; a decision is likely in spring 1991. However the Supreme Court rules on this case, we are stuck in the meantime withthe chilling specter of punitive damages.
The calamitous and unforeseen nature of this type of award is particularly harmful since there iS USUallY no reasonable relationship between the size of the compensatory damage award (i.e., the amount of money to make the injured party whole") and the amount of the punitive award. Also, the punitive award may be imposed and premised on acts of an employee that were neither authorized by nor even known to the employer.
The size of punitive damage awards clearly encourages potential libel plaintiffs and their attorneys to sue the publisher for libel, even though the person's actual injuries may be insignificant. As one Federal appellate court judge wrote recently, "One of the most unseemly features of our current legal system is its tendency to promote litigation as high-stakes gambling. A winner can gain the keys to the corporate treasury, if he has the good fortune to obtain the right lawyer, the right jury and the right forum. Punitive damages are a key feature of the abuse of the litigation process."
How, then, do magazine publishers protect themselves from these potentially ruinous judgments? The most obvious answer is to maintain tight control over the magazine's verification procedures to ensure the accuracy and fairness of the editorial product. But, despite all the editor's careful review, the detailed fact checking and expensive legal consultation, on occasion a major editorial error happens and a libel suit ensues. For example, a staff writer or freelancer completely ignored a significant document on her or his desk that would have made the article more accurate or fairer. As the pre-trial discovery in the libel suit progresses, the plaintiff and his attorney foresee greener and greener pastures at the end, of a jury trial. And as a result, they refuse to settle the case.
Are you insured?
Will your libel insurance policy cover the impending award of punitive damages? Maybe yes, maybe no. Most insurance companies that cover editorial-related claims are prevented from extending coverage for punitive damages in states such as California and New York) where the declared public policy precludes the insurability of such damages. As recently as 1987, a California appellate court stated that "under California law, an insurance carrier is not liable for any portion of a judgment rendered against its insured for punitive or exemplary damages. "
In implementing that public policy, some states construed the wording in insurance policies requiring the insurer to pay "all sums which the insured is legally obligated to pay as damages" as not encompassing punitive damages. And even if the policy can be construed to cover such damages or to provide such coverage, some states have held those policies to be unenforceable as contravening the public policy of the state.
Why have states adopted a public policy that effectively bars a publisher from obtaining insurance coverage for this major, unforeseen risk? …