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When Stephen Jurinko discovered a lump on his neck in 2000, it wasn’t his first cancer scare. Eight years earlier he visited dermatologist Paul Marcincin in Bethlehem, Pa., because of a suspicious spot on his nose.

Marcincin performed a biopsy in 1993, which a pathologist at SmithKline Beecham Laboratory ruled free of cancer cells. But the pathologist, Dr. Andrew S. Edelman, noted the sample was too small to be conclusive. Accepting the results without question, Marcincin declared Jurinko’s spot benign.

But when an April 2000 biopsy on the lump in Jurinko’s neck revealed a malignant tumor, Marcincin had second thoughts. The dermatologist ordered SmithKline to retest the 1993 sample. This time, the results were conclusive: Jurinko had skin cancer all along.

Jurinko filed a medical malpractice suit, which the doctors’ medical malpractice insurance company refused to settle. That led to another lawsuit, with a $6.25 million punitive damages judgment against the insurance company, Medical Protective Co. (MedPro).

MedPro appealed the case to the 3rd Circuit. On Dec. 24, the appeals court found in Jurinko v. Medical Protective Co. that while MedPro’s handling of the case was “outrageous,” the punitive damage award should be reduced to $2 million, equal to the compensatory damages award. In doing so, the court followed the lead of the Supreme Court in its 2008 decision in Exxon Shipping Co. v. Baker, which established a 1-to-1 ratio between compensatory and punitive damages in maritime law cases. Third Circuit Judge Anthony Scirica noted that while the high court did not address the issue of limiting punitive damages in other types of cases, it did include a footnote in the Exxon decision that said “the constitutional outer limit may well be 1-to-1.”

Lisa Baird, counsel at Reed Smith, says she believes the Jurniko decision will send a strong message to lower court judges in the 3rd Circuit.

“It means that companies can and should very aggressively argue that the 1-to-1 ratio between compensatory and punitive damages should be the starting point and ending point unless it’s a truly exceptional case,” she says. “When juries impose excessive awards, [the companies] have strong arguments to have the verdict thrown out.”

Bad Medicine

The tangled litigation began in 2000 when Jurinko filed a medical malpractice lawsuit against SmithKline, Edelman and Marcincin because of the missed diagnosis. A MedPro claims adjuster assigned one lawyer to represent both doctors, creating a conflict of interest in violation of the Pennsylvania Rules of Professional Conduct. Although SmithKline settled the claims for $525,000, MedPro, which insured both Edelman and Marcincin, refused to settle despite numerous offers from the plaintiff’s attorney, Mark Frost.

The case went to trial where a jury exonerated Edelman but found Marcincin liable for the missed diagnosis and recommended an award of $2.5 million, which exceeded the doctor’s insurance coverage by $1.3 million. As part of a settlement, Marcincin assigned Jurinko his rights to pursue a bad faith claim against MedPro in exchange for Jurinko releasing him from the $1.3 million obligation.

Jurinko then filed suit against MedPro, alleging the insurer acted in bad faith by assigning one lawyer to represent both defendants and refusing to settle within Marcincin’s policy limits. The suit claimed MedPro could have settled by contributing $200,000 to a total settlement of $1.1 million. The jury awarded Jurinko a total of $7.9 million in damages, a ratio of punitive to compensatory damages of 3.5-to-1.

On appeal, the 3rd Circuit affirmed that MedPro should have negotiated a settlement if it wasn’t willing to assume liability for a verdict in excess of Marcincin’s coverage. But the court agreed with MedPro that the punitive damages award was too high. Scirica reduced the punitive damages award from $6.25 million to $2 million.

“Medical Protective’s conduct does not justify so high an award in light of the moderate degree of reprehensibility, the substantial compensatory award, and the large disparity between the award and civil penalties,” he wrote.

Paring Back Punitives

The decision continues a trend of appeals courts beginning to rein in punitive damage awards when there is no physical injury or “reprehensible” behavior.

Though massive punitive damages were once awarded only in exceptional circumstances, trial lawyers figured out how to make winning big a routine expectation, says Ted Frank, a resident fellow at the American Enterprise Institute Legal Center for the Public Interest.

“There have been more punitive damages awards of $100 million or more in the last 12 years than in the first 200-plus years of the nation’s history,” says Frank, who regularly contributes to the blog

While many applaud the 3rd Circuit’s restraint on the Jurinko award, Mark Tanner, an attorney with Feldman, Shepherd, Wohlgelernter, Tanner, Weinstock & Dodig, says he is concerned the lower award won’t successfully accomplish the intended deterrent effect. Tanner represented Jurinko in the case.

“The only disciplinary action that ever resulted was the jury’s punitive damage award,” he says, citing MedPro’s large net worth as a reason a small punitive damages award won’t have much impact. “And now the message that’s being sent to carriers is, ‘If you don’t win, don’t worry. It can’t be that bad anyway.’ And that, to me, just doesn’t make sense.”

But even a 1-to-1 ratio is an appropriate deterrent in most cases, says Andrew Frey, a partner at Mayer Brown who filed a brief supporting a limit on punitive damages in Exxon.

“The larger the company is, the more transactions it will have that expose it to potential liability,” he says. ” You don’t need to make the penalty larger in any individual case to have a larger total penalty.”