N.C. Supreme Court Upholds Punitive Damages Cap

April 7, 2004

The North Carolina Supreme Court has reaffirmed the constitutionality of the state’s law capping punitive damages, a decision that maintains the certainty and predictability of North Carolina’s judicial system, according to the American Insurance Association (AIA).

AIA joined with the North Carolina Citizens for Business and Industry in an amicus brief supporting the law limiting punitive damages. The plaintiffs challenged the cap’s constitutionality after judges at both the Superior Court and Court of Appeals levels maintained that a jury’s $23 million punitive damages award was inconsistent with state law which limits any punitive damage award to $250,000 or three times the compensatory damages, whichever is greater.

“The state’s highest court swept aside all of the arguments used against the law capping punitive damages, finding that the General Assembly was acting consistent with its constitutional role as public policymaker and that no access to courts and juries, equal protection or due process rights were infringed,” said Raymond Farmer, AIA assistant vice president, Southeast Region.

The case of Rhyne v. K-Mart began in state Superior Court, with a guilty verdict against K-Mart for their security guards’ treatment of the Rhyne couple who were found on K-Mart property after hours. A jury awarded compensatory damages of approximately $19,000 to the Rhynes, along with $22.5 million in punitive damages. In line with state law, the Superior Court judge reduced the punitive award to $250,000 for each plaintiff. Both parties appealed the decisions, plaintiffs arguing the punitive damages cap was unconstitutional, and K-Mart questioning whether, among other issues, the law applied to each plaintiff or each cause of action. The Court of Appeals upheld the punitive damages cap as constitutional, and ruled that the law applied to each plaintiff. The Supreme Court has now affirmed that decision.

“The N.C. Supreme Court’s ruling, to affirm the validity of legislation putting reasonable limits on punitive damages, is very much in the mainstream of other states upholding limitations on punitive damages as being consistent with the power of the legislature,” said David Snyder, AIA vice president and assistant general counsel. “In addition, the state Supreme Court cited U.S. Supreme Court cases which have restricted punitive damages so that they are appropriately limited in amount and based upon truly extraordinary facts.”

AIA does believe the Court should have addressed the fact that the law allows up to $250,000 in punitive damages. “We are concerned that the N.C. Court allowed up to $250,000 in punitive damages for each plaintiff, which may, in some cases, be excessive under federal standards,” added Snyder.

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