In The Heil Co. v. Evanston Insurance Co. (No. 11-6252), the Sixth Circuit vacated a jury’s verdict and its award of $2 million in punitive damages in favor of The Heil Company.  The lawsuit arose out of Evanston Insurance Company’s defense of a wrongful death suit brought against Heil.  Heil sued Evanston in 2008 for Evanston’s failure to pay the attorneys’ fees and costs arising from the wrongful death suit, under Tennessee’s statute providing statutory damages for an insurer’s bad faith refusal to pay to settle the wrongful death litigation.  The jury found that Evanston “did” breach the contract and refuse in bad faith to pay Heil amounts owed under the policy, but “did not” fail to settle the wrongful death action against Heil in bad faith.  It then awarded punitive damages of $2 million.

Evanston argued that there was no basis to award punitive damages because punitive damages were not available on the breach of contract claim, and because the jury found that Evanston was not liable for bad faith failure to settle.  The Sixth Circuit agreed.  In an opinion written by the Honorable Stephen J. Murphy (district judge sitting by designation), the panel held that the jury’s award of punitive damages absent a predicate award of compensatory damages was a clear error and that the district court abused its discretion when it concluded that the punitive damages award could be attributed to Heil’s breach of contract claim.  But due to confusion regarding the verdict form and jury instructions, the panel found that a new trial on both liability and damages was required for the failure to settle claim:  “We have no basis on which to credit the jury’s liability finding instead of its finding on punitive damages, or to infer from the punitive damages award that it would have found Evanston liable and awarded compensatory damages had it been properly instructed.”