Recently, the US. Supreme Court diminished the right of homeowners to fight back when their insurance company unreasonably denies a claim. In Campbell v. State Farm, the Court threw out a 145 million dollar punitive damage award against State Farm, finding that it was excessive. I think this was a bad decision, and that homeowners will suffer because insurance companies will find little risk in being grossly unfair.

You reasonably believe that your insurance company will be there when you need it. That means that if there is a natural disaster such as an earthquake, hurricane or a flood, it will be there. And in the environmental context, if oil is leaked from your heating oil tank, you expect that it will be there.

The relationship between homeowners and their insurance companies has been described as a fiduciary relationship. A fiduciary status means that this is more than just a contract relationship. This is a trusted relationship on which courts place even a higher level of scrutiny.

The funny thing about insurance is that we normally do not think much about it. We pay the premiums month after month and just assume that if we ever need the insurance, it will be there. It is quite a kick in the pants when after years of paying premiums an insurance company betrays that confidence.

Over the past few years, juries have been awarding punitive damage awards against insurance companies finding that they have betrayed that confidence. In 1999 a judge awarded $730 million in punitive damages against a national insurance company for using generic replacement parts on automobile repairs rather than manufacturer's parts.

In 1997 the same insurance company paid $100 million to settle claims that it had diminished earthquake coverage benefits for certain California residents without advising them of the reductions.

In 1998 an insurance company was hit with a $25 million punitive damage award based on allegations that it routinely destroyed documents and intentionally concealed claim mishandling practices.

That same year, there was a $9.5 million punitive damage award following a determination that the insurer routinely used bogus outside bill review companies to cut down the cost of medical claims.

And you may have viewed the recent television interview concerning a national disability insurance company. The allegations are that this company routinely denies disability claims that it knows it should be honoring. Why? Allegedly for the "bottom line."

In the Campbell vs. State Farm case, a lower court was severally critical of State Farm. The case involved testimony by several State Farm employees that claims agents faced heavy pressure to cut costs and that the salary raises were largely related to their ability to meet apparently subjective payout targets.

There was also testimony that the company routinely destroyed old training aids, internal claim handling documents and other similar documents so that they could not be used against the insurer in litigation.

The trial court found that State Farm had created "a nearly impenetrable rule of defense against punishment for its wrong doing" and that this provided a basis for a hefty punitive damages award.

Punitive damages are damages which are designed to punish corporate wrong doings or deter others from similar conduct in the future. In this case the compensatory damage award was $1 million and the punitive damage award was $145 million. The judgment was sustained by the Utah Supreme Court and was appealed to the United States Supreme Court. Oral argument occurred on in December of 2002.

In a heartbreaking decision, the U. S. Supreme Court overruled the State Supreme Court, and struck down the punitive damage award. It found that the punitive damages were so high that they were not reasonable and they were not proportionate to the one million dollars in actual damages.

What does this mean? It means in smaller cases, insurance companies are now more likely to be unreasonable because there is little risk they will be punished by the courts. That is not like a good neighbor, no way, no how.

The information provided in this column is written by Stuart Lieberman,a practicing environmental attorney, and is for general information purposes only. It is not legal advice and should not be used in place of legal advice.

Stuart Lieberman, Esq., and IRED.Com, Inc., will not accept any responsibilty for any reliance on the information in this column or any damages whatsoever resulting from reading this column.