Mitchell v. Fortis Insurance Co., No. 26718 (S.C. Sept. 14, 2009)

The Supreme Court of South Carolina upheld a decision in favor of a man whose health insurance had been rescinded on account of his HIV infection. The court considered several issues on appeal, but focused primarily on whether the award of $15 million in punitive damages was excessive and therefore violated Fortis' constitutional right to due process.

In May 2001, Jerome Mitchell applied for health insurance from Fortis in anticipation of needing coverage while in college. Mitchell answered "no" to a question about having any immune system disorder and was issued a policy. In April 2002, Mitchell attempted to donate blood. He was notified one month later by the Red Cross that a screen of his blood returned a positive result for HIV. He was advised to seek medical care and a confirmatory HIV test. Mitchell saw his doctor who conducted a confirmatory test, which also returned a positive result. The doctor then made a note about the confirmation in Mitchell's file, but recorded the date as 2001 instead of 2002.

Fortis began receiving claims for Mitchell's treatment and launched an investigation to determine if Mitchell had misrepresented his HIV status on his original application. Relying on the erroneous date in the medical record, Fortis concluded that Mitchell had failed to disclose his pre-existing HIV infection and rescinded his policy. Mitchell filed an appeal with the company and the rescission was upheld. Mitchell then sued Fortis alleging bad faith because they were aware of the error in the date notation. The jury awarded Mitchell $186,000 in compensatory damages, $150,000 on the bad faith rescission claim, and $15 million in punitive damages. Fortis appealed, claiming that the punitive damages award was excessive.

To determine whether the punitive damages award was reasonable, the South Carolina Supreme Court devised a three-prong test: (1) the reprehensibility of the defendant's conduct, (2) the ratio of the actual or potential harm to the punitive damages award, and (3) the difference between the punitive damages award and any awards made in comparable cases. The court first determined that Mitchell was entitled to punitive damages because Fortis demonstrated reprehensible behavior when it wantonly disregarded the harm caused to Mitchell by the rescission decision. Next the court found that the ratio between the potential harm and the punitive damages award was too high and used a comparative decision analysis to determine that the award should be remitted to $10 million. The remainder of the decision was upheld without revision.