Textbook:

Mitchell v. Fortis Insurance Company

686 S.E.2d 176, 2009 S.C. Lexis 451 (2009)

Supreme Court of South Carolina

"First, any court reviewing a punitive damages

award should consider the degree of reprehensibil-

ity of the defendant's conduct."

Toal, Chief Justice

Facts

On May 15, 2001, Jerome Mitchell Jr., who was

17 years old, submitted an application for health

insurance to Fortis Insurance Company. The ap-

plication required Mitchell to complete a medical

questionnaire, which included the question "Been

diagnosed as having or been treated for any immune

deficiency disorder by a member of the medical pro-

fession?" Mitchell answered "no" to this question.

Fortis issued Mitchell a health insurance policy.

In April 2002, Mitchell attempted to donate blood

to the Red Cross. On May 13, 2002, the Red Cross

notified Mitchell that his blood had screened posi-

tive for HIV. On the next day, Mitchell contacted

Dr. Michael Chandler, whose tests confirmed that

Mitchell was HIV positive. On that day, one of

Dr. Chandler's assistants noted on Mitchell's chart

"Gave blood in Marchgot letter yesterday stating

blood tested for HIV." The handwritten note was

erroneously dated May 14, 2001, rather than May 14,

2002. Dr. Chandler referred Mitchell to Dr. Kevin

Shea, an infectious disease specialist, for treatment.

Fortis soon received claims for Mitchell's treat-

ment. Fortis launched an investigation to determine

whether Mitchell had failed to disclose a preexist-

ing condition on his insurance policy application.

With Mitchell's permission, Fortis obtained Mitchell's

medical and billing files from Dr. Chandler and

Dr. Shea and Mitchell's blood test results. A Fortis

investigator reviewed the files and discovered the

erroneously dated note in Dr. Chandler's files. Based

on this note, Fortis's rescission committee voted to

rescind Mitchell's health insurance policy. Fortis

sent Mitchell a letter informing him that his health

insurance policy was rescinded due to material

misrepresentation.

Mitchell tried to contact the recission committee

at Fortis but was told by a representative there was

nothing the representative could do about the rescis-

sion. Mitchell, who by then was obtaining medical

help from the Hope Health free medical clinic, had

Hope's health care manager contact Fortis to explain

that Mitchell had not tested positive for HIV until af-

ter he purchased the Fortis health insurance policy.

A Fortis representative told Hope's manager "that

there was nothing she could do at this time."

Mitchell hired an attorney, and the attorney filed

an appeal with Fortis and sent Fortis all of the medical

records that proved that Mitchell was first diagnosed

with HIV after he had obtained health insurance from

Fortis. Fortis upheld there rescission denying cover-

age. Mitchell sued Fortis for the bad faith rescission

of his health insurance. The jury held in favor of

Mitchell and awarded him compensatory damages and

$15 million in punitive damages. The court of appeals

affirmed this decision. Fortis appealed, challenging

the finding of a bad faith tort, and alternatively chal-

lenging the award of punitive damages.

Language of the Court

First, any court reviewing a punitive dam-

ages award should consider the degree of

reprehensibility of the defendant's conduct.

Turning to the facts of the instant case, we

find ample support in the record to establish

that Fortis's conduct was reprehensible. This

case is unique in that Mitchell's harmthe

termination of his health insurance policy

exposed him to great risk of physical danger.

It was reasonable to conclude, from the evi-

dence presented, that Fortis was motivated

to avoid the losses it would undoubtedly in-

cur in supporting Mitchell's costly medical

condition. Based upon this evidence, we find

that Fortis was deliberately indifferent to

its contractual obligations and to Mitchell's

health and wellbeing. We remit the punitive

damages award to $10 million, resulting in

a ratio of 9.2 to 1. We are also certain that a

$10 million award will adequately vindicate

the twin purposes of punishment and deter-

rence that support the imposition of punitive

damages.

Decision

The supreme court of South Carolina held that For-

tis had committed bad faith rescission of Mitchell's

health insurance policy. The court held that the

imposition of punitive damages was warranted but

reduced the award of punitive damages from $15 mil-

lion to $10 million.

Read the summary of the case Mitchell v. Fortis Insurance Companyinyour textbook.In a 500+ word paper, explain why this is a breach of contract case.After introducing the topic in an introductory paragraph, write one paragraph on each of the following topics

• What kind of contract is this and who is the breaching party?
• What kinds of damages are normally awarded for breach of contract?
• Are punitive damages normally awarded in a case of this type?Why did the court award punitive damages in this case?Do you agree with this decision?
• Did the insurance company behave ethically in this situation?In your opinion, What should they have done differently?