Kentucky Supreme Court Affirms Punitive Damages 386 Times Compensatory Damages; Clarifies Vicarious Liability Standards

June 2, 2016

Last month, the Kentucky Supreme Court affirmed an award of punitive damages against a hospital, under the Emergency Medical Treatment and Active Labor Act (EMTALA), that was a staggering 386 times the hospital’s share of compensatory damages. See St. Joseph Healthcare, Inc. v. Thomas, — S.W.3d –, 2016 Ky. LEXIS 179 (Ky. May 5, 2016). Acknowledging that the hospital “[u]ndoubtedly … rendered helpful assistance to [the decedent] during the[] final agonizing hours of his life,” the court nevertheless held that “an alleged tortfeasor is not absolved of liability simply because it did some things right” and rejected each of the hospital’s challenges to the punitive award.

In so holding, the court clarified (1) when hospitals and other employers may be deemed to have impliedly ratified an agent’s conduct for purposes of punitive damages, and (2) when principals may be held vicariously liable for the conduct of independent contractors. The court also addressed the “exceptional circumstances” under which a punitive award far “exceeding a single-digit ratio between punitive and compensatory damages” may be upheld as comporting with due process. Overall, these holdings should be of interest not only to healthcare providers, but to all tort defendants facing potential liability for punitive damages in Kentucky, especially those utilizing independent contractors.

A. Facts

Thomas involved a claim that the defendant hospital violated EMTALA, 42 U.S.C. § 1395dd, when it failed to stabilize “an uninsured and indigent paraplegic” homeless man who came to the hospital’s emergency room twice over an 18-hour period complaining of extreme pain, and was discharged after both visits. 2016 Ky. LEXIS 179, at *3-*5. The man later died from a ruptured ulcer “a few hours” after being discharged the second time.

The decedent’s family brought suit against the hospital along with certain doctors and nurses. EMTALA permits the recovery of damages obtainable for personal injury under the forum state’s law; thus, the recovery of punitive damages in connection with the EMTALA claim was governed by Kentucky law. The trial court granted the hospital a directed verdict on the medical screening prong of the plaintiff’s EMTALA claim, but allowed the claim that the hospital failed to stabilize the decedent, along with punitive damages, to go to the jury.

The jury awarded the plaintiff $25,000 in compensatory damages and apportioned 15 percent of fault, i.e., $3,750, to the hospital. The jury originally awarded $1.5 million in punitive damages against the hospital, but at a later retrial on punitive damages, the jury awarded a slightly reduced sum of $1.45 million. On appeal, the hospital challenged both the sufficiency of the evidence in support of punitive damages, as well as the amount of punitive damages the jury awarded.

B. Holdings

“Slight Care” Defense Rejected

Historically, a defendant’s showing that it exercised “slight care” has been a defense to punitive damages under Kentucky law. See Nissan Motor Co., Ltd. v. Maddox, — S.W.3d –, 2013-SC-000685-DG, Slip Op. at *11, 2015 Ky. LEXIS 1860, *5 (Ky. Sept. 24, 2015 as modified May 5, 2016) (defendant entitled to directed verdict on punitive damages where no “failure to exercise slight care”). Consistent with this law, the hospital in Thomas argued in its briefs that the jury’s “determination that [it] failed to exercise even slight care was ‘flagrantly’ against the evidence,” citing to “an extensive list of the medical services provided to [the decedent] during the two emergency room visits preceding his death.” Thomas, 2016 Ky. LEXIS 179, at *11-*12. The court rejected this argument, holding that “an alleged tortfeasor is not absolved of liability simply because it did some things right.”

What is troubling about this holding is that the court did not seem to distinguish between liability for the underlying tort, in this case the EMTALA violation, and liability for punitive damages, which “may not be assessed for the mere commission of a tort.” Sufix, U.S.A., Inc. v. Cook, 128 S.W.3d 838, 840 (Ky. Ct. App. 2004). Indeed, in upholding the submission of punitive damages to the jury, the court stated, “From the totality of evidence, the jury could have reasonably believed, as it apparently did, that the Hospital engaged in illegal ‘patient dumping’ in its actions toward [the decedent].” But so-called “patient dumping” is the underlying conduct prohibited by EMTALA that must be established in any case alleging a violation of that prong of the statute, and “[t]he mere fact that the act is intentional and a tort does not justify punitive damages[.]” Fowler v. Mantooth, 683 S.W.2d 250, 252 (Ky. 1984).

Ultimately, it appears the court’s holding was influenced by what it perceived as “the strong public policy against the conduct that EMTALA forbids,” so a strong argument can be made that it should be limited to cases involving EMTALA claims. It should be anticipated, however, that plaintiffs will advocate for a much broader application.

Implied Ratification of Agent Conduct Upheld

The punitive damages award against the hospital was based in large part on “the conduct of the emergency room personnel.” Thomas, 2016 Ky. LEXIS 179, at *18. Under Kentucky law, punitive damages may not “be assessed against a principal or employer for the act of an agent or employee unless such principal or employer authorized or ratified or should have anticipated the conduct in question.” KRS § 411.184(3). The hospital challenged the sufficiency of the evidence that it “ratified the offensive behavior of its emergency room personnel.” Thomas, 2016 Ky. LEXIS 179, at *19.

The court agreed with the hospital “that an employer cannot be regarded as having ratified the wrongful conduct of its employees and agents simply by denying that wrongful conduct occurred or by mounting a legal defense against actual or anticipated lawsuits arising from the conduct.” However, it rejected the hospital’s argument “that an employer’s ratification under KRS 411.184(3) can only be established by the employer’s explicit affirmation or endorsement of the wrongful behavior,” holding that “the principle is well settled that ratification may be implied by the conduct of the employer.”

The court explained that an “employer’s ratification of an employee’s offensive conduct requires two elements: 1) an after-the-fact awareness of the conduct; and 2) an intent to ratify it.” Ultimately, the court concluded that “[t]he proactive nature of the concerted effort to keep [the decedent] away from the Hospital supports a reasonable inference the Hospital’s management personnel were aware of what was happening, and … ratified it.”

Potential Liability for Punitive Damages Based on Contractor Conduct

The hospital next argued that it could not be held liable for punitive damages based on the conduct of its “independent contractor physicians.” The court acknowledged the “general rule of agency law that, ordinarily, employers are not vicariously liable for the conduct of non-agents over whom they have no control.” However, the court went on to note that “one who delegates the performance of a statutory duty to an independent contractor is not relieved of liability for injuries arising from the contractor’s failure to comply with the duty.”

Thus, a “hospital remains liable for compliance with EMTALA, and does not escape responsibility by affiliating independent contractor physicians and other nonemployees to provide EMTALA compliance.”

Although somewhat couched in terms of vicarious liability for contractor conduct, the true thrust of the court’s holding appears to be that a hospital’s duties under EMTALA are non-delegable. In other words, even if the day-to-day operations of an emergency room are being carried out by contractors, the hospital itself will be liable − including, potentially, for punitive damages − if a patient is discharged in violation of EMTALA. It should be expected, however, that plaintiffs will attempt to use Thomas beyond the EMTALA context as a means to hold principals liable for punitive damages based on the conduct of independent contractors.

Punitive-to-Compensatory Ratio of 386 to 1 Upheld

As noted above, the hospital was responsible for only $3,750 in compensatory damages, meaning the ratio of punitive damages to compensatory damages was a staggering 386 to 1. The hospital argued that the $1.45 million punitive award was unconstitutionally excessive under the United States Supreme Court’s holdings in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996) and its progeny. The Kentucky Court acknowledged the Supreme Court’s admonition that “in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.”

However, it concluded that “[t]his case presents the very circumstances contemplated in Campbell and Gore as an exception to the single-digit ratio limitation[.]” The court identified those circumstances as being (1) conduct that “was particularly offensive and contrary to the public policy statutorily embodied in EMTALA, thus justifying in the minds of reasonable jurors a greater award of punitive damages”; and (2) that the decedent “was an impoverished paraplegic with little in the way of economic prospects and quality of life” such that the “compensatory damages that would ordinarily arise from his injury would correspondingly be exceedingly small.”

The court’s affirmance of the punitive award in Thomas is a sobering reminder that the so-called “single digit ratio” noted in Campbell is but a “guidepost,” and by no means a ceiling, particularly in cases such as Thomas, involving a low compensatory award and what the court believed was especially reprehensible conduct.

C. Conclusion

Given the scope of its holdings, Thomas should be of interest not only to healthcare providers, but to all employers subject to potential liability in Kentucky. While some, if not all, of the court’s holdings should arguably be limited to the EMTALA context, plaintiffs will undoubtedly seek to use it in other contexts in an attempt to, among other things, defeat slight care defenses to punitive damages, and subject principals to punitive liability for contractor conduct. Of course, for hospitals, this case serves as a vivid reminder of the importance of a comprehensive EMTALA compliance program.