Unreported / Non-Citable
Background
Wing Inflatables, a marine-products company, bought a $5.4 million buyer-side representations and warranties policy (premium $145,000, $270,000 deductible, Delaware choice of law) in connection with its June 2019 $27 million acquisition of Mustang Survival. After discovering financial-statement irregularities, Wing submitted a detailed claim in May 2020 identifying six categories of loss. The opinion describes repeated rounds of information requests, disputes over the 9.85 EBITDA multiplier and the deductible, and no definitive coverage position during the nine months before Wing sued in February 2021. Underwriters' January 2021 'preliminary assessment' valued the claim at just $270,158, and a partial payment of $591,339 came only after Wing filed suit; Wing continued its contract and bad faith claims because Underwriters still had not made a coverage determination, had not paid the full claim amount, had not reimbursed Wing's expenses, and continued to misapply the deductible.
A jury awarded Wing $3,094,083 in compensatory damages and $15 million in punitive damages. Underwriters appealed only the punitive award (No. A172050), challenging evidentiary sufficiency, constitutional excessiveness, exclusion of claims-handling expert Victoria Roberts, and curtailment of closing argument. Wing separately appealed (No. A173263) the denial of its request for approximately $8 million in litigation bad faith attorney fees under Delaware law. The trial court had applied Delaware substantive law following an in limine ruling.
The Court’s Holding
The court held substantial evidence supported punitive liability under Delaware law. The jury could find reckless indifference from Underwriters' prolonged challenge to the transaction's 9.85 EBITDA multiplier, failure to reimburse claim-related expenses within 30 days as the policy required, proposed trading of those expenses against a premature clawback position, and effective abdication of claims handling to outside counsel and a consultant. The court characterized the collective conduct as outrageously incompetent and oppressively unfair, sufficient to support punitive damages.
Reviewing excessiveness de novo under the Gore/State Farm guideposts, the court placed reprehensibility in the middle range: the harm was purely economic, there was no evidence of similar misconduct toward other insureds, and the conduct did not rise to intentional malice, trickery, or deceit. Because the jury's $3.1 million compensatory award was substantial and measured actual harm, the $15 million award's 4.8-to-1 ratio exceeded due process limits, and the statutory civil-penalty comparator was not a helpful analogue. The court reduced punitive damages to $10 million, a 3.22-to-1 ratio, rather than remanding.
The court also found no abuse of discretion in excluding Roberts after Underwriters repeatedly failed to produce her actual reliance file and then supplied confusing additional material, including asserted privileged documents, near trial's end. It rejected the closing-argument challenge because Delaware's instruction governed and Underwriters never requested a modified instruction expressly incorporating the Gore factors. Finally, the court held Delaware's litigation bad faith fee rule is procedural for choice-of-law purposes, so California forum law applied and Wing's motion was properly denied on that different ground; Wing's request for a Brandt-fee remand failed because Delaware substantive law applied and the underlying choice-of-law ruling had not been appealed.
Key Takeaways
- The court relied on the combined claims-handling conduct, not delay alone, to uphold punitive liability under Delaware's reckless-indifference standard.
- The court reduced the punitive damages award from $15 million to $10 million, resulting in a 3.22-to-1 ratio, because the original 4.8-to-1 ratio exceeded due process limits given the substantial compensatory award and mid-range reprehensibility.
- The appellate court itself set the maximum constitutionally permissible punitive award instead of ordering further trial court proceedings.
- Exclusion of the insurer's expert was upheld as a discovery sanction after the trial court considered less drastic alternatives.
- Delaware litigation bad faith attorney fees were procedural for choice-of-law purposes, while Wing's request for a Brandt-fee remand failed because Delaware substantive law applied and the underlying choice-of-law ruling had not been appealed.
Why It Matters
The decision separates the standards for imposing punitive damages from the constitutional limit on their amount. It preserves liability based on the insurer's overall handling of the claim while requiring a smaller award where the insured recovered substantial compensatory damages and the misconduct was not among the most reprehensible.
The fee ruling distinguishes sanctions for abusive litigation, which are procedural and governed by forum law, from substantive fee entitlements. The court also expressly declined to analyze Delaware's narrow exception for egregious pre-litigation conduct because Wing had requested only litigation bad faith fees.