Indemnification of Punitive Damages
April 22, 2006
Consider the following: Municipality X permits its police chief to go to trial in a claim arising under 42 U.S.C. Section 1983. The claim at trial is that the chief plays favorites with supporters of the mayor. Officers get punished for arresting the mayor's friends.
The jury is outraged, and awards $100,000-plus in compensatory damages to an officer punished by the chief, and a whopping $5 million in punitive damages. The chief fails to put on evidence of his capacity to pay in front of the jury. Post-trial, the chief claims he is broke, and cannot even post bond for the verdict.
In post-trial evidentiary hearings the court learns that the chief, who was defended by municipal counsel, was never informed that he might be responsible for punitive damage. The chief was never informed that he might need separate counsel. The city had previously paid punitive damages on behalf of the chief and others. And the the decision on whether to pay punitive damages on behalf of a municipal employee is typically made well after the verdict and post-judgment motions are decided.
What's worse, the city defended the chief and also had an insurer involved. The chief was apparently not even informed that the case could have been settled for a sum well below the verdict. His counsel and the insurance company rejected the settlement. The city moved to withdraw post-judgment, leaving the chief to find separate counsel.
The defendant has filed a remittitur motion.
It is common for municipalities to play hide-the-ball with indemnification decisions, often awaiting rulings on post-judgment motions so that they can hide behind the meager assets of municipal employees at post-judgment proceedings. That is apparently what is being done in this case as the committee responsible for deciding indemnification has not yet made a decision.
Does this pass any conceivable smell test? (I have been brought in to this case to assist on post-judgment indemnification issues, so my nostrils are a little to close to the action.)
My sense is that a powerful argument can be made that the city should be compelled to pay the entire award in this case. Not only has it poorly served the chief, it is playing what amounts to a shell game with the court. A city that agrees, sort of, to underwrite constitutional torts ought to be required to pay the whole judgment. Let taxpayers then decide at the polls if this is a practice the city should continue.