Practical Guidance on Application of Caps on Non-Economic Damages and Punitive Damages

In 2011, Tennessee joined a growing number of states that passed tort reform. In Particular Tennessee Code Annotated § 29-39-102 provides for caps on non-economic damages and Tennessee Code Annotated § 29-39-104 provides for caps on punitive damages. Neither statute provides any guidance as to how those caps should be applied. Two recent Tennessee Court of Appeals opinions have finally given practical guidance as to how to apply the caps.

On April 1, 2015, the Tennessee Court of Appeals (Western Section) decided Moneypeny v. Kheiv, Case No. W2014-00656-COA-R3-CV (Tenn. Ct. App. April 1, 2015). In Moneypeny, the court determined that comparative fault percentages should be applied to the gross jury award prior to the cap on non-economic damages being applied. The opinion is replete with examples where arguments on appeal were lost because there was no timely objection. There are also some colorful comments and arguments by counsel.

The most important takeaway from Moneypeny is its ruling on the application of comparative fault and the cap on non-economic damages. The defendant argued that the cap on non-economic damages, Tennessee Code Annotated § 29-39-02, should be applied to the gross award first and the comparative fault percentages applied after that. The court disagreed holding that the comparative fault percentage should be applied first and then and only then should the cap on non-economic damages be applied.

On January 30, 2015, the Tennessee Court of Appeals (Eastern Section) decided Overton v. Westgate Resorts, Ltd., LP, 2015 Tenn. App. LEXIS 45, *32-33 (Tenn. Ct. App. Jan. 30, 2015). In Overton, the court confirmed that the cap on punitive damages applies in cases where the punitive damages claim is based on something other than a personal injury award and held that the cap is to be applied after an analysis is conducted on the constitutionality of the award.

Overton is a case in which a couple was sold a timeshare in Gatlinburg. The couple argued, successfully, that the sales tactics employed by the defendant violated the Tennessee Time Share Act, the Tennessee Consumer Protection Act and constituted fraud or misrepresentation. The punitive damages award was more than ten times the compensatory damages award. The defendant challenged the punitive damages award.

Prior to this case, there had been some question as to whether the punitive damages cap found in Tennessee Code Annotated § 29-39-104 applied to “all” cases as the statute says or only to personal injury cases. The Tennessee Court of Appeals applied the cap to the facts of Overton. Thus, either expressly or impliedly, answering the question as to whether the punitive damages cap applies only to personal injury cases or to all cases including commercial disputes: the punitive damages cap found in Tennessee Code Annotated § 29-39-104 applies to all cases.

In Overton, the court also provided excellent guidance as to how to apply the punitive damages cap. It analyzed the punitive damages award under the standards found in Hodges v. S.C. Toof & Co., 833 S.W.2d 896, 901-902 (Tenn. 1992). Then the court analyzed the punitive damages award under federal constitutional standards. Only after finding that the award met both the Hodges standards and federal jurisprudence did the court then apply the punitive damages cap found in Tennessee Code Annotated § 29-39-104.

From Moneypeny and Overton, we now know that the caps on non-economic damages and punitive damages are the last part of an analysis of the permissibility of damage awards. In the case of non-economic damages, comparative fault principles apply first and then the caps are appled. In the case of punitive damages, the cap applies to all cases and is applied after a full constitutional analysis is performed first.