PREVIOUS RULINGS ON PUNITIVE DAMAGES

Latest Supreme Court decisions curtailing punitive damages awards:

Philip Morris USA v. Williams (2007) -- The court threw out a $79.5 million award to a smoker's widow, saying jurors were not properly limited in their consideration of harm caused to people who were not part of the lawsuit.

State Farm Mutual Auto Insurance v. Campbell (2003) -- Any punitive damages award more than 10 times the actual damages for an injury is presumed excessive, and juries may not consider out-of-state wrongdoing when weighing a company's actions. The court tossed out a $145 million award against State Farm for acting in bad faith by not settling claims against a policyholder involved in a fatal accident.

BMW v. Gore (1996) -- Punitive damages may not be "grossly out of proportion to the severity of the offense," the court said as it invalidated a $2 million award to the owner of a BMW for a flawed paint job.

Honda Motor Co. v. Oberg (1994) -- States may not prohibit judges from reviewing and reducing juries' punitive damages awards. The court struck down an Oregon law that gave juries the final say on such awards.

(c) USA TODAY, 2008

BUFFETT'S MUNI MOVE: NOTHING RISKED, SOMETHING GAINED

Warren Buffett's offer to stand behind municipal bond payments is like offering auto insurance to a driver with a perfect record. Municipal bonds, or munis, are one of largest and safest corners of the bond market. There are about $1.7 trillion worth of such bonds outstanding, says the Securities Industry and Financial Markets Association. Munis are sold mainly by state and local governments to pay for projects such as roads, schools and hospitals. Munis are popular with high-income investors because the payments are often tax-exempt. But they're also relatively safe. If a city gets into financial trouble, it can charge higher taxes, close libraries or parks. There have been some high-profile muni bond debacles, including Orange County in the 1990s. Still, only about one muni bond a year, on average, has gone into default over the past 40 years, says Bill Larkin, a bond investor at Cabot Money Management. Less than 0.25% of muni bonds historically go into default, says Michael Decker at SIFMA. There are 2 million munis outstanding. Excluding riskier muni bonds issued for special purposes in partnership with outside companies, such as some toll road projects, the muni default rate is essentially zero, Decker says. Compare that with the 35,000 business bankruptcy filings each year on average this decade, according to BankruptcyData.com. Buffett may not be taking a giant risk in offering insurance to the three main insurers that stand behind muni payments. Even so, the offer exposes vulnerabilities in the muni market, including: •Stress on some lower-rated munis. Thanks to their relative safety and preferred tax status, cities and states can borrow inexpensively: Muni bonds are yielding roughly 3.4% for a bond maturing in 10 years, S&P says. That's even cheaper than the 3.78% 10-year Treasury yield. But where there is some strain is among munis issued by government-backed entities with low credit ratings, Larkin says. Most professional investors will only buy these m unis if they are guaranteed by insurers like MBIA, Ambac Financial and Financial Guaranty Insurance. That guarantee may give a lower-rated muni a AA or higher rating. But the insurers also guaranteed some mortgage loans. If the insurers are hit with an avalanche of mortgage claims, investors worry there may not be enough left to back the insured munis. Consider a San Jose, Calif., redevelopment muni that matures in 2028, Larkin says. The muni is yielding 5.04%, despite being insured, because investors doubt the insurance has any value. •Potential for a ripple effect. If the insurers backing the riskier munis lose their top credit ratings, the riskier munis themselves will lose their high ratings, too. That could cause investors who can only own highly rated munis to sell some of the riskier munis, setting off a selling spree. "My biggest concern is with the insured muni bonds," says Bill Hornbarger, bond strategist at A.G. Edwards. •Exposure to recession. States and cities may come un der pressure as the economy slows. At least 20 states are facing spending cutbacks, says Allen Sinai of Decision Economics. Local governments that counted on rising tax receipts due to rising property values now have budget shortfalls, says Dean Baker of the Center for Economic and Policy Research. Having Buffett ready to cover losses will reassure investors there is a safety net in the market, he says. That would be critical if the slowdown causes more cities to struggle. "It's hard to believe we're not going to have more (muni defaults) than that would normally be the case," Baker says.

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Municipal bonds by the numbers

$1.7 trillion

value owned by investors

$11 billion

daily trading volume

5.1 million

households that own them directly or indirectly

50,000

state and local governments that sell them

Source: The Securities Industry and Financial Markets Association

(c) USA TODAY, 2008

DEBATE REVS UP OVER HIGHER AUTO INSURANCE IN LOUISIANA

Gov. Kathleen Babineaux Blanco must soon decide whether to veto a bill raising Louisiana's minimum liability auto insurance coverage — and driver premiums — or sign it into law, which insurance industry experts say would increase the number of uninsured motorists. Senate Bill 223 by State Sen. Mike Michot, R-Lafayette, raises the minimum liability auto insurance policy from 10-20-10 levels ($10,000 for bodily injury for one person, $20,000 for all injuries and $10,000 for property damage) to 25-50-25. Blanco has until July 18 to decide. Blanco's special counsel Kimberly Robinson said the governor has not decided whether to sign the bill. "She is considering the requests, the legislation and the impact on vehicle owners," Robinson said. Proponents say the minimum liability increase is long overdue as it has not been adjusted since 1983 and the cost of replacing automobiles has significantly increased. Opponents, including a national insurance industry trade group, say more than doubling the minimum coverage levels will add another exorbitant expense to post-Katrina budgets and force many drivers who can't afford the increase to forgo insurance. "We think it's a pretty dramatic increase and it's going to ultimately raise rates on about 40 percent of the drivers in the state," said Jeff Brewer, spokesman for the Property Casualty Insurers Association of America. PCIAA represents more than 1,000 companies writing 41 percent of all U.S. automobile, homeowners, business and workers compensation insurance. The association wants Blanco to veto the bill. The National Association of Insurance Commissioners estimates the state had 350,000 uninsured drivers and 2.5 million insured drivers in 2004. "The cost increase could be $100 to $200 per (six-month policy) for drivers," Brewer said. "We're concerned that kind of increase, particularly at this time, could result in a lot of people being in a position where they drop their insurance." "There is an insurance crisis right now and we're hurting," said state Sen. Francis Heitmeier, D-Algiers, who voted against the bill. "With all that poor, working-class folks are going through right now, this wasn't the proper timing. We need to give people time to put money away. The people who can least afford it will be hurt the most." Increase ‘long overdue' Supporters acknowledge poor people will be significantly affected by the increase but say the hike is necessary to cover accidents where liable drivers have insufficient coverage. "The time is long overdue for an increase," said Michot. "More and more people are being left short as a result of this (minimum). It is meant to bring a little more fairness with claims as a result. Uninsured motorists ... are a huge problem but it's unrelated. Enforcement needs to be stepped up." "The value of automobiles has substantially increased since (the state) established that law," said state Sen. Tom Schedler, R-Mandeville. "I felt it was time we looked at it and addressed it." Brewer said most auto claims don't top $10,000. "If you make the assumption that every accident you end up with a totaled vehicle, then the cost of vehicles increasing does enter into it. But the fact of the matter is the vast majority of auto accidents don't rise above the $10,000 limit, which is what it was," Brewer said. Michot said the timing of the increase can't be helped. "When is the timing ever good?" he asked. Michot and Schedler also cite Louisiana as "one of the states with the lowest minimum requirement." If so, Louisiana is far from alone. Insurance.com, an independent agency based in Ohio, names Louisiana as one of 29 states at or below the $10,000 minimum requirement, including four with a $5,000 minimum. Premium increases questioned Supporters claim premiums will not increase significantly. "I ran my own policy limits with State Farm and (the increase) would only be $5 a month," Michot said. "Between $40 and $50 was the number I heard," said Schedler. PCIAA analyst Diana Lee questions those estimated increases. "It would be really hard to see how you would only pay $5 more when you're getting twice the coverage," said Lee. Lee analyzed the average cost of the current minimum liability policy, which is roughly $400 for six months. "Add on the 10-20 uninsured motorists and the total is $440," said Lee. "If we were going to 25-50-25, the new base rate would be $470 and the uninsured motorist rate would be $75 ... for a total of $545," she said. Schedler said if premium increases reach the $200 range, "maybe I would have felt differently." Brewer said consumers have the right to increase their under-insured motorist protection if concerned about being left in the lurch. "Most accidents are going to be covered even with the minimum limits," he said. "If you want to protect yourself more, you always have that option." Blanco conferred with Insurance Commissioner Jim Donelon before deciding what to do. Donelon introduced a similar bill in the Legislature six years ago. "No doubt the burden of higher costs will fall on the poorest drivers who purchase the minimum (policy)," said Donelon. "The insurers ... are unanimously opposed to it, the reasoning being it will drive people out of the market. This will help people protect themselves from the negligent actions (of drivers) even though that person is poor. This helps make their costs cheaper." Donelon was scheduled to report to the governor last Friday.

by Jaime Guillet