Pest Control Company Hit with Damage Award

September 19, 2007 | Roger McEowen

 

The United States Court of Appeals for the Eighth Circuit recently approved a jury’s substantial award of compensatory and punitive damages against a pest-control company for its conduct involving termite control in a home.  The homeowners sued the company for severe termite damage sustained over a period of years.  They had hired the company to remedy a pre-existing termite infestation.  The trial court jury found for the homeowners and held the company liable for $138,000 in compensatory damages and $276,000 in punitive damages.  However, the trial court judge set aside the jury’s award of punitive damages and granted the company a new trial on the issue of compensatory damages.  At the second trial, the jury awarded only $96,030 to the homeowners, substantially less than the termite damage caused to the home.

On appeal, the homeowners argued that the trial court erroneously granted a new trial on the issue of compensatory damages and inappropriately set aside the jury’s award of punitive damages.  The Court agreed, citing several instances of fraudulent misrepresentation by the company as a basis for their decision. For example, after the company’s first application of a “complete chemical barrier,” the company guaranteed that if a reinfestation occurred, it would apply additional treatment at no cost to the homeowners.  Also, after an annual inspection, the company certified that the infestation was under control.  As a result, the homeowners began a major remodeling project.  But, a year later, the termites had returned.  The homeowners notified the company, and despite an inspector’s warning that a complete retreatment was needed, the branch manager chose to conduct only a “spot treatment” of the affected area.  After repeatedly finding evidence of termites, the homeowners were assured that it was only “old damage” and that they had become a “problem house,” because of their continual complaints.  From that point forward, the company conducted only spot treatments, visited the home only when called, and pronounced the home “termite free.”

The primary issue on appeal was whether there was evidence that the company knowingly made false representations, causing the homeowners to justifiably rely on their promises of complete termite eradication.  To establish fraudulent misrepresentation under Iowa law, the homeowners had to prove that the company knew they were making false representations and that the homeowners justifiably and reasonably relied on those representations to their own detriment.  The Court ruled for the homeowners, finding that the company “intentionally minimized the termite infestation and overstated its ability to control the problem,” and that the homeowners reasonably relied on the misrepresentation.  

As for the damage award, the court reinstated the jury’s initial award of compensatory damages, because the amount was not flagrantly excessive, unjust, suspect, or lacking in evidentiary support.  On the issue of punitive damages, the court noted that punitive damages can only be awarded if the evidence establishes that it is more likely than not that the company’s conduct amounted to willful and wanton disregard. The court referenced the company’s policy of giving credit for spot treatments and dictating infrequent home visits and money saving schemes.  That didn’t set well with the court, and they also reinstated the jury’s punitive damage award.  Schooley v. Orkin Extermination, Inc., No. 06-3326, No. 06-3486, 2007 U.S. App. LEXIS 22307 (8th Cir. Sept. 19, 2007).