## Facts

- Margaret Lavoie incurred a 23-day hospitalization bill of $3,028.25, supported by medical forms and records.
- Aetna paid $1,650.22 but questioned the medical necessity of the full hospital stay and did not pay the remainder.
- The Lavoies sued in Alabama state court for the unpaid benefits and punitive damages for bad-faith refusal to pay a valid insurance claim.
- A jury returned a verdict for the Lavoies, including $3.5 million in punitive damages.
- The Alabama Supreme Court affirmed 5–4 in a per curiam opinion authored by Justice T. Eric Embry.
- While Aetna’s rehearing application was pending, Aetna learned Justice Embry had filed his own bad-faith insurance suits seeking punitive damages, including a class action against Blue Cross–Blue Shield.
- Aetna moved to disqualify Justice Embry and to recuse the entire Alabama Supreme Court; the court denied the motions and denied rehearing.
- Afterward, the Blue Cross matter settled, and Justice Embry received $30,000 under the settlement.

## Issues

1. Whether the Supreme Court had jurisdiction to review Aetna’s federal due process challenge to the state justice’s failure to recuse.
2. Whether due process was violated when a state supreme court justice participated in deciding a case involving legal issues that could materially affect the justice’s own pending, financially interested litigation.

## Decision

- The Court held it had jurisdiction because the state court reached the merits of Aetna’s federal due process objection, and Aetna raised the objection promptly after learning the relevant facts.
- The Court held that Justice Embry’s participation violated the Due Process Clause because he had a direct, personal, substantial, and pecuniary interest related to the legal issues being decided.
- The Court vacated the Alabama Supreme Court’s judgment and remanded for further proceedings without Justice Embry’s participation.
- The Court declined to reach other challenges, including the punitive-damages issues, because the case was resolved on the disqualification ground.

## Legal Principles

- Due process requires judicial disqualification when the judge has a direct, personal, substantial, and pecuniary interest that creates a constitutionally unacceptable risk of bias.
- General allegations of judicial bias or hostility toward a class of litigants, without a concrete personal financial stake, do not alone establish a due process violation.
- The due process inquiry is objective: the question is whether the circumstances would create a “possible temptation” for an average judge to depart from neutral decision-making, not whether actual bias is proven.
- When a judge’s own pending litigation overlaps in legal issues and potential financial consequences with a case the judge is deciding, participation can violate due process even without evidence of subjective wrongdoing.
- The appropriate remedy for a due process violation of this type is vacatur and remand for reconsideration by a properly constituted court.

## Conclusion

The Court vacated and remanded because Aetna was denied due process when an Alabama Supreme Court justice authored and joined a decision on bad-faith punitive damages while simultaneously pursuing similar punitive-damages claims of his own, creating an impermissible risk of bias from a personal financial interest.


Aetna Life Ins. Co. v. Lavoie, 475 U.S. 813 (1986)