The Supreme Court Monday refused to place limits on skyrocketing punitive-damage awards as it upheld a $1 million award to a woman victimized by insurance fraud.

By a 7-1 vote, the justices said the award is not so disproportionate to the damages suffered by the woman that it violates constitutional guarantees of fundamental fairness.Justice Harry A. Blackmun, writing for the court, said the difference between actual damages in the case and the punitive award is wide "and indeed may be close to the line" of being unconstitutional.

But, he said, "The award here did not lack objective criteria . . . It does not cross the line into the area of constitutional impropriety."

The punitive damages case was among the most closely watched of the court's current term because of its potential for altering the legal landscape in America.

But by refusing to place limits on punitive damage judgments, Monday's decision leaves matters where they have been - in the hands of state legislators, judges and juries.

Justice Sandra Day O'Connor, in a dissenting opinion, said the ruling will "substantially impede punitive damages reforms."

The current system, she said, invites juries "to target unpopular defendants, penalize unorthodox or controversial views and redistribute wealth. Multimillion-dollar losses are inflicted on a whim . . . I see a strong need to provide juries with standards to constrain their discretion."

Blackmun's opinion was joined by Chief Justice William H. Rehnquist and Justices Byron R. White, Thurgood Marshall and John Paul Stevens. Justices Antonin Scalia and Anthony M. Kennedy also voted to uphold the award but wrote separate concurring opinions.

Justice David H. Souter joined the court after the case was argued and did not take part in the decision.

The case pitted the Pacific Mutual Life Insurance Co. of Newport Beach, Calif., against Cleopatra Haslip, a former $8,800-a-year librarian for Roosevelt City, Ala.

Haslip discovered her insurance coverage had lapsed after incurring $3,500 in hospital and medical bills in 1982 for treatment of a kidney infection.

Lemmie Ruffin, the insurance agent who arranged health coverage for Roosevelt City workers, had pocketed the premiums.

Pacific Mutual said it had not sanctioned nor was it even aware of the agent's misdeeds. It suggested it was sued because its wealth - "deep pockets" in common courtroom jargon - made it an inviting target.

But Blackmun said Monday it does not violate the Constitution to hold a company vicariously liable in such circumstances.

Haslip said she still owes money and has not collected the $1,040,000 awarded by the jury.


(Additional information)

Other court action

In other decisions, the court:

- Rejected Nevada's challenge to the federal government's efforts to put a high-level nuclear waste dump about 100 miles northwest of Las Vegas.

- Agreed to decide whether federal regulators may force bank holding companies to pump money into ailing banks they own.

- Refused to ban state "lemon laws" that give buyers of chronically defective automobiles more legal protection than they receive under federal law.