State Farm Mutual Automobile Insurance Company v. Campbell

PETITIONER:State Farm Mutual Automobile Insurance Company
RESPONDENT:Campbell
LOCATION:El Segundo Golf Course

DOCKET NO.: 01-1289
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: Utah Supreme Court

CITATION: 538 US 408 (2003)
ARGUED: Dec 11, 2002
DECIDED: Apr 07, 2003

ADVOCATES:
Laurence H. Tribe – Argued the cause for the respondents
Sheila L. Birnbaum – Argued the cause for the petitioner

Facts of the case

Although investigators concluded that Curtis Campbell caused an accident in which one person was killed and another permanently disabled, his insurer, State Farm Mutual Automobile Insurance Company, contested liability and took the case to trial. State Farm assured the Campbells that they would represent their interests. After losing in court, the Campbells sued State Farm for bad faith, fraud, and intentional infliction of emotional distress. In the first part of the trial, the jury found State Farm’s decision not to settle unreasonable. In the second part, the trial court denied State Farm’s renewed motion to exclude dissimilar out-of-state conduct evidence, ruling such evidence was admissible to determine whether State Farm’s conduct in the Campbell case was indeed intentional and sufficiently egregious to warrant punitive damages. The jury awarded the Campbells $2.6 million in compensatory damages and $145 million in punitive damages, which the trial court reduced to $1 million and $25 million respectively. The Utah Supreme Court reinstated the $145 million punitive damages award.

Question

Is an award of $145 million in punitive damages, when full compensatory damages are $1 million, excessive and in violation of the Due Process Clause of the Fourteenth Amendment?

Media for State Farm Mutual Automobile Insurance Company v. Campbell

Audio Transcription for Oral Argument – December 11, 2002 in State Farm Mutual Automobile Insurance Company v. Campbell

Audio Transcription for Opinion Announcement – April 07, 2003 in State Farm Mutual Automobile Insurance Company v. Campbell

William H. Rehnquist:

The opinion of the Court in No. 01-1289, State Farm Mutual Automobile Insurance Company against Campbell will be announced by Justice Kennedy.

Anthony M. Kennedy:

In this case from the Utah Supreme Court, we addressed once again the subject of punitive damages.

Curtis Campbell was insured by State Farm Insurance Company and he ended up suing his own company.

The background was this.

Campbell and his wife were driving on a two-lane high way in Utah; Campbell decided to pass six vans traveling ahead of him.

This resulted in an accident that caused one driver his life and rendered another permanently disabled.

Campbell escaped unscathed.

Campbell was sued and the insurance company State Farm turned down a settlement offer for the $50,000 policy limit.

The jury found Campbell a 100% at fault and returned a verdict for about $185,000.

So, there is an excess amount over the policy limit of $135,000.

At first, State Farm refused to pay the excess, later it agreed to do so but Campbell sued State Farm nonetheless alleging bad faith, fraud and intentional infliction of emotional distress.

In Campbell’s suit against State Farm, the jury awarded him $2.6 million in compensatory damages and $145 million in punitive damages.

The Trial Court ordered the compensatory damages reduced to $1 million and the punitive damages reduced to $25 million.

Utah Supreme Court reinstated the $145 million punitive damage award and this is the decision we now review.

Sstate have discretion over the imposition of punitive damages.

It is well established though that there are procedural and substantive constitutional limitations on those awards.

In BMW of North America versus Gore, we instructed courts reviewing punitive damages to consider three guideposts: first, the degree of reprehensibility of the defendant’s misconduct; second, the disparity between the harm sufferend by the plaintiff and the punitive damages award, and third, the difference between the punitive damages awarded by the jury and civil penalties authorized or imposed in comparable cases.

Under these principles, this case is neither close nor difficult.

It was error to reinstate the jury’s $145 million punitive damages award.

In applying the first Gore guidepost, we must acknowledge that State Farm’s handling of the claims against Campbell merits no praise.

While we do not suggest there was an error in awarding any punitive damages based upon State Farm’s conduct toward Campbell, a more modest punishment for this reprehensible conduct could have satisfied the State’s legitimate objectives.

The Utah Courts should have gone no further.

The case instead was used as a platform to expose and punish the perceived deficiencies of State Farm’s operation throughout the country.

The Utah Supreme Court’s opinion makes explicit that State Farm was being condemned for its nationwide policies, rather than for the conduct directed to Campbell.

From opening statements onward Campbell framed this case as a chance to rebuke State Farm for its nationwide activities.

The State cannot punish a defendant for conduct that may have been lawful where it occured nor as a general rule does a State have a legitimate concern in imposing punitive damages to punish a defendant for unlawful acts commited outside of the State’s jurisdiction.

Lawful-out-of-state conduct maybe probative where it demonstrates the deliberateness and culpability of the defendant’s action in the State where it is tortious, but that conduct must have a nexus to the specific harm suffered by the plaintiff.

Also, the the Utah Courts erred in relying upon this and other evidence for a fundamental reason.

Punitive damages were awarded to punish and deter conduct that borne no relation to Campbell’s harm.

The defendant’s dissimilar acts independent from the acts upon which liability was premised may not serve as the basis for punitive damages.

Anthony M. Kennedy:

Due process does not permit courts in the calculation of punitive damages to adjudicate the merits of other parties’ hypothetical claims against the defendant under the guise of the reprehensibility analysis.

Turning to the second Gore guidepost, we have been reluctant to identify concrete constitutional limits on the ratio between the harm that the plaintiff usually reflected in the compensatory damages award and the punitive damage award.

Our jurisprudence and the principles have now established demonstrate, however, that in practice, few awards exceeding a single-digit ratio between punitve and compensatory damages will satisfy due process, and compensatory damages are substantial moreover than a lesser ratio perhaps only equal to compensatory damages can reach the outermost limit of the due process guarantee.

In the context of this case, we have no doubt that there is a presumption against an award that has 145:1 ratio.

With respect to the third Gore guidepost, the most relevant civil sanction under Utah Law for the wrong done to Campbell appears to be a $10,000 fine for an act of fraud, an amount dwarfed by the $145 million punitive damages award.

An application of the Gore guidepost to the facts of this case likely would justify a punitive damages award at or near the amount of compensatory damages.

The punitive award of $145 million was neither reasonable nor proportionate to the wrong committed, and it was an irrational and arbitrary deprivation of the property of the defendant.

The judgment of the Utah Supreme Court is reversed.

Justices Scalia, Thomas and Ginsburg have each filed disserting opinions.