State Farm Mutual Automobile Insurance Co. v. Campbell

Brief Fact Summary. Defendant Curtis Campbell sued his insurance carrier, Plaintiff State Farm Mutual Automobile Insurance Co. after Plaintiff refused to settle a suit against Curtis, resulting in a jury returning a verdict against Defendant for $185,849 more than the original parties suing Defendant were willing to settle for.
Synopsis of Rule of Law. The Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor; the reason is that elementary notions of fairness enshrined in constitutional jurisprudence dictate that a person receive fair notice not only of the conduct that will subject him to punishment, but also of the severity of the penalty that a state may impose.

Facts. In 1981, Defendant was driving with his wife, Inez Preece Campbell, in Cache County, Utah. He decided to pass six vans traveling ahead of them on a two-lane highway. Todd Ospital was driving a small car approaching from the opposite direction. To avoid a head-on collision with Defendant, who by then was driving on the wrong side of the highway and toward oncoming traffic, Ospital swerved onto the shoulder, lost control of his automobile, and collided with a vehicle driven by Robert G. Slusher. Ospital was killed, and Slusher was rendered permanently disabled. The Campbells escaped unscathed. In the ensuing wrongful death and tort action, Defendant insisted he was not at fault. Early investigations did support differing conclusions as to who caused the accident, but “a consensus was reached early on by the investigators and witnesses that Mr. Campbell’s unsafe pass had indeed caused the crash.” Defendant’s insurance company, Plaintiff insurance agency, nonetheless decided to contest liability and declined offers by Slusher and Ospital’s estate (Ospital) to settle the claims for the policy limit of $50,000 ($25,000 per claimant). Instead, a jury determined that Defendant was 100 percent at fault, and a judgment was returned for $185,849, far more than the amount offered in settlement. During the pendency of the appeal, in late 1984, Slusher, Ospital, and the Defendant reached an agreement whereby Slusher and Ospital agreed not to seek satisfaction of their claims against the Defendant. In exchange the Defendant agreed to pursue a bad faith action against Plaintiff and to be represented by Slusher’s and Ospital’s attorneys. In 1989, the Utah Supreme Court denied Defendant’s appeal in the wrongful death and tort actions. The Defendant then filed a complaint against Plaintiff alleging bad faith, fraud, and intentional infliction of emotional distress. The jury awarded the Defendant $2.6 million in compensatory damages and $145 million in punitive damages, which the trial court reduced to $1 million and $25 million respectively. Both parties appealed.

Issue. Whether a an award of $145 million in punitive damages, where full compensatory damages are $1 million, is excessive and in violation of the Due Process Clause of the Fourteenth Amendment to the United States Constitution

Held. Yes. The judgment of the Utah Supreme Court was reversed, and the case was remanded. Exacting appellate review ensures that an award of punitive damages is based upon an application of law, rather than a decisionmaker’s caprice. For purposes of determining whether an award of punitive damages is excessive, an award that exceeds a single-digit ratio between punitive and compensatory damages may comport with due process where a particularly egregious act has resulted in only a small amount of economic damages. The Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor; the reason is that elementary notions of fairness enshrined in constitutional jurisprudence dictate that a person receive fair notice not only of the conduct that will subject him to punishment, but also of the severity of the penalty that a state may impose. A state cannot punish a defendant for conduct that may have been lawful where it occurred As a general rule, a State does not have a legitimate concern in imposing punitive damages to punish a defendant for unlawful acts committed outside of the State’s jurisdiction. Lawful out-of-state conduct may be probative in a civil action when 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. A basic principle of federalism is that each State may make its own reasoned judgment about what conduct is permitted or proscribed within its borders, and each State alone can determine what measure of punishment, if any, to impose on a defendant who acts within its jurisdiction.

Dissent. Justice Scalia dissented. In his view the Due Process Clause provides no substantive protections against “excessive” or “‘unreasonable’ ” awards of punitive damages Justice Thomas also dissented. His one sentence dissent merely stated his belief that he continued to believe that the Constitution does not constrain the size of punitive damages awards.

Discussion. In this case the Supreme Court of the United States is considering what measure of punishment, by means of punitive damages, a State may permissibly impose upon a defendant in a civil case. The key to understanding the court’s decision is recognizing the court’s distinction between the divergent purposes for compensatory and punitive damages. Whereas compensatory damages are intended to redress the concrete loss that the plaintiff has suffered by reason of the defendant’s wrongful conduct, punitive damages are aimed at deterrence and retribution. However, the Supreme Court also noted that there must be some correlation between the two, such that there exists a presumption against 145 to 1 ratio of punitive to compensatory damages.