State Farm Mutual Automobile Insurance Co. Campbell

Brief Fact Summary.

The Campbells brought a bad faith action against its insurance company, State Farm. The jury awarded the Campbells $145 million in punitive damages but the trial court reduced to $25 million. Upon an appeal by both parties, the Utah Supreme Court reinstated the $145 million punitive damages award.

Synopsis of Rule of Law.

The Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments on a tortfesaor.

Facts.

Curtis Campbell driving with his wife got into a car accident. A jury determined that Campbell was 100 percent at fault. State Farm, Campbell’s insurance company, contested liability and refused to cover the amount in excess liability. Campbell obtained his own counsel to appeal the verdict and pursued a bad faith action against State Farm. When the Utah Supreme Court denied Campbell’s appeal in the wrongful death, State Farm paid the entire judgment including the amounts in excess of the policy limits. The Campbells nonetheless filed a complaint against State Farm alleging bad faith. The jury awarded the Campbells $145 million in punitive damages but the trial court reduced to $25 million. Upon an appeal by both parties, the Utah Supreme Court reinstated the $145 million punitive damages award.

Issue.

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

Held.

Yes. Due process does not allow courts, in calculation of punitive damages to adjudicate the merits of other parties’ hypothetical claims against a defendant under the guise of the reprehensibility analysis, but the Utah Supreme Court did that here. While there is no bright-line ratio which a punitive damages award cannot exceed, courts must ensure that the measure of punishment is both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered. The award that has a 145-to-1 ratio here is not reasonable nor proportionate to the wrong committed and is an arbitrary deprivation of the property of the defendant.

Dissent.

Justice Scalia

Justice Scalia: The Due Process Clause provides no substantive protections against “excessive” or “unreasonable” awards of punitive damages.

Justice Ginsburg: The laws of the particular State must suffice to superintend punitive damages awards until judges or legislators authorized to do so initiate system-wide change. When the Utah Supreme Court overrode state-punitive damages awards, it did so moderately. The majority’s decision, however, respects no such decision and state court judgments’ strong presumption of validity.

Discussion.

The most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant’s conduct. Several factors must be considered and the existence of any one of these factors weighing in favor of a plaintiff may not be sufficient to sustain a punitive damages award. State Farm’s employees altered the company’s records to make Campbell appear less culpable. State Farm disregarded the overwhelming likelihood of liability and amplified the harm by assuring the Campbells their assets would be safe from any verdict and by later telling them to put a for-sale sign on their house. However, a more moderate punishment for this reprehensible conduct could have satisfied the State’s legitimate objectives.

While the Utah Supreme Court provided that State Farm was being condemned for its nationwide policies rather than for the conduct directed toward the Campbells, a State cannot punish a defendant for conduct that may have been lawful where it occurred nor can State have a legitimate concern in imposing punitive damages to punish a defendant for unlawful acts committed outside of the State’s jurisdiction. Any proper adjudication of conduct that occurred outside Utah to other persons would require their inclusion and the Utah courts would need to apply the laws of their relevant jurisdiction. The Utah courts, however, awarded punitive damages to punish and deter conduct that bear no relation to Campbell’s harm.