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State Farm Mut. Auto. Ins. Co. v. Campbell

    Brief Fact Summary. Campbell (P ) sued State Farm Mutual Automobile Insurance Co. (State Farm) (D) who were his automobile insurers, on the ground of intentional deception and misrepresentation of facts to induce him to rely on them to his injury, and for intentionally causing him to suffer emotional distress, by refusing to settle an automobile claim brought against him by Ospital’s estate and by Slusher.

    Synopsis of Rule of Law. The validity of punitive damages awarded is assessed based on the following factors: the degree of condemnable conduct shown by the defendant, the difference between the actual or potential injury suffered by the plaintiff and the damages granted, and the difference between the punitive damages awarded by the jury and the civil penalties authorized for use in similar situations.

    Facts. Campbell (P) caused a collision which led to the death of Ospital and permanent disability of Slusher. They sued him for wrongful death and in tort. His insurers, State Farm, refused to settle with the other two parties though they were ready to accept the maximum policy limit of $25,000 each. Instead, State Farm promised to represent Campbell’s interests and assured him that his assets were safe, leading him to believe that he needed no additional counsel. However, the jury found against Campbell and awarded $185, 849 to Ospital and Slusher. At this time, State Farm refused to pay the excess liability over the policy limit and also refused to post a bond so he could appeal. Instead, he was told he could as well make up his mind to sell his house. He secured legal help on his own and filed an appeal. He also agreed to haveOspital and Slusher’s lawyer representing him in his suit against State Farm for bad faith, fraud and intentionally causing emotional distress. Ospital and Slusher were satisfied to receive 90 percent of any damages awarded to Campbell, in lieu of personal payment from him, in exchange for this help. The appeal filed by Campbell was denied and he was asked to pay the entire judgment amount. This amount was finally paid by State Farm even though it was in excess of his policy limit. Campbell went ahead with his suit against State Farm and  won  a favorable verdict, the jury awarding him $2.6 million in compensatory damages and $ 145 million in punitive damages. This was later modified to $1 million compensation and $ 25 million as punitive damages. On appeal, the $1 million was retained and the punitive damages restored to $145 million. The Supreme Court granted judicial review of the case records.

    Issue. Is $145 million in punitive damages too large an amount, and violative of the Due Process Clause, when compensation amounts to $1 million only?

    Held. (Kennedy, J.) Yes. An award of $ 145 million in punitive damages, in a case where full compensation is $1 million, is too large and violates due process. This is because the amount of damages is in excess of what would have given State Farm due punishment for its reprehensible conduct and properly served State interests. The actual or potential harm that Campbell suffered was out of proportion to the enormous damages awarded. The difference between the punitive damages and civil penalties imposed or permitted in similar cases is also too wide to be allowed of. States generally have the freedom to impose any amount as punitive damages, but within constitutional limits. Basic concepts of justice forbid the imposition of obviously excessive or apparently arbitrary amounts as punitive damages in tort cases. Another feature to note is that a wrongdoer in tort does not have the same level of protection as he would have in a criminal proceeding, and so he needs to be protected against unfair loss of property as punitive damages. In this case, the punitive damages of $145 million should not have been restored. One reason is that State Farm’s conduct, in first refusing to settle the claim out of court despite knowing the likelihood of the court ordering a payment outside the policy limits, and then threatening the client with the loss of his house, was strongly objectionable, but could have been reprehended by a much lesser punishment which still conveyed the desired message. The real cause for awarding excessive damages seems to have been to expose the nation-wide faulty operation of State Farm, which was not a legitimate concern of the state. The state can only impose punitive damages for culpable acts performed inside its jurisdiction, since similar conduct outside the state may conform to local law in that place. The place of demonstrating such conduct is in order to prove that the transgression of the law in the state concerned by the defendant was both intentional and punishable, and that such conduct was connected to particular injury suffered by the plaintiff. The second error the courts made was to award punitive damages to punish and to prevent conduct on the part of the defendant which  had no bearing on Campbell’s injury. In due process, what other parties may have to claim against a defendant is irrelevant to the court. The third point was that the punitive damages was grossly disproportionate to the actual harm suffered. The usual upper limit of punitive damages is a single digit ratio to the compensatory damages, and most commonly it is not more than 4 times the latter. In this case however, the ratio is 145 to 1, making it neither reasonable nor proportionate to the harm inflicted. Campbell suffered minor economic damage but no physical injury or loss, especially since this suit was filed after the verdict in excess of policy liability was already paid. The last point is that the punitive damages are greatly in excess of the authorized or imposed penalties in similar cases which would come to $10,000 fine in a case of fraud. The verdict is reversed and the case remanded.

    Dissent. (Ginsberg, J.) The Court is not justified in replacing the Utah court’s decision with its own, either because the amount awarded was too high or because of the trial record. The proof exists that the defendant acted in a way which deserved extreme censure, and the state should be allowed to deal with it according to its own law of punitive damages, which the Supreme Court is not called upon to reform.

    Concurrence. N/A

    Discussion. Legal experts have written much upon the theoretical basis on which punitive damages are awarded in torts, and its practical application.


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