State Farm Mutual Automobile Insurance Co. v. Campbell

Brief Fact Summary. Curtis Campbell (Plaintiff) sued their insurance company, State Farm Mutual Automobile Insurance Co. (Defendant), for bad faith arising out of a settlement negotiation. Plaintiff was awarded $1 million in compensatory damages and $145 million in punitive damages.

Synopsis of Rule of Law. Courts reviewing punitive damages consider three guideposts: (1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.

Facts. Plaintiff was driving with his wife. He decided to pass six vans traveling ahead of them on a two-lane highway. Todd Ospital (Ospital) was driving a small car approaching from the opposite direction. To avoid a head-on collision, Ospital swerved onto the shoulder, lost control of his automobile, and collided with a vehicle driven by Robert G. Slusher (Slusher). Ospital was killed and Slusher was rendered permanently disabled. A consensus was reached early on by the investigators and witnesses that Plaintiff’s unsafe pass had caused the crash. Defendant, nonetheless decided to contest liability and declined offers by Slusher and Ospital’s estate to settle the claims for the policy limit of $50,000.00 ($25,000.00 per claimant). Defendant ignored the advice of one of its own investigators and took the case to trial, assuring Plaintiffs that “their assets were safe, that they had no liability for the accident, that Defendant would represent their interests, and that they did not n
eed to procure separate counsel.” The jury found that Plaintiff was 100% at fault, and returned a judgment against Plaintiff for $185,849.00. Defendant refused to cover the $135,849.00 in excess liability. Defendant also refused to post a bond to allow Plaintiff to appeal the judgment against him. Plaintiff obtained his own counsel to appeal the verdict. During the appeal Slusher, Ospital, and Plaintiff reached an agreement whereby Slusher and Ospital agreed not to seek satisfaction of their claims against Plaintiff. In exchange, Plaintiff agreed to pursue a bad faith action against Defendant, and to be represented by Slusher’s and Ospital’s attorneys. According to the agreement, Slusher and Ospital would play a part in all major decisions in the action against Defendant. Slusher and Ospital would receive 90% of any verdict against Defendant. Defendant then paid Plaintiff $135,849.00. Plaintiff filed a complaint against Defendant alleging bad faith, fraud, and intentional infliction o
f emotional distress. Defendant claimed it made an honest mistake. The jury awarded Plaintiff $2.6 million in compensatory damages and $145 million in punitive damages. The trial judge reduced those damages to $1 million and $25 million respectfully. The State Supreme Court reinstated the $145 million punitive damages award. The court concluded that Defendant’s conduct was reprehensible. The court also relied upon Defendant’s “massive wealth” and on testimony indicating “Defendant’s actions, because of their clandestine nature, will be punished at most in one out of every 50,000 cases as a matter of statistical probability,” and concluded that the ratio between punitive and compensatory damages was not unwarranted. Finally, the court noted that the punitive damages award was not excessive when compared to various civil and criminal penalties Defendant could have faced.

Issue. Is the award of punitive damages in this case excessive?

Held. Yes. Judgment reversed.
* Compensatory damages “are intended to redress the concrete loss that the plaintiff has suffered by reason of the defendant’s wrongful conduct.” Punitive damages serve a broader function; they are aimed at deterrence and retribution. Punitive damages may properly be imposed to further a state’s legitimate interests in punishing unlawful conduct and deterring its repetition.
* The Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor. The reason is that “[e]lementary notions of fairness enshrined in our 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.” To the extent an award is grossly excessive, it furthers no legitimate purpose and constitutes an arbitrary deprivation of property.
* Courts reviewing punitive damages consider three guideposts: (1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.
* Defendant’s handling of the claims against Plaintiff merits no praise. Defendant employees altered the company’s records to make Defendant appear less culpable. Defendant disregarded the overwhelming likelihood of liability and the near-certain probability that, by taking the case to trial, a judgment in excess of the policy limits would be awarded. Defendant amplified the harm by at first assuring Plaintiffs their assets would be safe from any verdict and by later telling them, post judgment, to put a for-sale sign on their house.
* However, the state has no legitimate concern in imposing punitive damages to punish a defendant for unlawful acts committed outside of the state’s jurisdiction. In this case, the court awarded punitive damages to punish and deter conduct, which bore no relation to Plaintiff’s harm.
* While states enjoy considerable discretion in deducing when punitive damages are warranted, 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 wealth of Defendant cannot justify an otherwise unconstitutional punitive damages award.

Dissent. There are three dissenting opinions reprinted in the casebook:
* (Justice Scalia) The Due Process Clause provides no substantive protections against “excessive” or ” ‘unreasonable’ ” awards of punitive damages.
* (Justice Thomas) The Constitution does not constrain the size of punitive damages awards.
* (Justice Ginsburg) The trial court should be granted great discretion in awarding punitive damages. In this case, the trial court did not abuse its discretion.

Discussion. The majority opinion mentioned the wealth of the Defendant. It is necessary that the jury know the wealth of Defendant because relatively small punitive damage awards do not deter others. As to Defendant, the court needs to issue a large amount of punitive damages in order for it to sting Defendant and deter it from similar ac