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.
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