After a car collision, plaintiff’s insurance company advised plaintiff to reject a settlement offer and proceed to trial. The misguided advice to proceed to trial resulted in the jury rendering a judgment against plaintiff (who was the defendant in the first trial). The insurance company initially refused to cover the the damages awarded in excess of plaintiff’s policy limit, but the company eventually paid the entire judgment. Plaintiff still sued defendant, his insurance company, for bad faith, fraud and intentional infliction of emotional distress. A second jury awarded plaintiff $2.6 million in compensatory damages and $145 million in punitive damages. Defendant appealed, arguing that the damages awarded by the jury were excessive.
There are procedural and substantive constitutional limits on the imposition of punitive damages; and an award of punitive damages is grossly excessive when it furthers no legitimate purpose and constitutes an arbitrary deprivation or property.
Curtis Campbell (plaintiff) was driving along a two-lane highway with his wife. Campbell decided to pass six vans traveling ahead of them. Meanwhile, Todd Ospital’s vehicle was approaching from the opposite direction. Ospital saw Campbell driving on the wrong side of the highway and toward oncoming traffic. To avoid a head-on collision with Campbell, Ospital swerved onto the shoulder of the highway. Ospital lost control of his vehicle and collided with a vehicle driven by Robert Slusher. As a result of the collision, Ospital was killed and Slusher became permanently disabled. The Campbells “escaped unscathed.” Slusher and Ospital’s estate brought wrongful death and tort action suits against Campbell. State Farm Mutual Automobile Insurance Company (“State Farm”) (defendant), Campbell’s insurance company, declined the offers by Slusher and Ospital’s estate to settle the claims for $50,000. State Farm took the case to trial, where they represented Campbell. The jury determined that Campbell was 100 percent at fault and rendered a judgment against Campbell for $185,849. State Farm initially refused to cover the damages awarded in excess of Campbell’s policy limit. While State Farm ended up paying the entire judgment, the Campbells filed a complaint against State Farm and alleged bad faith, fraud, and intentional infliction of emotional distress. A second jury awarded the Campbells $2.6 million in compensatory damages and $145 million in punitive damages. The trial court remitted the award to $1 million in compensatory damages and $25 million in punitive damages. The Utah Supreme Court reinstated the $145 million punitive damages award. State Farm petitioned the Supreme Court for review. The Supreme Court granted certiorari.
Whether 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 Constitution?
Yes, the Utah Supreme Court erroneously reinstated the $145 million punitive damages award. After application of the three guideposts set forth in BMW of North America, Inc. v. Gore, the punitive damages awarded to Campbell do not satisfy due process. The judgment of Utah Supreme Court is reversed and the case is remanded for further proceedings.
In BMW of North America, Inc. v. Gore, the Supreme Court instructed courts reviewing punitive damages to consider three guideposts: (1) the degree of reprehensibility of defendant’s misconduct; (2) the disparity between actual or potential harm suffered by 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. Per the first Gore guidepost, reprehensibility can be determined by considering whether: the resulting harm was physical as opposed to economic, the tortious conduct evinced a reckless disregard to the health and safety of others; the injured party had financial vulnerability; the conduct involved repeated actions; and the harm was the result of intentional malice, trickery or deceit. Here, the Campbells’ case against State Farm was used to expose and punish deficiencies in the insurance company’s operations. A damages award was imposed on the basis of State Farm’s dissimilar acts. Ultimately, a defendant must be punished for their tortious conduct to the injured plaintiff, not for having unsavory business practices. Under the second guidepost, the Court notes that few damages awarded “exceeding a single-digit ratio between punitive and compensatory damages” will satisfy due process. Here, a presumption undoubtedly exists against an award that has a 145-to-1 ratio. Finally, under the third guidepost, the most relevant civil sanction would be the imposition of a $10,000 for an act of fraud. However, that amount is dwarfed by the $145 million punitive damages award. The application of these three guideposts make it clear that it was erroneous to reinstate the $145 million punitive damages award.