Torts II, Pages 578–584

State Farm Mutual Automobile Ins. Co. v. Campbell

Supreme Court of the United States, 2003

Facts:

Plaintiff was driving with his wife and tried to pass six vans on a two-lane highway. Ospital was approaching from the opposite direction and swerved to avoid the head-on collision. In doing so, Ospital lost control of his vehicle and collided with Slusher's vehicle. Ospital was killed, and Slusher was left permanently disabled.

Plaintiff insisted he was not at fault, and his insurance company, defendant, decided to contest liability and to decline to settle for $25,000 per claimant. At trial, the jury determined that plaintiff was 100% at fault and returned a verdict for $185,849. Defendant then declined to cover the extra $135,849, and told plaintiff that he should start selling his house quickly. Defendant was not even willing to post a supersedeas bond to appeal the judgment.

Plaintiff obtained his own counsel and appealed the verdict, yet was denied. He then paid the judgment and filed a complaint against defendant, alleging bad faith, fraud, and intentional infliction of emotional distress.

Procedural History:

  • A jury found that defendant's decision not to settle was unreasonable.

  • A second jury awarded plaintiff $2.6 million in compensatory damages and $145 million in punitive damages for fraud and intentional infliction of emotional distress after plaintiff introduced extensive evidence of nation-wide fraud, although largely unrelated to automobile insurance claims. The trial court reduced these to $1 million and $25 million respectively. Both parties appealed.

  • The Utah Supreme Court reinstated the $145 million punitive damages award, relying on the evidence about defendant's "reprehensible" goals to cap payouts, defendant's "massive wealth," the number of cases defendant defrauded without punishment, and the comparative harshness of equivalent criminal charges.

Issue:

Was the jury's verdict of $145 million in punitive damages excessive?

Rule:

LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 581, Paragraph 3

[C]ourts reviewing punitive damages [were instructed] to consider three [Gore] 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.

Reasoning:

  • While reprehensible, the defendant's conduct in this case was not worthy of $145 million in punitive damages. The Utah Supreme Court said that it reinstated it to punish them for their nation-wide conduct, but states should not punish a defendant for conduct that occurred outside of their jurisdiction.

  • $145 million is 145 times greater the $1 million of compensatory damages awarded for emotional distress.

    LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 582, B

    [F]ew awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.

  • While criminal penalties are used to determine the seriousness of a tort, civil proceedings should not assess criminal penalties. A criminal trial, with its higher standard of proof, should be required for criminal penalties.

Holding:

LexisNexis IconWestLaw LogoGoogle Scholar LogoPage 584, IV

The punitive award of $ 145 million, therefore, was neither reasonable nor proportionate to the wrong committed, and it was an irrational and arbitrary deprivation of the property of the defendant.

Judgment:

Reversed and remanded.

Takeaway:

The due process clause of the Fourteenth Amendment can set a limit on punitive damages. Usually they are limited to a single-digit ratio.

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