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State Farm v. Campbell

1. Citation: State Farm v. Campbell 538 U.S. 408 (2003)

2. Facts:

In 1981, Defendant was driving with his wife, Inez Preece Campbell, in Cache County, Utah. He decidedto pass six vans traveling ahead of them on a two-lane highway. Todd Ospital was driving a small car

approaching from the opposite direction. To avoid a head-on collision with Defendant, who by then was driving onthe wrong side of the highway and toward oncoming traffic, Ospital swerved onto the shoulder, lost control of hisautomobile, and collided with a vehicle driven by Robert G. Slusher. Ospital was killed, and Slusher was renderedpermanently disabled. The Campbells escaped unscathed. In the ensuing wrongful death and tort action,Defendant insisted he was not at fault. Early investigations did support differing conclusions as to who caused theaccident, but a consensus was reached early on by the investigators and witnesses that Mr. Campbells unsafepass had indeed caused the crash. Defendants insurance company, Plaintiff insurance agency, nonethelessdecided to contest liability and declined offers by Slusher and Ospitals estate (Ospital) to settle the claims for thepolicy limit of $50,000 ($25,000 per claimant). Instead, a jury determined that Defendant was 100 percent at fault,and a judgment was returned for $185,849, far more than the amount offered in settlement. During the pendencyof the appeal, in late 1984, Slusher, Ospital, and the Defendant reached an agreement whereby Slusher andOspital agreed not to seek satisfaction of their claims against the Defendant. In exchange the Defendant agreedto pursue a bad faith action against Plaintiff and to be represented by Slushers and Ospitals attorneys. In 198 9,

the Utah Supreme Court denied Defendants appeal in the wrongful death and tort actions. The Defendant thenfiled a complaint against Plaintiff alleging bad faith, fraud, and intentional infliction of emotional distress. The juryawarded the Defendant $2.6 million in compensatory damages and $145 million in punitive damages, which thetrial court reduced to $1 million and $25 million respectively. Both parties appealed.

3. Issue

There were full compensatory damages of $1 million and $145 million award in punitive damages. Thequestion was if the punitive damage award of $145 million excessive and if it is in violation of the Due ProcessClause of the Fourteenth Amendment to the United States Constitution. Also, the punitive award sentenced by theUtah Supreme Court sought to punish the defendant for the acts done outside the state of Utah.

4. Ruling: The case was reversed and remanded.

a. Rules of Law

The Court arrived at this ruling after applying guideposts which were first noted in BMW of North America,Inc. v. Gore, 517 U. S. 559 (1996). These guideposts required courts to consider:

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 damagesaward.

3) The difference between the punitive damages awarded by the jury and the civil penalties authorizedor imposed in comparable cases.

The United States Supreme Court held that the due process clause of the Fourteenth Amendment to theUnited States Constitution usually limits punitive damage awards to less than ten times the size of thecompensatory damages awarded.

The Supreme Court, in accordance to principle of federalism, also ruled that a state cannot punish a

defendant for conduct that may have been lawful where it occurred. A State does not have a legitimate

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concern in imposing punitive damages to punish a defendant for unlawful acts committed outside of the

States jurisdiction.

b. Rationale

While applying the first guidepost a defendants reprehensibility needs to be determined. The court mustconsider if the harm was physical rather than economic; or there was indifference to or a reckless disregard ofthe health or safety of others; or if the conduct involved repeated actions or was an isolated incident; and theharm resulted from intentional malice, trickery, or deceit, or mere accident. The punitive damages should beawarded only if the defendants culpability is so reprehensible to warrant the imposition offurther sanctions toachieve punishment or deterrence. In this case, State Farms handling of the claims against the Campbellsmerits no praise, but a more modest punishment could have satisfied the States legitimate objectives. Thestate of Utah used defendant conduct outside the State of Utah which bore no relation to the Cambells harm.Because the Campbells were shown no conduct similar to that which harmed them, the only relevant conductto the reprehensibility analysis is that which harmed them.

Pertaining to the second guidepost, the Court was reluctant to identify concrete constitutional limits on theratio between harm, or potential harm, to the plaintiff and the punitive damages award; but, in practice, fewawards exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process.When the compensatory damages are substantial, then an even lesser ratio can reach the outermost limit ofthe due process guarantee. Here, the $1 million compensatory award for a year and a half of emotionaldistress was substantial. The Utah Supreme Court sought to justify the massive award based on premises

bearing no relation to the awards reasonableness orproportionality to the harm.

While applying the third guidepost, the most relevant civil sanction under Utah state law for the wrongdone to the Campbells appears to be a $10,000 fine for an act of grand fraud, which is dwarfed by the $145million punitive damages award. The Utah Supreme Courts references to a broad fraudulent scheme drawnfrom out-of-state and dissimilar conduct evidence were insufficient to justify this amount.