State Farm Mutual Auto Insurance Company v. Campbell, 538 U.S. 408 123 S. Ct. 1513; 155 L. Ed. 2d 585
Facts—Curtis Campbell was driving in Cache County, Utah, when Curtis decided to pass six vans. Todd Ospital, approaching from the other direction, swerved off the road to avoid a crash and was killed while disabling Robert Shusher. Although Campbell’s fault was generally acknowledged, his insurance company, State Farm, contested the $50,000 judgments sought by Ospital’s estate and Shusher. A jury subsequently returned a verdict of over $185,000, but State Farm refused to cover more than
$50,000, even though the company had previously told Campbell that he would not be liable for money if the case were lost at trial. State Farm was pursuing a policy to keep its claims down. Slusher, Ospital, and Campbell subsequently pursued a bad faith claim against State Farm. Over time a jury awarded $2.6 million in compensatory damages and $145 million in punitive damages. The trial court reduced these awards to $1 million and $25 million, but the Utah Supreme Court reinstated them, and the case was appealed to the U.S. Supreme Court.
Question—Did the $145 million punitive damage award in this case violate the due process clause of the Fourteenth Amendment?
Decision—Yes.
Reasons—J. Kennedy (6–3). Compensatory damages and punitive damages serve differing functions. The first is designed to repay concrete losses, but the second serves broader functions. “The Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor.” Excessive punitive damages “pose an acute danger of arbitrary deprivation of property.” Kennedy applied the standards of BMW of North America, Inc., v. Gore, 517 U.S. 559 (1996), and concluded that the punitive damages were excessive. The case required courts to look first at “the degree of reprehensibility of the defendant’s conduct.” Although “State Farm’s handling of the claims against the Campbells merits no praise,” this case was used not simply to punish the company for what it did in this case but “to expose, and punish, the perceived deficiencies of State Farm’s operations throughout the country.” Moreover, in some states, this conduct was not even illegal. “The courts awarded punitive damages to punish and deter conduct that bore no relation to the Campbells’ harm.” In BMW v. Gore, the Court was reluctant “to identify constitutional limits on the ratio between harm, or potential harm, to the plaintiff and the punitive damages award,” but “in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” In this case, State Farm’s actions resulted in no physical injuries, and the award was both unreasonable and disproportionate. BMW v. Gore suggested that the Court should examine any disparities between punitive damages and “civil penalties authorized or imposed in comparable cases.” Had State Farm been convicted of fraud, the maximum penalty would have been $10,000. “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.”
J. Scalia, dissenting, argued that the due process clause “provides no substantive protections against ‘excessive’ or ‘unreasonable’ awards of punitive damages,” and that because “BMW v. Gore is insusceptible of principled application,” he did not regard it as binding precedent
J. Thomas, dissenting, also denied that the Constitution was designed to constrain the size of punitive damage awards. This was “territory traditionally within the States’ domain.” Although the issue might be an appropriate subject for legislative action, there is plenty of evidence in this case to suggest that State Farm’s behavior was highly reprehensible and there was no reason that the state of Utah should have to exclude evidence of out-of-state actions in coming to its conclusions.