State Farm v. Campbell, Part 3
The United States Supreme Court accepted the writ to review the Utah Supreme Court’s ruling that the Campbell’s $145 million punitive damages verdict was constitutional.
And then held that it was not. (See the majority opinion here.)
In so doing, the Supreme Court relied on “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.”
Under guidepost 1, the Court stated that the “most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant’s conduct.” To consider the degree of reprehensibility, courts are to consider whether “the harm caused was physical as opposed to economic; the tortious conduct evidenced in indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident.” The Supreme Court found that a “modest” punishment for State Farm’s alteration of company records, disregard of the “near-overwhelming likelihood of liability”, virtually certain verdict of excess liability and telling the Campbells to put a for-sale sign on their home would have sufficed.
Instead, the Supreme Court found fault with the lower court allowing the Campbell’s case to be “used as a platform to expose, and punish, the perceived deficiencies of State Farm’s operations throughout the country.” The Supreme Court found that, because State Farm’s PP&R actions throughout the country were lawful in some of the states where those actions occurred, that the conduct was not probative of the specific harm suffered by the Campbells. Additionally, the Supreme Court found that the nationwide conduct of State Farm did not have a “nexus” to the harm suffered by the Campbells. The Supreme Court further found that the nationwide evidence shown by the Campbells did not adequately demonstrate that State Farm was a recidivist because evidence of claims handling for “third-party” lawsuits — as opposed to first-party lawsuits directly against the insurance company — was introduced at trial.
Under guidepost 2, the Court found that “[s]ingle-digit multipliers are more likely to comport with due process, while still achieving the State’s goals of deterrence and retribution, than awards with ratios in range of 500 to 1, or, in this case, 145 to 1.” Although, “where a particularly egregious act has resulted in only a small amount of economic damages,” a ratio greater than 4 to 1 might be constitutional.
Under guidepost 3, the Court looked to both civil and criminal penalties to determine the disparity between the punitive damages verdict and those penalties. In Campbell, it found that the most State Farm would have been liable in penalties would have been $10,000: the disparity was too great.
Therefore, the United States Supreme Court determined that, under the Due Process Clause of the United States Constitution, the $145 million punitive damages verdict was unconstitutional. The Utah Supreme Court, mindful of the Supreme Court’s remand order found that the Supreme Court “expects us to exercise a considerable measure of independent judgment in fixing the punitive damages award,” and so, on remand, found that a reduction of the punitive damages award to $9,018,780.75 comported with the Federal Due Process Clause.