State Farm Mutual Automobile Insurance Co. v. Campbell
538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003)
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Rule of Law:
The Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive punitive damages, and an award will generally be unconstitutional if it significantly exceeds a single-digit ratio to compensatory damages or is based on dissimilar or lawful out-of-state conduct.
Facts:
- In 1981, Curtis Campbell caused a multi-vehicle accident on a two-lane highway that resulted in the death of Todd Ospital and the permanent disability of Robert Slusher.
- Campbell's insurer, State Farm Mutual Automobile Insurance Company (State Farm), contested liability despite investigators and witnesses concluding Campbell was at fault.
- State Farm refused offers from Ospital's estate and Slusher to settle their claims for the policy limit of $50,000.
- State Farm assured the Campbells that their personal assets were not at risk and they did not need separate counsel, then proceeded to trial.
- A jury found Campbell 100% at fault and returned a judgment for $185,849, which was $135,849 more than the policy limit.
- State Farm initially refused to pay the excess verdict, telling the Campbells to put their property up for sale.
- Slusher and Ospital's estate agreed not to pursue collection against the Campbells in exchange for the Campbells filing a bad-faith lawsuit against State Farm, with Slusher and Ospital's attorneys representing them and receiving 90% of any verdict.
- After the Utah Supreme Court denied Campbell's appeal in the tort case, State Farm paid the entire judgment, including the amount exceeding the policy limits.
Procedural Posture:
- The Campbells sued State Farm in a Utah trial court for bad faith, fraud, and intentional infliction of emotional distress.
- The trial court initially granted summary judgment for State Farm, but the Utah Court of Appeals reversed.
- On remand, a bifurcated trial was held. The first jury found State Farm's decision not to settle was unreasonable.
- The second jury awarded the Campbells $2.6 million in compensatory damages and $145 million in punitive damages.
- The trial court judge reduced the awards to $1 million in compensatory damages and $25 million in punitive damages.
- Both parties appealed to the Utah Supreme Court, which is the state's highest court.
- The Utah Supreme Court reinstated the jury's $145 million punitive damages award.
- State Farm (as petitioner) successfully petitioned the U.S. Supreme Court for a writ of certiorari.
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Issue:
Does a punitive damages award of $145 million, compared to a $1 million compensatory damages award, violate the Due Process Clause of the Fourteenth Amendment when the award was based in large part on the defendant's nationwide business practices that were dissimilar to the conduct that harmed the plaintiffs?
Opinions:
Majority - Justice Kennedy
Yes. A punitive damages award of $145 million, where compensatory damages are $1 million, is grossly excessive and violates the Due Process Clause. The Utah Supreme Court erred by using this case to punish State Farm for its nationwide conduct rather than its actions toward the Campbells. Applying the three guideposts from BMW v. Gore: (1) While State Farm's conduct was reprehensible, the award was improperly inflated by evidence of dissimilar and out-of-state conduct, which may not be used to punish a defendant, especially if that conduct was lawful where it occurred. (2) The 145-to-1 ratio of punitive to compensatory damages is presumptively unconstitutional; few awards exceeding a single-digit ratio will satisfy due process, and when compensatory damages are substantial, a ratio of 1-to-1 might be the constitutional limit. (3) The award is far out of line with the most comparable civil penalty in Utah, a $10,000 fine for fraud. The defendant's wealth cannot be used to justify an otherwise unconstitutional award.
Dissenting - Justice Scalia
No. The punitive damages award does not violate the Due Process Clause. The Due Process Clause provides no substantive protection against 'excessive' or 'unreasonable' awards of punitive damages. The Court's jurisprudence in this area, stemming from BMW v. Gore, is insusceptible of principled application and should not be given stare decisis effect.
Dissenting - Justice Ginsburg
No. The Court improperly substitutes its judgment for that of Utah's courts in an area traditionally within the states' domain. The majority's account of the facts is abbreviated; there was ample evidence that State Farm's nationwide 'Performance, Planning and Review' (PP&R) program was an unlawful scheme that directly caused the Campbells' harm by pressuring adjusters to underpay claims. This evidence of a nationwide scheme was highly relevant to the reprehensibility of State Farm's conduct. The Court's conversion of flexible guideposts into rigid numerical benchmarks, like a single-digit ratio, is 'boldly out of order'.
Analysis:
This case significantly reinforces the constitutional limits on punitive damages established in BMW v. Gore by providing a more concrete, albeit not absolute, numerical benchmark. The Court's strong presumption against awards exceeding a single-digit ratio of punitive to compensatory damages provides lower courts with clearer guidance and has curtailed massive punitive awards. Furthermore, the decision sharply limits the scope of evidence admissible in punitive damages phases by prohibiting punishment for dissimilar or lawful out-of-state conduct, reinforcing principles of federalism and due process that a defendant can only be punished for the specific harm it caused the plaintiff in that jurisdiction.
