High Court Asked: Revisit Utah Punitive Damages Case

The original suit was brought by a Utah couple who were State Farm policyholders. They contended the company acted in bad faith and improperly handled their defense in an auto accident. They presented evidence to show that the company's bad faith activity was part of a "national scheme" for handling claims.

State Farm and the insurance industry originally asked the U.S. Supreme Court to deal with the case in 2002, and in April 2003 the High Court sent the case back to the Utah Supreme Court with instructions to reduce the damages to reflect the U.S. Supreme Court's views that the $145 million punitive award in the case was unconstitutional. At the time, the High Court said a more appropriate punitive damage award was $1 million.

The Utah Supreme Court, however, awarded punitive damages of $9 million, and State Farm is now asking the U.S. Supreme Court to again review the case.

The Utah Supreme Court's decision, said the National Association of Mutual Insurance Companies (NAMIC) and the Property Casualty Insurers Association of America (PCI) in a friend of the court brief, "flouted [the U.S. Supreme] Court's opinion and mandate, disregarding the [U.S. Supreme] Court's carefully reasoned conclusion?and the proper proportion between punitive and compensatory damages in this case."

The associations' brief also argues that "the ?devastating potential for harm' posed by arbitrary and excessive punitive damages awards?is revived and exacerbated by the Utah Supreme Court's decision. It is thus critical that this (U.S. Supreme) Court correct that decision, not only to ensure compliance with its mandate in this case, but to ensure the continuing vitality of the constitutional standards for review of punitive damages."

State Farm, with the support of the insurance industry, originally asked the U.S. Supreme Court to review the case in 2002 after the Utah Supreme Court in State Farm v. Campbell granted $145 million in punitive damages in a case in which compensatory damages were assessed at $1 million. In its original decision, the U.S. Supreme Court held that the $145 million in punitive damages was excessive and violated the due process clause of the 14th Amendment.

The insurance industry and many companies hit hard with huge punitive damage awards also took comfort from the case because in its 6-3 opinion, the High Court noted that the punitive damage award was calculated in part by presenting evidence of alleged misconduct by State Farm in other states, even though State Farm's actions may have been legal in the states where they occurred. Specifically, the court held that a state cannot punish a defendant for conduct that is legal where it occurred.

The case involves State Farm policyholder Curtis B. Campbell, who was ruled at fault in an auto accident that killed one person and disabled another. According to the opinion filed by the Utah Supreme Court, State Farm collected evidence that Mr. Campbell was at fault for the accident. Nonetheless, State Farm declined to settle. The court said State Farm's attorney assured Mr. Campbell that he would represent his interests, that his assets were safe, and that he need not hire his own attorney.

The case against Mr. Campbell went to trial, and the jury found him 100 percent liable. The jury awarded the other parties damages that exceeded Mr. Campbell's policy limits. According to trial testimony, State Farm's attorney told Mr. Campbell and his wife that they should put "for sale" signs on their home.

Subsequently, Mr. Campbell entered into an agreement with the other parties to the accident under which Mr. Campbell would pursue a bad faith action against State Farm, subject to certain conditions, and the other parties would agree not demand that Mr. Campbell pay his obligations.

Several years later, after the liability judgment against Mr. Campbell was affirmed on appeal, State Farm paid all the damages arising from the accident?both its policy limits and the excess.

Mr.Campbell then filed the action against State Farm that led to the punitive damage award, charging that the company's actions were in bad faith and caused him emotional distress. State Farm argued that its decision not to settle the accident was an "honest mistake" that did not justify punitive damages.