State Farm Mutual Automobile Insurance Co. v. Campbell

Supreme Court of the United States · 2003 · Torts

TortsConstitutional Lawpunitive damagesdue processratioexcessivepunitive damagesFourteenth Amendment

Facts

State Farm refused to settle claims arising from an automobile accident caused by its insured, Curtis Campbell, despite a substantial likelihood of an excess verdict, and assured the Campbells their assets were safe. After a verdict exceeding policy limits was entered, State Farm initially refused to cover the excess and told the Campbells they might need to sell their property, though it later paid the full judgment. In the Campbells' later bad-faith suit, the trial court admitted extensive evidence about State Farm's nationwide PP&R practices, much of it unrelated to the third-party automobile claim at issue. The jury awarded $2.6 million in compensatory damages and $145 million in punitive damages, and the trial court reduced the awards to $1 million and $25 million respectively before the Utah Supreme Court reinstated the $145 million punitive award.

Issue

Whether a $145 million punitive damages award, when full compensatory damages were $1 million, violated the Due Process Clause of the Fourteenth Amendment. More specifically, the question was whether the Utah courts improperly relied on dissimilar and out-of-state conduct and approved an excessive punitive-to-compensatory ratio.

Rule

The Due Process Clause prohibits grossly excessive or arbitrary punitive damages awards. Courts must review punitive damages under the three Gore guideposts: (1) the degree of reprehensibility of the defendant's misconduct, including whether the harm was physical or economic, whether the conduct showed indifference to health or safety, whether the target was financially vulnerable, whether the conduct was repeated, and whether it involved intentional malice, trickery, or deceit; (2) the disparity between the actual or potential harm to the plaintiff and the punitive award, with few awards exceeding a single-digit ratio between punitive and compensatory damages to a significant degree likely to satisfy due process and with a lesser ratio potentially reaching the constitutional limit where compensatory damages are substantial; and (3) the disparity between the punitive award and comparable civil penalties. A state may not punish a defendant for lawful out-of-state conduct, and dissimilar acts independent of the conduct that harmed the plaintiff may not serve as the basis for punitive damages.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Phoenix, Nora Lin sued Desert Crest Claims, a fictional insurer, for bad-faith refusal to defend her in a contract dispute. A jury awarded Nora $3 million in compensatory damages, including emotional-distress damages, and $36 million in punitive damages based solely on the insurer's conduct toward her.

On due process review, which is the strongest argument that the punitive award is unconstitutional?

Explanation. Due process forbids grossly excessive punitive damages. The majority emphasized that few awards exceeding a single-digit ratio will satisfy due process, and when compensatory damages are substantial, a lesser ratio—perhaps equal to compensatory damages—may approach the constitutional limit. That concern is stronger where compensatory damages already include emotional-distress or humiliation components that overlap with punishment. There is no bright-line ban on all awards above compensatory damages, but a 12-to-1 award on top of $3 million compensatory damages is strongly suspect.