State Farm Auto Ins. v. Inez Preece Campbell, U.S. Supreme Ct. (2003)
Author: Bram

Cause of action: The following is a cause of action for reversal of allegedly excessive punitive damages award.

Procedural History: Trial court originally found respondent liable for accident which triggered this suit.  State Farm initially refused to cover excess liability.  Preceding appeal, respondent got into an agreement in which other members of initial accident would not sue respondent, but would make a portion of bad faith/fraud action vs. State Farm.

On appeal of wrongful death suit and tort action denied by UT Supreme Court.  Bad faith complaint ensued thereafter.  Trial court granted State Farm's motion for summary judgment b/c State Farm paid excess following the summary judgment, but the ruling was reversed on appeal.

On remand, State Farm moved in limine to exclude evidence of alleged evidence in unrelated cases out of UT, but trial court denied the motion.  Bifurcated trial decided (1) State Farm's decision not to initially settle was unreasonable, and (2) State Farm's fraud and intentional infliction of emotional distress resulted in a $2.6M compensatory and $145 million punitive damages award (and $1M in compensatory).  Reduced to $25M and $1M.  Held: P, P & R policy reprehensible.  Previous to second stage, the Court ruled on BMW v. Gore.  The Court reversed and remanded.

Facts: Following a deadly car accident, State Farm insurance withheld coverage in excess liability.  Respondent seeks relief for emotional distress as a result.

Issue(s): Under federal rules of civil procedure regarding remedies, may one party be awarded $145 million in punitive damages as a reflection of DF's reprehensibility, when under the premise that the punitive award is a statistical reflection on DF's reprehensible conduct in such matters and also when there is a large compensatory award?

Court's Rationale/Reasoning: Guidepost #1: reprehensibility must be considered under the circumstances that: the harm caused was physical not economic, the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others, the target of the conduct was financially vulnerable, conduct involved repeated actions or was an isolated incident, and the harm was the result of intentional malice, trickery, deceit, or mere accident.  One cause doesn't suffice guidepost.

No doubt petitioner was reprehensible in some respects, but respondent used nationwide evidence in order to show reprehensibility in state, which is not the purpose of the guidepost and is unconstitutional.  Evidentiary scope needed to focus more on the injury to the Campbells, as individual States have no legitimate concern in imposing punitive damages to punish DF for unlawful acts committed outside of the State's jurisdiction, especially when some of the conduct is actually lawful in other states.  The out-of-state evidence must provide some kind of nexus (connection) to the evidence presented in-state.  Here, there was no such thing.  Thus, an award resulting in punishment for overall conduct and not the specific conduct in-state is outside the realm of the first guidepost.  Furthermore, there is a time scope regarding the evidence presented, in which a 20-year period for acts of fraud and other bad faith elements cannot stand as a basis for punitive damages for one victim.

Guidepost #2: Court has held there are no specific parameters for figuring a ratio of the award to the harm inflicted, but they are leaning more to single-digit ratios these days.  But the overall ratio is based upon circumstances of DF's conduct and harm to PL.  It must be reasonable and proportionate to the amount of harm inflicted on PL and to the general damages recovered.  The compensatory award was fine, and compensatory damages do include some measure of punitive damages as well.  Again, the damages based on out-of-state actions do not, according to the majority, relate to PL.  Wealth of DF cannot alos justify an exorbitant punitive award, just to "teach someone a lesson."

Guidepost #3: Most relevant civil/criminal action here is a $10K fine for fraud.

Rule: Three prong test from BMW and Cooper Industries for determining if a punitive damages award is excessive:

(1) reprehensibility of DF's conduct

(2) the ratio of the award to the harm inflicted on PL

(3) and the difference between the award and the civil or criminal penalties in comparable cases.

Holding: No.  An application of the Gore v. BMW guideposts to this case, especially in light of the substantial compensatory damages awarded (a portion of which contain a punitive element), likely would justify a punitive damages award at or near the amount of compensatory damages.

Dissenting:  (Scalia) The Due Process Clause provides no substantive protections against excessive or unreasonable awards of punitive damages.  No stare decisis effect should be applied.

(Thomas): Constitution does not constrain the size of punitive damages.

(Ginsburg): Early on, there were none or little federal checks on punitive damages and provided no formula or standard ratio which would suffice, then the Court in Gore (1996) struck down an excessive punitive award, and has no seen fit to continue doing so, but they cite their jurisprudence as established -- 6 years vs. the 200 previous is not established.

This is a foray into States' rights, which is not what the 14th amendment was intended to do.  The Court need not meddle with this award; there was proof which was both very probative and very closely related to the case-at-bar.  The Court seeks a nexus to link the in-state evidence with the national evidence; this is provided by showing the national evidence to merely display the wrongdoing was not just an isolated act, but one which involved several parties and was on a very elaborate scale.  Thus, the nexus shows the relation is one part to a grander scheme of bad faith and fraud and the corporate bottom line