State Farm v. Campbell

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DMC/SandT/03/09
State Farm Mutual Automobile Insurance Co. v. Campbell
United States Supreme Court: No. 01-1289 (not yet officially reported): April 7, 2003
Punitive Damages: Criteria for Award: Due Process: Quantum: Reasonableness: Proportionality
Summary
In a decision issued on April 7, 2003, the United States Supreme Court re-emphasized the principles by which punitive damage awards must be scrutinized. Those criteria are (1) the degree of reprehensibility of the defendantís misconduct; (2) the disparity between the actual or potential harm suffered by plaintiff and the punitive damages award; and (3) the difference between the punitive damages award and the civil penalties imposed in comparable cases. The Court held that a
US$145 million punitive damages award rendered in a case in which compensatory damages of US$1 million had been awarded was grossly excessive and violated the Due Process Clause of the Fourteenth Amendment to the United States Constitution.

DMC Category Rating: Developed

Case Note contributed by Thomas H. Belknap Jr., attorney with the law firm Healy & Baillie LLP, New York, Contributors to the Website for the United States

Discussion
In applying the above three criteria to the case before it, which involved a claim by an insured against its insurer alleging bad faith, fraud and intentional infliction of emotional distress, the Supreme Court made clear that "[t]he most important indicium of (factor in considering) the reasonableness of a punitive damages award is the degree of reprehensibility of the defendantís conduct." As the Court noted:
"We have instructed courts to determine the reprehensibility of a defendant by considering whether: the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health 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 existence of any one of these factors weighing in favor of plaintiff may not be sufficient to sustain a punitive damages award; and the absence of all of them renders any award suspect."

The Court made clear that "[i]t should be presumed a plaintiff has been made whole for his injuries by compensatory damages, so punitive damages should only be awarded if the defendantís culpability, after having paid compensatory damages, is so reprehensible as to warrant the imposition of further sanctions to achieve punishment or deterrence." Significantly, the Court noted that "nor, as a general rule, does a State have a legitimate concern in imposing punitive damages to punish a defendant for unlawful acts committed outside of the Stateís jurisdiction." Moreover, "Due Process does not permit courts, in the calculation of punitive damages, to adjudicate the merits of other partiesí hypothetical claims against a defendant under the guise of the reprehensibility analysis. . . ." Importantly, "[a] defendantís dissimilar acts, independent from the acts upon which liability was premised, may not serve as the basis for punitive damages."

As to the second factor, that is, the permissible size of a punitive damages award, the Supreme Court noted as follows:
"We decline again to impose a bright-line ratio which a punitive damages award cannot exceed. Our jurisprudence and the principles it has now established demonstrate, however, that, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process. In Haslip, in upholding a punitive damages award, we concluded that an award of more than four times the amount of compensatory damages might be close to the line of constitutional improprietyÖ..When compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantyÖ.In sum, courts must ensure that the measure of punishment is both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered." (citing Pacific Mut. Ins. Co. v. Haslip, 499 U.S. 1, 23-24 (1999)).


As to the third factor, that is, the disparity between the punitive damage award and comparable civil penalties which may be available, the Court noted:
"Great care must be taken to avoid use of the civil process to assess criminal penalties that can be imposed only after the heightened protections of a criminal trial have been observed, including, of course, its higher standard of proof. Punitive damages are not a substitute for the criminal process, and the remote possibility of a criminal sanction does not automatically sustain a punitive damages award."

Conclusion
As the foregoing decision highlights, punitive damages should only be awarded in narrow circumstances where the plaintiff has established particularly egregious behavior on the part of the defendant which is part of a pattern of similar conduct and which is unlikely to be deterred solely through an award of compensatory damages. Where punitive damages are awarded, moreover, such an award must be reasonable and must be proportional to the harm caused and the compensatory damages awarded. Finally, punitive damages are not a substitute for criminal penalties, which may be awarded only upon a criminal trial with all its attendant due process protections and heightened burden of proof.

 

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