A Utah couple's 20-year battle against automobile insurance giant State Farm Mutual Automobile Insurance Co. has resulted in new federal limits on punitive damages nationwide.
The U.S. Supreme Court on Monday struck down an unprecedented $145 million damage award for a Cache County couple involved in a 1981 fatal car accident in Sardine Canyon.
In its 6-3 opinion, the high court ruled the award was unconstitutionally excessive and was "neither reasonable nor proportionate to the wrong committed."
The justices determined punitive damage awards must generally be capped at no more than 10 times the actual harm suffered by defendants, rather than the 145-to-1 ratio in this case.
"This is a major decision that will affect all state and federal courts in the way in which they compute punitive damages and the degree to which they allow juries to impose punitive damages," University of Utah law professor John Flynn said. "It's a very significant decision."
The court declined to impose a "bright-line ratio" which damages cannot exceed but noted that an award of more than four times the amount of compensatory damages "might be close to the line of constitutional impropriety."
The case will now return to the Utah Supreme Court so justices here can re-evaluate the evidence and impose damages in line with the high court's ruling.
Curtis and Inez Campbell sued State Farm after it refused to settle claims arising from the accident, which left one man dead and another permanently disabled. At trial, jurors found Curtis Campbell 100 percent liable and ordered him to pay the victims more than three times the proposed out-of-court settlement.
The Campbells sued State Farm in 1984 for bad faith and fraud, and a jury originally awarded them $145 million in punitive damages and $2.6 million in compensatory damages. The trial judge reduced the awards to $25 million and $1 million, but the Utah Supreme Court reinstated the higher damages in October 2001.
Among its findings, the state Supreme Court determined State Farm was guilty of "malicious and reprehensible" conduct toward its clients, especially those who are elderly, minorities or poor.
The U.S. Supreme Court on Monday accused the Utah justices of inappropriately using the case "as a platform to expose, and punish, the perceived deficiencies of State Farm's operations throughout the country."
The justices determined the Utah court erred in allowing evidence of perceived wrongdoing in states other than Utah.
"While we do not suggest there was error in awarding punitive damages based upon State Farm's conduct toward the Campbells, a more modest punishment for this reprehensible conduct could have satisfied the state's legitimate objectives, and the Utah courts should have gone no further," according to the opinion, written by Justice Anthony M. Kennedy.
The decision joins a 1996 ruling as only the second time the nation's highest court has overturned a jury award as excessive. It also bolsters existing cases, such as General Motors Corp.'s appeal of a $1.2 billion judgment in a car-explosion case and the tobacco industry's attempts to overturn a $145 billion award in a Florida class-action suit.
In dissenting opinions, Justices Antonin Scalia and Clarence Thomas wrote that the U.S. Constitution does not constrain the size of punitive damage awards. Justice Ruth Bader Ginsburg, who also joined Scalia and Thomas in dissenting in the 1996 case, wrote that the high court "has no warrant to reform state law governing awards of punitive damages."
In a statement released Monday afternoon, the Campbells' attorney, Rich Humpherys, expressed concern that large corporations will take advantage of the newly imposed punitive damage cap.
"We are concerned that some companies, such as State Farm, will view today's ruling as some sort of 'green light' to defraud consumers, with little concern for being held accountable."
Companies could possibly calculate the amount of punitive damages, he said, and then "feel free to commit intentional misconduct whenever the risk of punishment seemed low enough."
Humpherys noted the U.S. Supreme Court did not set aside the Utah Supreme Court's findings of fraud and misconduct that State Farm perpetrated on the Campbells.
"We find it ironic that State Farm would celebrate not being forced to pay as much in punitive damages as the jury originally awarded, even though the findings about its fraudulent scheme against Utah consumers remain in effect," Humphreys said.
Insurance associations, the U.S. Chamber of Commerce and other business groups filed friend-of-the-court briefs urging the high court to overturn the Utah Supreme Court's decision.
The Alliance of American Insurers, in a Monday statement, called the ruling a "victory for insurers and state regulation of insurance."
Curtis Campbell died in December 2001 after an extended battle with Parkinson's disease. He was 83. State Farm has not paid the Campbells any of the $2.6 million in compensatory damages ordered by the state Supreme Court, even though that amount has never been appealed.
E-MAIL: awelling@desnews.com