Utah Court Reduces $145 million Punitive Damage Awardin Campbell v. State Farm on Remand from United StatesSupreme Court, But Says It Retained Discretion toApprove Nine-to-One Ratio

The Utah Supreme Court has reduced a $145 million punitive damage award to $9 million one year after the United States Supreme Court ruled that the award originally approved by the Utah court violated the Constitution's due process clause. The Utah court stated in Campbell v. State Farm Mutual Insurance Co., 2004 UT 34 (April 23, 2004), however, that it retained the discretion to approve a 9-to-1 punitive-to-compensatory damage award, the maximum allowable without a presumption of excessiveness under the U.S. Supreme Court's ruling. The U.S. Supreme Court had reversed the original $145 million punitive damage award against State Farm, stating that it violated due process because the defendant's conduct did not justify punitive damages that were 145 times greater than the compensatory damages of $1 million.

The Campbell case stemmed from an automobile accident involving Mr. Campbell, which resulted in one death and another person's permanent disability. When Mr. Campbell was sued, he tendered the lawsuit to his insurer, State Farm. Although there was significant evidence that Mr. Campbell was responsible for the accident, and a high probability of an excess verdict, State Farm refused to settle the claim for its $50,000 policy limits. A jury subsequently returned a judgment of $185,849 against Campbell. State Farm refused to appeal the verdict, but ultimately did pay the entire amount of the judgment against Campbell. In subsequent bad faith litigation against State Farm, the Campbells argued that State Farm's refusal to settle was part of a nationwide effort to reduce claims payments. The jury awarded $2.6 million in compensatory damages for emotional distress and $145 million in punitive damages. The trial judge reduced the compensatory damages award to $1 million and the punitive damages award to $25 million. The Utah Supreme Court subsequently reinstated the $145 million punitive damages award, relying largely upon evidence concerning State Farm's business practices in numerous states over a twenty-year period, and State Farm's "massive wealth."

On appeal, the U.S. Supreme Court reversed the award on the ground that it was grossly excessive and violated due process. Although the Court refrained from imposing a "bright line" rule on the permissible amount of punitive damages, it cautioned in its decision that where the ratio between the punitive damages and the compensatory damages is in excess of nine to one, there is a "presumption" that the punitive damage award is excessive. The Court further stated that, based on prior decisions, punitive damage awards of more than four times more than the compensatory damages might be close to the line of constitutional impropriety. The Court remanded the case to the Utah Supreme Court to recalculate the punitive damage award under the principles articulated in its decision. The U.S. Supreme Court had said that the case "would likely justify" a punitive damage award of only $1 million, a one-to-one ratio.

On remand, the Utah court stated that it took "seriously" the Supreme Court's directive to resolve the punitive damage issue under the High Court's principles. It also stated, however, that "[b]y assigning us the duty to resolve the issue of punitive damages by fixing an award, the Supreme Court signaled its intention to vest in us some discretion to exercise our independent judgment to reach a reasonable and proportionate award." "The Supreme Court declined . . . to fix a substitute award, choosing instead to entrust to our judgment the calculation of a punitive damage award, which both achieves the legitimate objectives of punitive damages and meets the demands of due process." Exercising its discretion, the Utah court found "the blameworthiness of State Farm's behavior . . . to be several degrees more offensive than the Supreme Court's less than condemnatory view that State Farm's behavior 'merits no praise,' and was egregious enough to warrant an award nine times the amount of the compensatory damages."

The Utah court noted that it was mindful of the Supreme Court's criticism of it for reinstating the $145 million award in part based on evidence of State Farm's "nationwide policies rather than for the conduct directed toward the Campbell's" in Utah only. The Supreme Court had made clear in State Farm that only conduct which took place within Utah's borders and was directed at the Campbells could be properly weighed in fixing a punitive damage award. The Utah court reasoned that its approval of a nine-to-one punitiveto- compensatory damage ratio was justified because of the unique "gravity of harm" an insurer may potentially inflict on its insured. Noting that insurance is purchased to ameliorate the anxiety caused by uncertainty and risk, misconduct such as that exhibited by State Farm "is likely to cause injury more closely akin to physical assault or trauma than to mere economic loss." The court stated that State Farm needlessly subjected the Campbells to the "risks and rigors of a trial" which State Farm should have known the Campbells would lose, and when it became apparent that the Campbells would in fact lose, State Farm "withdrew its expressions of assurance and told the Campbells to place a 'for sale' sign on their house." "These acts," the court wrote, "for which State Farm has not voiced so much as a whisper of apology or remorse, caused the Campbells profound noneconomic injury."

The Utah Supreme Court's decision is a mixed bag. The court boldly stated its discretion to approve a maximum nine-to-one punitive-to-compensatory damage award ratio in contradiction of the U.S. Supreme Court's suggested one-to-one ratio, but did so only after reciting the unique facts of State Farm's particularly egregious conduct. While future courts may be emboldened by the decision to sustain punitive damage awards in amounts just under the Supreme Court's threshold of presumptive excessiveness, there is room to argue for lower awards on the ground that the facts of State Farm are unique and distinguishable.