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Sam Heldman


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Tuesday, December 10, 2002
No. 01-1289 State Farm Mut. Auto. v. Campbell

The last case of the year has to do with constitutional limits on punitive damages. It began with a personal injury suit. The respondent, Campbell, was passing in the left hand lane when another car swerved to avoid him and hit another car, resulting in two deaths. Campbell was insured by State Farm, which refused to settle the case within the policy limit, and went to trial, where the plaintiff was awarded more than three times Campbell’s policy limit.

Campbell then brought this bad faith action against State Farm. Campbell argued that because he was subject to the possibility financial ruin by State Farm’s failure to settle, he suffered emotional distress, and State Farm should be liable for punitive damages. Somehow, Campbell prevailed on this argument, receiving a jury award of a couple million for emotional distress and a whopping $145 million in punitive damages. The award was reduced but then reinstated by the Utah Supreme Court.

The Utah Supreme Court found that the punitive damages award was based on State Farm’s policies that reward employees for paying claims below targets that are set in advance. That is, employees are encouraged to minimize the amount they pay for claims based not on the merits or circumstances of individual cases, but on predetermined limits. The court thought this conduct was so pernicious as to justify the award.

The question is whether the $145 million violates Due Process. In a single earlier case, BMW v. Gore, 517 U.S. 559 (1996), the Court determined that a punitive damage claim violated Due Process. State Farm would like to see that holding reaffirmed here. In addition, State Farm claims that the award was impermissibly based on its non-Utah conduct, and that Utah courts had no power to punish that conduct.

On the one hand, I think certain members of the Court would be amenable to the extraterritoriality argument, and that certain members are probably tort-reform-minded as a policy preference; however, I do not think that the Justices generally decide cases based on their policy preferences. Even if they did, there is the competing consideration that a judicial limit on punitive damages takes some of the air out of the arguments behind legislative attempts at tort reform. The history of the BMW case has shown that lower courts find it difficult to apply, and why wouldn’t they? Putting a price on injury is tough enough, who can say what the “correct” amount that a company should be punished for its egregious conduct is? Because it is nearly impossible to find a principled basis for overturning punitive damage awards, I predict the Court will actually overrule BMW and AFFIRM the result here.

Note, for scoring purposes, only my result counts. That is, if the Court affirms but doesn’t overrule BMW I am still right.

Two great blogs that blog great together

In the interests of full disclosure, I should probably point out at this time that Goldstein Howe has filed an amicus on behalf of respondents in this case. Why is that relevant? Because starting next week, I will have the privilege of working for that firm, thus putting an end to the long-running “SCOTUSblog vs. feud. This may affect my ability to make unbiased predictions (or any prediction at all) in certain cases. Nevertheless, this is a great opportunity and I cannot wait to get started.