Punitive-damages award remains $9 million.
In nearly October the 2004, the U.S. Supreme Court put an end to two decades of litigation by declining to review its decision in the case of State Farm Mutual Automobile Insurance Co. vs. Campbell.The marathon case began when the late Curtis Campbell sued his insurer, State Farm, claiming that the nation's largest personal-lines insurance company had failed to protect his interests after he was involved in a 1981 auto accident. A Utah jury awarded Campbell a bad faith award of $145 million in punitive damages, which are intended to punish companies and act as a deterrent to corporate wrongdoing. That outcome was affirmed by the Utah Supreme Court, which found that State Farm had "repeatedly and deliberately deceived and cheated its customers."
State Farm took the case to the nation's highest court where, in April 2003, the award was overturned. It was 145 times the compensatory award, intended to pay plaintiffs back for actual, measurable losses such as medical bills and lost wages. The justices based their analysis on the constitutional principle of "due process," which requires that the measure of punishment be reasonable and proportionate to both the plaintiff's harm and the compensatory damages awarded, said Alan S. Rutkin, a partner in Rivkin Radler LLP, Uniondale, N.Y
In Campbell, the Supreme Court suggested a "single-digit" standard, with punitive damages generally less than 10 times the amount of compensatory damages, which were set at $1 million in the Campbell case.
Campbell was another step for the court in determining when punitive damages may be excessive. "The Supreme Court has been hearing about a case a year on punitive damages since the late 1980s," said Lori Nugent, practice leader for law firm Cozen O'Connor's national punitive damages practice. "There's a whole series of cases where the court has continued to refine the law of punitive damages."
The Campbell case is important because it reiterated factors presented in the 1996 case, BMW of North America Inc. vs. Gore, Nugent said. While that ruling refused to articulate a strict line in the ratio between punitive and compensatory damages, it gave very clear guidance on what should be expected most of the time, she noted. "In most cases, a punitive to compensatory ratio of 3 to 1 or possibly 4 to 1 will be the maximum," Nugent said. "But it made clear that for a case to get above that ratio, there have to be some really egregious facts. So we're seeing courts looking at the ratio post-State Farm, looking for something more akin to criminal intent, malice, evil intent, before they will permit an award to exceed the 3 to 1 or 4 to 1 ratio."
The Campbell case went back to the Utah Supreme Court, which reduced the punitive damages award to $9 million. This still raised the issue of whether the top court's decision was correctly followed, said Susan McKenna, spokeswoman for the Property Casualty Insurers Association of America.
State Farm was disappointed in the Supreme Court's October action, said spokesman Phil Supple. "We went back a second time thinking that important constitutional issues needed clarifying," he said. But the company has abided by the court's declaration and has moved to pay the amount of the award, Supple said.
Rutkin said he expects lawyers for defendants and insurers to look for an even firmer limit on punitive damages. "Campbell is a step in that direction because it allows for exceptions," he said.
However, the insurance industry still faces major challenges in this arena, Nugent noted. The biggest is making sure to develop a strong record in the case at the trial court level, or else an appeal will be untenable, she said.
Cozen O'Connor's research shows that an average $20 billion is assessed in punitive damages each year in the United States. Not every verdict that's assessed winds up affirmed on appeal--many are being reduced and reversed on appeal. And many settlements take place between the verdict and a final, unappealable decision, Nugent said. "But bottom line, the majority of that punitive damages money is being paid by insurance companies," she said. "So it's an important fight for the insurance industry to find ways to contain punitive damages."
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| Title Annotation: | Regulatory/Law; cases |
|---|---|
| Author: | Bowers, Barbara |
| Publication: | Best's Review |
| Geographic Code: | 1USA |
| Date: | Jan 1, 2005 |
| Words: | 701 |
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