U.S. Supreme Court to Review Campbell Decision

In December 2002 the U.S. Supreme Court heard arguments in the case of Campbell vs. State Farm. Four of the justices voted to hear the case. They will render their decision by the end of the current term in June, and a lot of people are waiting for it, as Campbell gives the court an opportunity to reexamine the question of limits on punitive damages. Not only the monetary framework applicable in a tort case, but also the background evidence that juries can properly consider in assessing punitive awards.

In 1981 83-year old Curtis B. Campbell, who was insured by State Farm, collided with two other vehicles, killing one driver, Todd Ospital, and permanently disabling the other, Robert Slusher. State Farm assumed his defense, and despite extensive evidence showing he was at fault, steadfastly refused to settle the case, or offer the $50,000 limits of his policy.

A trial jury found Campbell guilty of negligence and awarded Slusher $135,000 and Ospital’s estate $50,849. After several appeals and remands State Farm finally paid the full amount of the judgments in 1989. “Shortly thereafter, the Campbells [Curtis and his wife Inez] filed this action against State Farm alleging, among other things, bad faith, fraud, and intentional infliction of emotional distress,” said the court. The suit, essentially over the company’s refusal to settle the case until a couple of years afterwards, eventually resulted in a $145 million punitive damage award against State Farm.

A number of insurance companies and all of the industry’s associations have filed briefs urging the U.S. Supreme Court to overrule the Utah Court’s verdict. They challenge the decision on two basic grounds: 1) The award of $145 million is grossly disproportionate to the $1 million the jury found as actual damages; and 2) The court allowed evidence of State Farm’s business practices in states other than Utah to be introduced and considered by the jury to establish the “bad faith” nature of the company’s claims handling policies.

A brief prepared by Horvitz & Levy LLP, lawyers for AIG, USAA and Truck Insurance Exchange also challenges the Utah Court’s justification of the award by comparing it to State Farm’s gross assets and policyholders’ surplus. They argue that net assets are the proper measure and that “in the context of the insurance industry, courts should not use policyholders’ surplus to measure an insurer’s wealth without considering the important solvency and loss payment functions that surplus performs.”

An even broader argument was made in a brief filed by Common Good, an organization founded by New York lawyer Philip Howard and others to try and limit the seemingly endless filing of lawsuits in the U.S. The Group’s Web Site (http://ourcommongood.com) noted that at least two of the justices echoed its theme—”that allowing standardless awards negatively affects the fabric of our society.” Specifically, “Justice Breyer argued that letting ‘twelve people picked at random’ impose a ‘huge fine’ on a corporation based on a general corporate ‘report card’ is destructive to our system of law. Justice Kennedy said that standardless awards cause ‘harm to the larger community’ because they damage ‘the image of the judicial system.’ Fear of a run-away verdict causes people to avoid the judicial system, he argued.”

For the industry, the fact that at least four Supreme Court justices decided to hear the case would seem to be a hopeful sign that there may be five votes to reverse it, and maybe even to put strict overall limits on punitive damage awards. The trickier question, which the Court may not in fact reach, is whether it’s proper to consider a defendant’s conduct outside of the actual trial court’s jurisdiction in assessing those damages.

Topics USA