Punitive award that is 145 times compensatory award and intended to punish out-of-state conduct violates Due Process Clause

Law Reporter, Jun 2003

State Farm Mut. Auto. Ins. Co. v. Campbell,__ U.S. __, No. 01-1289, 2003 WL 1791206 (Apr. 7, 2003).

The U.S. Supreme Court held that punitive awards that are out of proportion to compensatory damages and designed to punish out-of-state conduct violate the Due Process Clause of the Fourteenth Amendment.

Here, a motorist was sued following an auto collision on a highway. Rejecting a report by its own investigator, the motorist's insurer decided not to settle the claims. A jury found the motorist at fault for the incident and awarded damages. The motorist and his wife filed suit against the insurer, alleging bad faith and intentional infliction of emotional distress, among other claims.

A jury awarded plaintiffs $2.6 million compensatory damages and $145 million punitive damages. The trial court reduced these amounts to $1 million and $25 million, respectively. The Utah Supreme Court reinstated the original punitive award. Defendant appealed, asserting the award violated fundamental principles of due process guaranteed by the Constitution.

Reversing, the U.S. Supreme Court said judges and juries are bound to follow the guideposts the Court set out in BMW of North Am. v. Gore, 517 U.S. 559 (1996), 39 ATLA L. Rep. 239 (Aug. 1996), to determine whether punitive damages are excessive. One indicator of the reasonableness of an award is the degree of reprehensibility of the defendant's conduct. In this case, the Court found, the insurer's conduct merits no praise, and some degree of punitive damages may have been warranted. But the Utah courts erred, the Court said, in using this case as a platform to expose and punish the perceived deficiencies of defendant's operations throughout the country. Punishment on this basis creates the possibility of multiple punitive awards for the same conduct, the Court added.

Another guidepost is the ratio between compensatory and punitive damages. The Court said although there is no hard and fast rule, few awards exceeding a single-digit ratio between punitive and compensatory damages to a significant degree will satisfy due process. When the compensatory damages are substantial, a lesser ratio, perhaps only equal to compensatory damages, can reach the outer limit of due process. There is a presumption against an award that has a 145-to-1 ratio, as here, the Court said.

The third guidepost is the disparity between the punitive damages award and the civil penalties authorized or imposed in comparable cases. Here, the Court found the most relevant civil sanction under Utah law for the wrong done to plaintiffs to be a $10,000 fine for fraud, an amount dwarfed by the $145 million punitive damages award. On this ground as well as the others, the Court said, the punitive damages awarded by the trial court were excessive.

Accordingly, the Court remanded.