State Farm Mutual Automobile Insurance Co. v. Campbell, Curtis, et ux.

By: Josh DeVine, Medill News ServiceQuestions presented: Did the Utah Supreme Court, in direct contravention of BMW of North America Inc. v. Gore, 517 U.S. 559 (1996) and fundamental principles of due process, commit constitutional error by reinstating a $ 145 million punitive damage award that punishes out-of-state conduct, is 145 times greater than the compensatory damages in the case, and is based on the defendant's alleged business practices nationwide over a 20-year period, which were unrelated and dissimilar to conduct by the defendant thatgave rise to the plaintiffs' claims?

BY JOSH DEVINE, MEDILL

Curtis Campbell was driving north on a stretch of Highway 89-91 just outside of Logan, Utah. It was May 22, 1981. He was behind Robert Slusher's vehicle for only a moment before swerving to pass him.

Todd Ospital was driving south on 89-91. He veered to miss the scene and collided with Slusher's car.

Ospital died. Slusher survived. Campbell was sued.

A police investigation concluded that Campbell's unsafe pass caused the crash. But as State Farm, Campbell's insurance company, worked the scene of the accident trying to show their client wasn't entirely to blame, evidence piled up that showed the opposite: Campbell was solely responsible for the deadly crash, a fact that would be disastrous at trial.

Before and during the trial, lawyers for Slusher and Ospital's family asked State Farm to settle for the limit of Campbell's policy, but the company refused. According to attorneys for the Slushers and Ospitals, when the jury handed down a $130,000 verdict against Campbell in 1983, State Farm managers again refused to pay, instead suggesting the couple sell their home to cover their personal liability for the accident.

In the year after the verdict with Campbell desperate that he would have to cover the verdict he thought his insurance company would be paying, he entered into an agreement with Slusher and Ospital that would have them cooperate in a suit against State Farm. All parties awaited a decision by the Utah Supreme Court, which in 1989 affirmed the $130,000 trial verdict against Campbell and State Farm.

Though State Farm then paid the damage award, both its policy limits and Campbell's personal liability, Campbell, Slusher and Ospital followed through in August 1989 with their plan to sue State Farm for bad faith.

Campbell and his wife sued State Farm for bad faith and fraud, saying the company had a long pattern of "deliberately deceiving and cheating its customers." The trial court dismissed the case on the ground that because State Farm had ultimately paid all the damages awarded, there could be no bad faith as a matter of law. A Utah appeals court reversed, allowing the Campbells to go to trial to try to prove the insurance company's bad faith.

The trial judge bifurcated the case, with phase I addressing whether State Farm acted in bad faith, and phase II addressing damages.

With that, Campbell's attorney was able to bring in a litany of acts by State Farm, including altering key documents to cloud Campbell's case.

Campbell's attorneys contended that a State Farm official also "instructed the claims adjustor to change the report in [the Campbell's] file by writing that Ospital was 'speeding to visit his pregnant girlfriend.'" However, there was no evidence to support that claim: Police records show Ospital was not speeding. Also, he did not have a pregnant girlfriend.

Campbell's attorneys argued that State Farm also practiced bad business tactics targeted toward people who were less likely to sue - such as the elderly and minorities.

Once the evidence against the company was laid out before a Utah jury, the Campbells were awarded $911.25 in attorney costs, $2.6 million in compensatory damages and a whopping $145 million in punitive damages.

Immediately following the trial, State Farm filed several motions, including one for a new trial. The court denied the company's requests, but as a consolation, reduced the compensatory damages to $1 million and the punitive damages to $25 million. The court also awarded the Campbells more than $800,000 in attorney fees and litigation expenses.

The Campbells appealed to the Utah Supreme Court, arguing they should have the right to the full punitive award. State Farm, however, argued the punitive award was excessive.

The state supreme court agreed that there was "ample evidence" to believe that State Farm had intentionally inflicted emotional distress upon the Campbells and that State Farm's biased business tactics "supports the imposition of a higher than normal punitive award."

According to the decision, State Farm knowingly contributed to the Campbells' sense of hopelessness by advising the couple to sell their home to partially fund their judgment. Additionally, the company refused to post a bond to protect the Campbell's home and assets, further compounding the Campbells' despair.

As to the trial court's award, the five justices decided that "the award was not excessive" and that it "provides an independent basis for sustaining all of Mr. Campbell's damages."

That's where the lone dissenting justice in the Utah Supreme Court decision took aim. Justice Leonard Russon pointed out repeatedly that the case should not involve both Mr. and Mrs. Campbell.

"Only her husband Curtis Campbell was potentially liable, was sued and was subject to the judgment rendered in this case," Russon said. "State Farm's duty extended only to him."

Additionally, Russon argued that the jury in the second phase was misled on several occasions, having been offered instructions that "tainted every aspect of the verdict now under review." In his opinion, the trial court "vitiated State Farm's right to a fair trial."

The jury in that portion of the trial was told, "that a previous jury in this case has found that State Farm acted unreasonably in not settling [the] claims against Mr. Campbell before the Cache County verdicts."

Also, because of the complexity of the case, Russon argued that the jury instructions were "anything but 'clear' or 'accurate.'"

"If the jury disregarded the appropriate legal standard in an attempt to punish State Farm for conduct the jury found offensive," Russon wrote in his dissent, "that is unrefuted evidence of error in law, passion and prejudice on the jury's part - necessitating a new trial on the court's own motion."

State Farm also argued that they were the victim in the case, not only of a biased jury, but also of Ospital, Slusher and their attorneys, who the company says brought the bad faith lawsuit just to share in any damage award.

The Utah justices disagreed.

"No behavior by those parties," the opinion stated, "operates to excuse State Farm's dishonest and illicit practices over the course of many years, nor its treatment of the Campbells."

The Utah Supreme Court invoked a quote from the U.S. Supreme Court's 1996 decision in BMW of North America v. Gore, noting that "repeated 'trickery and deceit' targeted at people who are 'financially vulnerable' is especially reprehensible and worthy of greater sanctions."

On June 3, 2002, the U.S. Supreme Court granted certiorari in the case.

With the granting of certiorari, the case took on significance far beyond the $145 million at stake. Two dozen organizations have filed friend of the court briefs.

As Paul Kamenar, Senior Executive Counsel at the Washington Legal Foundation, one of the amici, put it: "If this case is not overturned, it will set a dangerous precedent. You don't need that kind of award to send that kind of message to the company. There needs to be some proportionality."

At the heart of the controversy before the Court is interpretation of the Court's 1996 opinion in BMW of North America case. Though the Utah Supreme Court invoked a passage from the opinion to support its allowance of $145 million in punitive damages, the Court in that case, by a 5-4 vote, actually overturned a $2 million punitive damages award as grossly excessive and therefore exceeding constitutional notions of due process.

On April 7, 2003, a divided Court, split along atypical lines, reversed, holding 6-3 that a punitive damages award of $145 million, where full compensatory damages amounted to only $1 million, was excessive and violated the due process clause of the 14th Amendment.

Justice Anthony Kennedy wrote the Court's majority opinion. Justices Antonin Scalia, Clarence Thomas and Ruth Bader Ginsburg dissented.