Due Process Limits on Punitive Damage Awards

June 29, 2005

The United States Supreme Court in State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 123 S.Ct. 1513 (2003), advanced the cause of tort reform by striking down a state-court punitive damage award as unconstitutionally excessive. The Court’s decision limits the amount and the availability of punitive damages in state-court actions and may signal the end of judicial tolerance of excessive punitive damage awards.

Punitive Damage Awards Must Pass Constitutional Muster.

In State Farm v. Campbell, the Court addressed whether an award of $145 million in punitive damages, where full compensatory damages are $1 million, is excessive and in violation of the Due Process Clause of the Fourteenth Amendment of the Constitution of the United States. 123 S.Ct. at 1517. The Court also considered whether a punitive damage award could be based on the defendants alleged business practices nationwide over a twenty-year period, which were unrelated and dissimilar to the defendants conduct that gave rise to the plaintiffs claim. Id. at 1521-24.

The Supreme Court, in a six-three decision, answered both questions for the defendant. Justice Anthony Kennedy, writing for the Court’s majority, held the punitive damage award, which was 145 times greater than the compensatory damages in the case, and which punished the defendant for conduct unrelated to the plaintiff’s harm, was neither reasonable nor proportionate to the wrong committed, and it was an irrational and arbitrary deprivation of the property of the defendant. Id. at 1526.

State Farm v. Campbell

The Court’s State Farm decision arose from a serious automobile accident in Utah. Curtis Campbell decided to pass six vans traveling ahead of him on a two-lane highway. 123 S.Ct. at 1517. Todd Ospital was driving a car approaching from the opposite direction. Id. When Ospital saw Campbell’s car, he swerved and lost control, ultimately colliding with a vehicle driven by Robert Slusher. Id. Ospital was killed in the accident; Slusher was permanently disabled. Id.

In the following wrongful death and personal injury action, Campbell initially insisted he was not at fault. Id. However, State Farm, Campbell’s auto liability insurer, concluded his unsafe pass had caused the accident. Id. Against its investigator’s recommendation, State Farm took the case to trial, assuring Campbell that his assets were safe, that he had no liability for the accident, that State Farm would represent his interests, and that he need not retain his own counsel. Id. at 1518. State Farm did so after rejecting demands by Slusher and Ospital’s estate to settle the case within Campbell’s policy limit. Id. Campbell had only $50,000 in insurance coverage. Id. At trial, the jury determined Campbell was one hundred percent at fault and awarded Slusher and Ospital’s estate damages totaling $185,849. Id.

Following the jury’s verdict, State Farm refused to cover Campbell’s excess liability of $135,849. Id. State Farm also refused to post an appeal bond to allow Campbell to appeal the judgment against him. Id. Indeed, when Campbell questioned State Farm about the judgment in excess of his policy limits, State Farm’s counsel suggested that he sell his home to cover his personal liability. Id.

Ultimately, Campbell obtained his own counsel and appealed the judgment against him.