State Farm Mutual Automobile Insurance Co. v. Campbell

Facts

In 1981, Curtis Campbell, driving with his wife in Utah, tried to pass six vans on a two-lane highway and ended up on the wrong side of the road. Ospital, a driver coming the other way, swerved, lost control and hit a car driven by Slusher. Ospital was killed and Slusher was permanently disabled. The Campbells were unhurt. Campbell's insurer, State Farm, went to trial instead of settling for the $50,000 policy limit, even though investigators and witnesses reached an early consensus that Campbell's unsafe pass caused the crash. It had told the Campbells their assets were safe. A jury found Campbell 100 percent at fault and returned a judgment of $185,849. State Farm at first refused to pay the $135,849 above the policy limit, and its counsel told the Campbells to put for-sale signs on their property. It also refused to post a supersedeas bond (a bond that lets a defendant appeal). Slusher, Ospital's estate and the Campbells then agreed that the Campbells would sue State Farm for bad faith. State Farm later paid the whole judgment. At that second trial, the Campbells introduced extensive evidence of State Farm's nationwide PP&R policy, which they said capped claim payouts company wide to meet fiscal goals. The evidence covered practices over 20 years in many States, most of them unrelated to third-party automobile claims.

Issues

1. Does a $145 million punitive damages award, where full compensatory damages are $1 million, violate the Due Process Clause of the Fourteenth Amendment as grossly excessive or arbitrary?
2. May a State use punitive damages to punish a defendant for out-of-state or dissimilar conduct that did not harm the plaintiff?

Holding

A $145 million punitive award, where full compensatory damages were $1 million, was neither reasonable nor proportionate to the wrong done to the Campbells. It was an irrational and arbitrary deprivation of State Farm's property. The award rested largely on State Farm's dissimilar, out-of-state conduct, which could not support it.