SC Lawyer, Nov. 2003, #5. Punitive damages after State Farm v. Campbell - limiting the award?.

• Author: By Henry L. Parr Jr.

South Carolina Lawyer

2003.

SC Lawyer, Nov. 2003, #5.

Punitive damages after State Farm v. Campbell - limiting the award?

South Carolina LawyerNov. 2003Punitive damages after State Farm v. Campbell - limiting the award?By Henry L. Parr Jr.Last April, the U.S. Supreme Court once again addressed the important issue of punitive damages. Its decision struck down a state court award of punitive damages against State Farm Mutual Insurance Company. State Farm Mut. Auto. Ins. Co. v. Campbell, 123 S. Ct. 1513 (2003). In a six to three decision, the Court found a $145 million punitive damages award against State Farm constitutionally excessive under the Due Process Clause of the Fourteenth Amendment. Although the Court applied principles announced in prior punitive damages cases, its language and approach suggest a much greater willingness than in the past to place constitutional limits on punitive damage awards.

To evaluate the punitive damages award against State Farm, the Court looked solely to three constitutional guideposts announced in its 1996 plurality opinion in BMW v. Gore: 517 U.S. 559, 116 S. Ct. 1589 (1996) (1) the reprehensibility of the defendant's misconduct, (2) the ratio between the punitive damage award and the actual or potential harm suffered by the plaintiff and (3) the difference between the punitive damages awarded and the civil penalties authorized or imposed in comparable cases. 123 S. Ct. at 1520. But, as noted by Justice Ginsberg's dissent in State Farm Id. at 1531, the application of these factors in State Farm suggests a much less deferential approach than had been suggested earlier by Gore and its predecessors. In punitive damages cases prior to State Farm, at least five members of the current Court declared that punitive damage awards resulting from a fair process deserved a "strong presumption of validity." See Gore, 517 U.S. at 586, (Bryer, J., concurring opinion joined by O'Connor, J and Souter, J quoting with approval from TXO, 509 U.S. at 457, 113 S. Ct. at 2720 ("Members of this Court have generally thought, however, that if fair procedures were followed, a judgment that is a product of that process is entitled to a strong presumption of validity."); TXO, 509 U.S. at 457, 113 S. Ct. at 2720 (Stevens, J., joined by Chief Justice Rehnquist and Blackmun, J.). Yet, there is no suggestion of this presumption in State Farm. In fact, as discussed below, State Farm appears to establish a presumption, applicable in most cases, against awards where the ratio of punitive damages to compensatory damages exceeds a single digit.

Because an understanding of the facts in State Farm are essential to any discussion of its application of the Gore guideposts, this article will set forth the facts and then examine the Court's application of each of the three guideposts.

Facts of State Farm

The facts of the case, as described by the lower courts, were not favorable to State Farm. The claim against State Farm arose from its defense of the Campbells in an automobile accident case. Mr. Campbell was sued, due to an accident he caused in which one person was killed and another permanently disabled. State Farm was Mr. Campbell's insurer. Even though State Farm's investigator advised that the case be settled, State Farm proceeded to trial after rejecting the plaintiffs' offer to accept the policy limits of $25,000 per claimant. State Farm assured the Campbells that "their assets were safe, that they had no liability for the accident, that [State Farm] would represent their interests and that they did not need to procure separate counsel." State...