Supreme Court Rules in Important Insurance Legal Case

A ruling by the U.S. Supreme Court today overturning a lower court’s ruling in State Farm Mutual Automobile Insurance Co. v. Curtis B. Campbell and Inez Preece Campbell is a victory for insurers and state regulation of insurance, according to the Alliance of American Insurers.

The Alliance of American Insurers, the American Insurance Association, the National Association of Independent Insurers and the National Association of Mutual Insurance Companies filed a friend of the court brief last August asking the Court to overturn the earlier verdict by a Utah jury, which awarded punitive damages based on an assessment of the lawfulness of an insurer’s practices outside that state, including practices that have no similarity to the controversy before the jury.

“Our brief argued that the Utah jury ruling in State Farm v. Campbell was in error because it sought to impose a single state’s laws on others, thereby illegally usurping the authority of state insurance regulation,” said Joyce Kraeger, an Alliance attorney involved in filing the amicus brief. “This would have transformed the role of a jury from that of being a fact finder in a particular dispute into a national regulator of insurance.”

The industry brief also had contended that, under the McCarran-Ferguson Act, the regulation of insurance is committed to the states with each state regulating conduct within its own borders. The brief emphasized that a state may not extend its insurance regulatory power outside its boundaries.

“The Utah jury superseded these state-by-state judgments by conducting a national review of a wide variety of State Farm’s underwriting, coverage and claims handling practices without any knowledge of the law in those states,” Kraeger said. “Awarding punitive damages for conduct not subject to a private right of action or to punitive damages in other states infringes upon the freedom of those states to determine how to penalize and deter conduct within their own borders.

“When a punitive damage case stops being about the harm done to a plaintiff and becomes an attack on an insurer’s nationwide practices involving policyholders in other states, it essentially becomes a nationwide class action without the class and without the protections afforded to class members and defendants.”