U.S. Supreme Court Ruling Sends Message: Punitive Damages are Excessive

The U.S. Supreme Court reportedly sent a clear message Tuesday regarding excessive punitive damage awards when it overturned a Utah jury’s decision by reversing a $145 million punitive damage award against State Farm saying that the compensatory damages were “excessive and violate fundamental principles of due-process fairness.” The ruling said that “this case is neither close nor difficult. It was error to reinstate the jury’s $145 million punitive damages award.”

The National Association of Independent Insurers (NAII) and the National Association of Mutual Insurance Companies (NAMIC), along with two other national trade associations, filed an amicus brief in the case of State Farm Mutual Automobile Insurance Company v. Curtis B. Campbell and Inez Preece Campbell, August, 2002.

The brief said that the Utah jury award of punitive damages of $145 million was grossly disproportionate to the plaintiffs’ actual damages because the punitive award was improperly based on State Farm’s claims handling and other practices in states other than Utah, and had no similarity to the controversy before the jury.

The amicus brief disputed the Utah Supreme Court’s decision to allow a single jury in one state to award punitive damages based on an assessment of the lawfulness of an insurer’s practices outside that state or practices that are dissimilar to the practices being reviewed by the jury.

Trade groups argued that the when the punitive damage case stops being about the harm done to a plaintiff and becomes an indictment of an insurer’s nationwide practices involving policyholders in other states, it essentially becomes a nationwide class action without the class and without protections afforded to class members anddefendants.

“The U.S. Supreme court rang the tort reform victory bell today, sending out the message that reasonableness and fairness need to be the priorities in awarding punitive damages in all cases,” said NAII Assistant General Counsel, Legal Services Monika McGuire. “Further, the court was clear in its ruling that each state determines what conduct is permitted or proscribed within its borders and each state alone can determine what measure of punishment, if any, to impose on a defendant who acts within its jurisdiction.”

NAMIC’s Legislative and Regulatory Counsel Peter Bisbecos noted, “that juries have an important but limited role punishing specific wrongs and not acting as a regulator without limitations. We believe this decision will return a measure of fairness to our civil justice system.”