PCI Reacts to U.S. Supreme Court’s Decision on Utah Ruling Involving State Farm

The U.S. Supreme Court’s recent decision to let stand a Utah Supreme Court ruling that rejects the High Court’s recommendation to reduce a punitive damage award could set a bad precedent for courts in other states, according to the Property Casualty Insurers Association of America (PCI).

“We are surprised and stunned by the U.S. Supreme Court’s failure to assert itself on this issue,” said Robert Hurns, counsel and legislative database manager for the PCI, which filed an amicus brief in the case. “The high Court’s refusal to keep the Utah Supreme Court in line on this case could lead to other state supreme courts flouting its recommendations and seriously undermining its authority.”

The decision involves State Farm v. Campbell, a Utah case in which a jury determined a policyholder was ruled at fault in an auto accident that killed one person and disabled another. Although his insurer eventually paid all damages arising from the accident after the liability judgment was affirmed on appeal, the policyholder filed suit and sought punitive damages against State Farm, claiming the company’s actions were in bad faith and caused him emotional distress. State Farm in turn argued that its initial decision not to pay the claims was an “honest mistake” and did not justify damages. On appeal, the Utah Supreme Court ruled in favor of the policyholder and awarded $145 million in punitive damages.

State Farm, along with insurers and other business groups, asked the U.S. Supreme Court to deal with the case in 2002. In April 2003, the High Court sent the case back to the Utah Supreme Court, instructing it to reduce the damages to $1 million as the initial decision was unconstitutional since State Farm acted legally.

After the Utah Supreme Court ignored the High Court’s direction by awarding $9 million in punitive damages in the case, PCI and other insurance interests requested that the High Court review the case a second time, stating that the Utah high court had “flouted” the U.S. Court’s decision and disregarded the proper proportion between punitive and compensatory damages in the case. But the U.S. Supreme Court declined to hear the case again.

“The U.S. Supreme Court’s refusal to take a stand on such an outlandish example of punitive damages does not bode well for litigation reform in this country,” added Hurns added. “Unjustified awards like this are driving up the cost of insurance, and the high Court needs to take a stand against this trend whenever it can.”