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2001 Term, Number 18 / June 3, 2002

Today the Supreme Court granted certiorari in one case of potential interest to the business community. Amicus briefs in support of the petitioner are due on Thursday, July 18, 2002, and amicus briefs in support of the respondents are due on Monday, August 19, 2002. Any questions about this case should be directed to Miriam Nemetz (202-263-3253) or Robert Bronston (202-263-3244) in our Washington office.

Punitive Damages Excessiveness. The Supreme Court granted certiorari in State Farm Mutual Automobile Insurance Co. v. Campbell, No. 01-1289, to determine whether a $145 million punitive award that is 145 times the plaintiffs' compensatory damages is unconstitutionally excessive under the standards articulated in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996).

State Farm policyholder Curtis Campbell was involved in a three-vehicle accident in which the driver of one of the other vehicles was killed and the other driver was injured. In a suit brought by the injured driver and the estate of the deceased driver, State Farm contested Campbell's liability and refused to settle the claims against Campbell within his policy limits. A jury subsequently found Campbell liable and awarded damages in excess of his insurance coverage.

Campbell and his wife sued State Farm in Utah state court, alleging that State Farm had acted in bad faith when it refused to settle the claims against him within his policy limits. In the first phase of a bifurcated trial, the jury found that State Farm had breached its duty of good faith and fair dealing when it refused to settle the claims against Campbell for the amount of his policy. During the second phase of the trial, the Campbells alleged that State Farm's refusal to settle was part of a national corporate scheme to increase profits through bad-faith claims handling. The jury was presented with evidence of State Farm's national claims settlement policies and practices, previous litigation against State Farm in other jurisdictions involving dissimilar conduct, and various other allegedly illegal or bad-faith actions by State Farm occurring outside of Utah. The jury found in favor of the Campbells and awarded them $2,600,000 in compensatory damages and $145,000,000 in punitive damages. Finding the compensatory and punitive damages to be excessive, the trial court ordered a new trial unless the Campbells agreed to remit all but $1 million of the compensatory damages and all but $25 million of the punitive damages. After the plaintiffs accepted the remittitur, State Farm appealed and plaintiffs cross-appealed the trial court's holding that the punitive damages were excessive.

The Utah Supreme Court reinstated the original punitive award of $145,000,000, finding that it was justified in light of State Farm's nationwide practices and procedures and State Farm's very substantial surplus. 2001 WL 1246676 (Oct. 19, 2001). The court relied on the extraterritorial evidence when applying each of the guideposts established by BMW the ratio of punitive to compensatory damages (id. at *14), the degree of reprehensibility of the defendant's conduct (id. at *16), and civil and criminal penalties for comparable conduct (id. at *17).

It is no overstatement to say that this case is of enormous importance to the business community. In the course of resolving State Farm's challenge to the amount of the punitive award, the Court is likely to confront several questions that recur in punitive damages litigation, including: (1) may a state punish a defendant under its own law for conduct that occurred in other states if a jury could find that the conduct was unlawful where it occurred (a question left open by BMW); (2) if not, what role (if any) can evidence of such conduct play in setting the amount of punishment for the conduct that injured the plaintiff; (3) when, if ever, is a double or triple digit ratio of punitive to compensatory damages permissible when the compensatory damages are substantial; (4) when comparing the punitive damages to the fine for comparable conduct, should the court consider the maximum penalty that theoretically could be imposed or instead focus on actual fining practice; and (5) what, if any, role should a defendant's financial condition play in evaluating a punitive award for excessiveness? Members of the business community will surely want to have their voices heard on these issues.

This Mayer, Brown, Rowe & Maw Supreme Court Docket Report provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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