Trial by jury is an ideal thats as American as apple pie. However, a disturbing trend has emerged related to the role that juries play in deciding punitive damage awards–a trend that carries serious implications for insurers, and for our nations regulatory and legal systems in general.
A case now before the California Supreme Court recently caught the attention of the national news media because it raised the question of the competency and fairness of juries to determine punitive damages, as compared to judges.
But largely overlooked at the national level is a case before the U.S. Supreme Court. That case, State Farm v. Campbell, could have an immense impact on the law of punitive damages and the future of the U.S. insurance regulatory system.
In State Farm v. Campbell, the insurer declined to settle an auto accident claim for the policy limits. The case went to trial and resulted in an excess verdict. The insurer ultimately paid the full amount, but was still held liable for punitive damages far exceeding the compensatory damages.
In the punitive damages phase of the trial, the jury heard evidence of totally unrelated actions by the insurer as well as actions that occurred in other states governed by different laws. On appeal, the Utah Supreme Court upheld the verdict and judgment, and the U.S. Supreme Court has decided to review it.
The Utah jury was allowed to effectively punish the insurer for its practices in other states, including many practices that were legal in the other states. Four insurance trade groups have submitted a “friend-of-the-court” amicus brief in the case to the U.S. Supreme Court.
We contend that when a jury in one state imposes its view of insurance regulation on other states, it nullifies the insurance statutes and regulations that reflect the public policies and consumer protections that have been established for the citizens of those other states. This runs afoul of the Commerce, Due Process and Full Faith and Credit Clauses of the U.S. Constitution. It also undercuts one of the foundations of state regulation of insurance.
In determining punitive damages, the Utah court also allowed the jurors to hear evidence of dissimilar acts, such as underwriting practices when the underlying case involved a claim. In our amicus brief, the insurance groups argued that this violated prior holdings of the U.S. Supreme Court and had the jury passing judgment on practices for which it had neither evidence nor a clear understanding of the applicable law.
In the State Farm v. Campbell case, the Utah jury was allowed to install itself as a national insurance regulator. It did so even though jury members did not have the expertise and responsibility to achieve a balance among numerous public interests, as do real insurance regulators–such as protecting not only individual consumers, but also assuring solvency, availability and affordability.