Insurers See Hopeful Signs In High Court Punitive Damages Ruling
A U.S. Supreme Court decision last week that overturned a $145 million punitive damage award against State Farm could have implications for other litigation reform efforts, some observers say.
The decision in the case of State Farm v. Campbell held that a $145 million punitive damage award in a Utah case in which compensatory damages were assessed at $1 million was excessive and violated the Due Process Clause of the 14th Amendment.
In issuing its 6-3 opinion, the high court noted that the punitive damage award was calculated in part by presenting evidence of alleged misconduct by State Farm in other states, even though the insurers actions may have been legal in the states where they occurred.
However, the Supreme Court said, a state cannot punish a defendant for conduct that is legal where it occurred.
“A basic principle of federalism is that each state may make its own reasoned judgment about 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,” the court said in a opinion written by Justice Anthony M. Kennedy.
Victoria Fimea, senior counsel for litigation with the Washington-based American Council of Life Insurers which filed an amicus brief in the case, said the court made a very important statement that could apply to the controversy over class-action litigation.
In many class actions, she said, plaintiffs obtain “outrageous” punitive damage awards by bringing in evidence of extra-territorial conduct that can be used to inflame the jurys emotions.
The decision in the State Farm case, Fimea said, can be looked to for proper guideposts on the award of punitive damages in class actions.
On the legislative front, where class-action procedural reforms are pending in Congress, she added, the decision helps demonstrate the need for reform.
In the State Farm case, the Bloomington, Ill.-based company was sued for alleged fraud and intentional infliction of emotional distress resulting from an auto insurance claim.
During the trial, the plaintiff was allowed to present evidence of a so-called “national scheme” on the part of State Farm to cap claims payments and meet corporate goals.