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Explaining the Limitations Imposed by the U.S. Supreme Court on  the Award of Punitive Damages   

The US Supreme Court has restricted the extent of available punitive  damages in State Farm Mutual Automobile Insurance Co. v. Campbell, 123  S.Ct. 1513, 155 L.Ed.2d 585 (U.S. 2003), where it overturned a $145  million verdict against an insurer. It said that a punitive damages  award of $145 million is excessive and violates the Due Process Clause  of the Fourteenth Amendment. By reducing the exposure to excessive and  debilitating punitive damages claims professionals can hope the Supreme  Court\\u2019s ruling gives insurers more courage to fight insurance fraud  since their exposure to punitive damages is limited. Regardless,  Campbell allows recovery of punitive damages for tortious breach of the  insurance contract and the tort of bad faith.  

The Campbell case arose out of an automobile accident where one party  was killed and another severely injured. The Campbells, insured by State  Farm, attempted to pass six vehicles on a two-lane highway, failed, and  caused the driver of an oncoming car to drive off the road to escape  collision with the Campbells\\u2019 vehicle. The Campbells only had $25,000  coverage per person and $50,000 in the aggregate. The Campbells felt  they were not at fault because there was no contact between the two  vehicles. State Farm ignored the advice of its adjuster and counsel to  accept policy limits demands and took the case to trial. The verdict at  trial was over $180,000 and the State Farm-appointed counsel told the  Campbells to put their house on the market since they would need the  money to pay the verdict. State Farm refused to pay the judgment to fund  an appeal. The Campbells retained personal counsel to pursue an appeal  that was not successful, entered into a settlement with the plaintiffs  where the plaintiffs agreed to not execute on their judgment in exchange  for an assignment of 90% of all money received in a bad faith action by  the Campbells against State Farm. Before suit was filed, State Farm  paid the full judgment.  At trial the plaintiffs brought in evidence of actions of State Farm in  first party cases across the country, in third party cases not similar  to the Campbells\\u2019 auto accident, and other evidence not related to the  facts of their case.  The Supreme Court found that State Farm\\u2019s \\u201chandling of the claims  against the Campbells merits no praise,\\u201d but concluded \\u201ca more modest  punishment could have satisfied the State\\u2019s legitimate objectives.  

\\xa9 2021 \\u2013 Barry Zalma