State Farm Mutual Automobile Insurance Co. v. Campbell is a landmark decision of the United States Supreme Court addressing constitutional limits on punitive damages under the Due Process Clause of the Fourteenth Amendment.
The case examined whether an extremely large punitive damages award, imposed in a bad-faith insurance dispute, was constitutionally excessive when compared to the compensatory damages awarded. The Court’s ruling provided important guidance on how courts should evaluate punitive damages and reinforced earlier standards meant to ensure fairness and predictability in civil punishment.
Case Background and Context
The events leading to State Farm Mutual Automobile Insurance Co. v. Campbell began with a serious automobile accident in Utah in 1981. Curtis Campbell, who was insured by State Farm Mutual Automobile Insurance Company, attempted to pass multiple vehicles on a two-lane highway while driving with his wife.
During this maneuver, Campbell entered the lane of oncoming traffic. An approaching driver, Todd Ospital, swerved to avoid a head-on collision, lost control of his vehicle, and crashed into another car driven by Robert G. Slusher. Ospital was killed in the accident, and Slusher suffered permanent disabling injuries. The Campbells were not physically injured.
Investigations initially produced varying conclusions, but investigators and witnesses ultimately reached a consensus that Campbell’s unsafe passing maneuver caused the crash. Despite this conclusion, State Farm chose to contest Campbell’s liability rather than settle the claims brought by Slusher and Ospital’s estate.
Insurance Dispute and Trial on Liability
At the time of the accident, Campbell’s insurance policy had a total coverage limit of $50,000, divided between the two claimants. Slusher and Ospital’s estate each offered to settle their claims for $25,000, which together matched the policy limit.
State Farm declined these settlement offers and assured the Campbells that they faced no personal liability, that their assets were protected, and that State Farm would fully represent their interests without the need for separate legal counsel.
The case proceeded to trial, where a jury found Campbell to be 100 percent at fault for the accident. The jury returned a judgment of $185,849, an amount significantly higher than the policy limit and far greater than the settlement offers previously rejected.
State Farm did not pay the excess judgment and also declined to post a supersedeas bond to allow Campbell to stay execution of the judgment during an appeal. As a result, Campbell retained his own attorney to pursue appellate relief.
Post-Trial Developments and Bad-Faith Claim
While the appeal of the liability judgment was pending, Campbell entered into an agreement with Slusher and Ospital’s estate. Under this arrangement, the injured parties agreed not to seek satisfaction of the judgment directly from the Campbells. In return, Campbell agreed to pursue a bad-faith action against State Farm.
The attorneys for Slusher and Ospital’s estate would represent Campbell in the bad-faith lawsuit and would exercise control over major litigation decisions. Any recovery against State Farm would largely benefit the original claimants.
In 1989, the Utah Supreme Court denied Campbell’s appeal in the underlying wrongful death and personal injury case. State Farm subsequently paid the full amount of the judgment, including the portion exceeding the policy limit. Even after payment, Campbell proceeded with the bad-faith lawsuit against the insurer, alleging bad faith, fraud, and intentional infliction of emotional distress.
Jury Verdict and Punitive Damages
The bad-faith case went to trial, where the jury awarded Campbell $2.6 million in compensatory damages and $145 million in punitive damages. The trial court later reduced these amounts to $1 million in compensatory damages and $25 million in punitive damages. Both sides appealed.
On appeal, the Utah Supreme Court reinstated the $145 million punitive damages award. The state court emphasized evidence suggesting that State Farm’s conduct was part of a broader national corporate policy and noted concerns that large judgments were not being adequately reported within the company’s corporate structure. This reinstated punitive award became the central focus of the constitutional challenge reviewed in State Farm Mutual Automobile Insurance Co. v. Campbell.
Issue Before the Supreme Court
The primary issue in State Farm Mutual Automobile Insurance Co. v. Campbell was whether a punitive damages award of $145 million, when compensatory damages were $1 million, violated the Due Process Clause of the Fourteenth Amendment by being grossly excessive and arbitrary. The Court was asked to determine whether such a disparity between compensatory and punitive damages exceeded constitutional limits on civil punishment.
Rule of Law and Constitutional Principles
In resolving the case, the Supreme Court relied on principles it had previously articulated in BMW of North America, Inc. v. Gore. Those principles require courts to consider three guideposts when reviewing punitive damages for excessiveness: the degree of reprehensibility of the defendant’s misconduct, the disparity between the harm suffered and the punitive award, and the difference between the punitive damages and civil penalties authorized or imposed in comparable cases.
Applying these guideposts, State Farm Mutual Automobile Insurance Co. v. Campbell reaffirmed that the Due Process Clause prohibits grossly excessive or arbitrary punitive damages. The Court emphasized that defendants must receive fair notice not only of the conduct that can lead to punishment, but also of the potential severity of the penalty.
The decision also stressed that punitive damages generally should bear a reasonable relationship to compensatory damages, and that awards exceeding a single-digit ratio between punitive and compensatory damages are likely to raise constitutional concerns, except in limited circumstances involving particularly egregious conduct and small economic harm.
The Court further held that a state may not punish a defendant for conduct that occurred outside its jurisdiction if that conduct was lawful where it took place. While out-of-state conduct may be relevant to show deliberateness or culpability, it must have a direct connection to the specific harm suffered by the plaintiff.
Holding of the Court in State Farm Mutual Automobile Insurance Co. v. Campbell
The Supreme Court in State Farm Mutual Automobile Insurance Co. v. Campbell held that the $145 million punitive damages award was unconstitutional. The judgment of the Utah Supreme Court was reversed, and the case was remanded for further proceedings consistent with the Court’s due process analysis. The Court concluded that the punitive award was excessive in relation to the compensatory damages and did not comply with constitutional limits on civil punishment.
Dissenting Opinions
The decision in State Farm Mutual Automobile Insurance Co. v. Campbell included multiple dissents. Justice Antonin Scalia dissented on the ground that the Due Process Clause does not provide substantive protection against excessive punitive damages awards. Justice Clarence Thomas also dissented, reiterating his view that the Constitution does not constrain the size of punitive damages.
Justice Ruth Bader Ginsburg dissented separately, expressing the view that the Supreme Court should not interfere with state law governing punitive damages. She argued that any reform of punitive damages should come from state legislatures or state high courts, rather than through constitutional adjudication by the Supreme Court.
Conclusion
State Farm Mutual Automobile Insurance Co. v. Campbell stands as a significant constitutional decision shaping the modern law of punitive damages. By reinforcing due process limits and clarifying the application of established guideposts, the Court sought to ensure that punitive damages serve their intended purposes without becoming arbitrary or unpredictable.
The ruling continues to influence how courts assess the proportionality and fairness of punitive awards in civil litigation, underscoring the constitutional requirement that punishment in civil cases remain bounded by principles of notice, proportionality, and federalism.