SUPREME COURT CHANGES RULES FOR PUNITIVE DAMAGES
HAROLD S. SMALL, J.D., CPA, and AEP
Each year the
United States Supreme Court (“Supreme Court”) delivers a number of rulings and
opinions on a wide variety of matters, and each term typically has a couple of
decisions with wide reaching implications.
Such a situation arose on April 7 when the Supreme Court issued its
decision in State Farm Mutual Automobile
Insurance Co. v.
In this case,
Curtis Campbell (now deceased) and his wife, Inez Preece
Campbell, sued State Farm (their insurer) for intentionally inflicting
emotional distress upon them. Mr.
Campbell and others were injured in an automobile accident. In that accident one person was killed, and
that person’s family sued Mr. Campbell. State Farm refused to settle the case for the
policy limit of $50,000. The case was
tried and Mr. Campbell was found liable for the injuries he caused and damages
of $136,000 were assessed. State Farm
offered to pay the $50,000 policy limits and suggested that Mr. and Mrs.
Campbell sell their home to pay the difference.
Some one and one-half years later (after a change of mind), State Farm
paid the $136,000. The
Kennedy wrote the opinion for the 6-3 court and indicated: “A punitive damages
award of $145 million, where full compensatory damages are $1 million, is
excessive and violates the Due Process Clause of the Fourteenth
Amendment.” The decision also indicated
that “(a) Compensatory damages are intended to redress a plaintiff's concrete
loss, while punitive damages are aimed at the different purposes of deterrence
and retribution. The Due Process Clause prohibits the imposition of grossly
excessive or arbitrary punishments on a tortfeaser. E.g., Cooper
Industries, Inc. v. Leatherman Tool Group, Inc., 532
The Supreme Court indicated by its decision that the ratio of punitive and compensatory damages must be kept under control and that they must relate to the circumstances of the litigants and the facts presented to the trial court. In other words, the ability of plaintiffs to send a message to a company that acts badly will be limited to a more reasonable ratio of the compensatory and punitive damages, rather than awarding a monstrous punitive damage award as a deterrent to future bad conduct.
It is clear that
this decision marks a significant change after the many years that the Supreme
Court has been silent about punitive damages being used as a
deterrence. The lengthy decision, and the dissents will be studied for many
years. The dissents of Justices Scalia,
Thomas and Ginsburg would have left the punitive damage award of the Utah
Supreme Court intact. Justice Ginsburg
stated in her dissent, “The large size of the award upheld by the Utah Supreme
Court in this case indicates why damage-capping legislation may be altogether
fitting and proper. Neither the amount of the award nor the trial record,
however, justifies this Court's substitution of its judgment for that of
Readers involved in pending litigation involving punitive damages should discuss this case with their litigation and general counsel. Changes in litigation strategy and/or pleadings may be appropriate. When readers become involved in litigation (as plaintiff or defendant) where punitive damages are sought, they should talk with their counsel about the import and impact of the State Farm decision to their own circumstances.
THE FOREGOING CONCEPTS AND IDEAS ARE
GENERAL STATEMENTS AND ARE INTENDED TO PROVIDE CONCEPTS FOR CONSIDERATION IN
BUSINESS AND TAX PLANNING. CAREFUL
CONSIDERATION NEEDS TO BE GIVEN BY THE USER REGARDING THE USE AND APPLICATION
OF THE CONCEPTS. YOUR
LEGAL AND TAX COUNSEL SHOULD BE CONSULTED BEFORE THE IMPLEMENTATION OF ANY OF
THE IDEAS INDICATED HEREIN. SHOULD YOU
HAVE QUESTIONS REGARDING THIS MATTER, HAROLD S. SMALL, ESQ., CAN BE REACHED AT
© by Harold S. Small 2003