Court weighs limits on 'jackpot' jury awards

As recent headlines indicate, there is no shortage of examples of juries zapping corporations and other deep-pocket defendants with massive punitive damage verdicts.

• A jury in Los Angeles awards a dying smoker $28 billion in a lawsuit against a tobacco company.

• A Kentucky jury slaps a gas company with a $271 million judgment in a case filed by a burn victim.

• The Ford Motor Company is ordered to pay a $290 million jury award in a fatal sport utility vehicle rollover case.

Critics call this jackpot justice, a system in which anyone can seek punitive damages for almost anything and wind up a multi-millionaire - and perhaps billionaire. Supporters view it as an important mechanism for ordinary Americans to protect themselves from corporate wrongdoing.

On Wednesday, the debate arrives at the US Supreme Court, where the justices are being asked to determine when a large punitive damage award becomes so "grossly excessive" as to violate constitutional safeguards.

At issue is a case in which the State Farm insurance company was ordered to pay $145 million in punitive damages to a policy holder involved in a 1981 car accident in Utah.

The policy holder, Curtis Campbell and his wife, Inez, sued State Farm for fraud after the company refused to settle a lawsuit filed by other drivers in the accident against Mr. Campbell. Instead of settling the suit for an amount within the limits of Campbell's $50,000 policy, State Farm decided that the case must go to trial.

State Farm allegedly ignored a report by its own investigator that said there was a substantial likelihood that Campbell would lose at trial. But the company reportedly insisted on taking the case to court in accord with a confidential national policy that directed managers to keep payout costs as low as possible to boost corporate profits.

When the jury at trial found Campbell 100 percent liable for the car accident and ordered him to pay $186,000 in damages, State Farm refused to cover any damages beyond the $50,000 policy limit. Their lawyer advised Campbell and his wife: "You may want to put 'for sale' signs on your property to get things moving."

Ultimately, State Farm paid all of the damages owed by Campbell. But the Campbells later filed suit against the insurance giant, charging that the company had acted in bad faith in refusing the settle their case.

State Farm says the Campbells' out-of-pocket expenses were $911.25 and that the jury award is grossly disproportionate to the injury they suffered. The Campbells say being forced to the brink of bankruptcy by a company seeking to maximize its own profits is a cost as well. The jury agreed with the Campbells.

"The effect on the Campbells warrants a large award, given that they had to live in fear of complete financial ruin for over 18 months because of State Farm's refusal to settle their claim," the Utah Supreme Court said in upholding the $145 million award.

The case is being closely watched by both advocates and opponents of tort reform because it comes at a time when the US Supreme Court seems increasingly interested in wading into the debate over punitive damages.

In the court's last major decision in this area, the justices in 1996 voted 5-4 to overturn a $2 million punitive-damage award to a man who purchased a BMW automobile with undisclosed minor body damage that had been repaired prior to the sale. The court deemed the award excessive.

Lawyers for State Farm say the $145 million award in their case violates guideposts for punitive awards the court established in the BMW case. They say evidence at the Campbells' trial should have been limited to the facts in the Campbells' case and perhaps extended to any similar out-of-state conduct that might show that the Campbells' treatment was part of a company-wide pattern. Instead, the lawyers say, the court permitted the Campbells to present to the jury a wide range of dissimilar (and unflattering) conduct by State Farm in states other than Utah, dating back as far as 20 years.

"If permitted to stand as precedent, the Utah Supreme Court's decision could be construed to authorize a roving inquiry into a corporate defendant's nationwide way of doing business over decades," says Sheila Birnbaum in her brief to the court. "Such an unbounded expansion of the punitive-damages inquiry, untethered to the claims at issue [in one particular case], threatens to bludgeon corporations and businesses nationwide with vast and repetitive punitive awards."

Lawyers for the Campbells disagree. They say the Utah Supreme Court's action in upholding the award reflects the seriousness of State Farm's conduct and doesn't undermine the court's decision in the BMW case.

"The court found that State Farm's misconduct was highly reprehensible because its incentive-skewing policy was intentional, not merely negligent, and persisted for years," says Laurence Tribe, a Harvard Law School professor, in a brief to the court on behalf of the Campbells.

A decision in the case, State Farm v. Campbell, is expected by next June.