Utah high court reinstates punitive award for State Farm's `egregious' misconduct.

In a scathing opinion, the Utah Supreme Court reinstated a $145 million punitive damages award against State Farm Mutual Automobile Insurance Co. for refusing to settle lawsuits against Curtis Campbell, an elderly policyholder involved in a car crash. Justice Christine Durham, writing for a 4-1 majority, said the larger-than-normal award, granted in a 1996 trial, was justified by the company's "decades-long policy of fraudulent and dishonest practices." (Campbell v. State Farm Mut. Auto. Ins. Co., No. 981564, 2001 WL 1246676 (Utah Oct. 19, 2001).)

"State Farm talks about this as a bad faith case," said Karra Porter of Salt Lake City, one of Campbell's attorneys, "but the case was decided on the grounds of fraud and intentional infliction of emotional distress. The court didn't even get to bad faith. It's an important distinction because many people don't understand bad faith. But everyone knows what fraud is."

The saga began in 1981 when Campbell attempted to pass another vehicle while driving on a state road in Utah. A car came over a hill in front of Campbell, swerved to avoid hitting him, and crashed into a van. The driver of the car was killed, and the van's driver was permanently disabled.

State Farm's investigator concluded that the crash was Campbell's fault, but the company ordered him to change his report to say that the deceased driver was speeding to visit his pregnant girlfriend. The driver was not speeding, and there was no pregnant girlfriend.

In the lawsuits against Campbell, State Farm refused the plaintiffs' offers to settle within his policy limit of $50,000. At trial, the jury ordered Campbell to pay damages totaling more than five times the limit.

The attorney hired by State Farm to represent Campbell had repeatedly assured him that his assets were safe, according to the court's opinion, but after the trial the lawyer made it clear that State Farm would not pay the excess judgment. He told Campbell to put "for sale" signs on his property.

Campbell and his wife retained other counsel and struck a deal with the plaintiffs. The Campbells agreed to pursue a bad faith claim against State Farm and to pay 90 percent of any proceeds to the plaintiffs in return for their agreement not to take the Campbells' assets.

The Campbells filed their claim in 1989, after the verdict against Campbell was affirmed, but the court granted summary judgment to State Farm because after the affirmance the company had paid the entire damage award. Therefore, the trial court concluded, there was no bad faith as a matter of law.

The appeals court reversed and sent the case back for a new trial. In the first phase of bifurcated proceedings, the jury found that State Farm had acted unreasonably in refusing to settle because there was a substantial likelihood of an excess judgment against Campbell.

In the second phase of the trial, which determined damages, the court amassed almost 28 pages of findings on State Farm's "Performance, Planning and Review" or "PP&R" policy--a nationwide scheme to reduce payouts. The company's tactics included rewarding adjusters who paid less than market value for claims; targeting vulnerable groups such as the elderly, whose members are less likely to object to underpayment; routinely falsifying documents; and harassing opposing witnesses.

The jury awarded compensatory damages of $2.6 million and punitive damages of $145 million, but trial judge William Bohling reduced the awards to $1 million and $25 million, respectively. Bohling based his decision solely on the high ratio of punitive to compensatory damages, citing an earlier state court case that called any ratio above 3 to 1 problematic.

The state high court--after reviewing punitive damages de novo under the U.S. Supreme Court's decision in Cooper Industries, Inc. v. Leatherman Tool Group, Inc. (532 U.S. 424 (2001))--upheld the jury's award despite the high ratio.

Durham commended Bohling's meticulous findings of fact and legal analysis, but held that he erred in deciding that the damages ratio required reduction as a matter of law. "A large award triggers a more searching legal analysis," she wrote, but "a judge should not decrease the amount solely because of the ratio of punitive to compensatory damages."

Durham wrote that the amount of the punitive award, which represented "only 0.26 percent of State Farm's wealth," was "necessary" to get the insurer's attention. An earlier $100 million punitive damages award had never even been reported to the company's headquarters. A State Farm officer testified at Campbell's trial that there was no system for informing headquarters of punitive damages awards, and that he did not plan to inform headquarters of any such award in Campbell's case.

Durham also cited State Farm's "mad dog" defense tactics--using its immense resources to "wear out" plaintiffs by prolonging litigation and abusing motion practice. Porter said State Farm once filed 28 motions on the same day during trial, but that these tactics should not discourage plaintiff attorneys from taking cases against large companies.

"At the time of the trial, our firm had only 18 attorneys. If we could do it, anyone can," she said.

State Farm argued that it had changed its ways, pointing out its policy of sending "peace of mind" letters to customers assuring them that their interests would be protected. Porter said, "We don't buy it. We handled another case just last year where State Farm never sent the letter."

Durham didn't buy it either. She wrote that "the probability of recurrence of State Farm's misconduct appears extremely high."

Porter said the company plans to ask the U.S. Supreme Court to review the decision. She said the case is an example of a good case making good law: "There were really no novel theories. The facts were there. It was just a jury doing what it's supposed to do."

Harvard law professor Laurence Tribe, who was brought in by Porter's firm to assist with Campbell's appeal, agreed. The importance of the case lies in sending a message to State Farm, he said, but there are "no broad issues of national significance worthy of United States Supreme Court review." Tribe plans to lend his expertise in preparing a motion opposing State Farm's petition for certiorari.

State Farm's petition for rehearing was denied by the Utah Supreme Court on December 5. In a poignant coincidence, Curtis Campbell died that day, never having received a penny from State Farm.