State Farm Mutual Automobile Insurance v. Campbell

Justice Ginsburg,

dissenting.

Not long ago, this Court was hesitant to impose a federal check on state-court judgments awarding punitive damages. In Browning-Ferris Industries of Vt., Inc. v. Kelco Disposal, Inc., 492 U. S. 257 (1989), the Court held that neither the Excessive Fines Clause of the Eighth Amendment nor federal common law circumscribed awards of punitive damages in civil cases between private parties. Id., at 262-276, 277-280. Two years later, in Pacific Mut. Life Ins. Co. v. Haslip, 499 U. S. 1 (1991), the Court observed that “unlimited jury [or judicial] discretion ... in the fixing of punitive damages may invite extreme results that jar one’s constitutional sensibilities,” id., at 18; the Due Process Clause, the Court suggested, would attend to those sensibilities and guard against unreasonable awards, id., at 17-24. Nevertheless, the Court upheld a punitive damages award in Haslip “more than 4 times the amount of compensatory damages, . . . more than 200 times [the plaintiff’s] out-of-pocket expenses,” and “much in excess of the fine that could be imposed.” Id., at 23. And in TXO Production Corp. v. Alliance Resources Corp., 509 U. S. 443 (1993), the Court affirmed a state-court award “526 times greater than the actual damages awarded by the jury.” Id., at 453;1 cf. Browning-Ferris, 492 U. S., at 262 (ratio of punitive to compensatory damages over 100 to 1).

It was not until 1996, in BMW of North America, Inc. v. Gore, 517 U. S. 559, that the Court, for the first time, invalidated a state-court punitive damages assessment as un *431 reasonably large. See id., at 599 (Scalia, J., dissenting). If our activity in this domain is now “well established,” see ante, at 416, 427, it takes place on ground not long held.

In Gore, I stated why I resisted the Court’s foray into punitive damages “territory traditionally within the States’ domain.” 517 U. S., at 612 (dissenting opinion). I adhere to those views, and note again that, unlike federal habeas corpus review of state-court convictions under 28 U. S. C. §2254, the Court “work[s] at this business [of checking state courts] alone,” unaided by the participation of federal district courts and courts of appeals. 517 U. S., at 613. It was once recognized that “the laws of the particular State must suffice [to superintend punitive damages awards] until judges or legislators authorized to do so initiate system-wide change.” Haslip, 499 U. S., at 42 (Kennedy, J., concurring in judgment). I would adhere to that traditional view.

► — I

The large size of the award upheld by the Utah Supreme Court in this case indicates why damages-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 Utah’s competent de-cisionmakers. In this regard, I count it significant that, on the key criterion “reprehensibility,” there is a good deal more to the story than the Court’s abbreviated account tells.

Ample evidence allowed the jury to find that State Farm’s treatment of the Campbells typified its “Performance, Planning and Review” (PP&R) program; implemented by top management in 1979, the program had “the explicit objective of using the claims-adjustment process as a profit center.” App. to Pet. for Cert. 116a. “[Tjhe Campbells presented considerable evidence,” the trial court noted, documenting “that the PP&R program . . . has functioned, and continues to function, as an unlawful scheme ... to deny benefits owed consumers by paying out less than fair value in order to meet *432 preset, arbitrary payout targets designed to enhance corporate profits.” Id., at 118a-119a. That policy, the trial court observed, was encompassing in scope; it “applied equally to the handling of both third-party and first-party claims.” Id., at 119a. But cf. ante, at 423-424, 427 (suggesting that State Farm’s handling of first-party claims has “nothing to do with a third-party lawsuit”).

Evidence the jury could credit demonstrated that the PP&R program regularly and adversely affected Utah residents. Ray Summers, “the adjuster who handled the Campbell case and who was a State Farm employee in Utah for almost twenty years,” described several methods used by State Farm to deny claimants fair benefits, for example, “falsifying or withholding of evidence in claim files.” App. to Pet. for Cert. 121a. A common tactic, Summers recounted, was to “unjustly attac[k] the character, reputation and credibility of a claimant and mak[e] notations to that effect in the claim file to create prejudice in the event the claim ever came before a jury.” Id., at 130a (internal quotation marks omitted). State Farm manager Bob Noxon, Summers testified, resorted to a tactic of this order in the Campbell case when he “instructed] Summers to write in the file that Todd Os-pital (who was killed in the accident) was speeding because he was on his way to see a pregnant girlfriend.” Ibid. In truth, “[t]here was no pregnant girlfriend.” Ibid. Expert testimony noted by the trial court described these tactics as “completely improper.” Ibid.

The trial court also noted the testimony of two Utah State Farm employees, Felix Jensen and Samantha Bird, both of whom recalled “intolerable” and “recurrent” pressure to reduce payouts below fair value. Id., at 119a (internal quotation marks omitted). When Jensen complained to top managers, he was told to “get out of the kitchen” if he could not take the heat; Bird was told she should be “more of a team player.” Ibid, (internal quotation marks omitted). At times, Bird said, she “was forced to commit dishonest acts *433 and to knowingly underpay claims.” Id., at 120a. Eventually, Bird quit. Ibid. Utah managers superior to Bird, the evidence indicated, were improperly influenced by the PP&R program to encourage insurance underpayments. For example, several documents evaluating the performance of managers Noxon and Brown “contained explicit preset average payout goals.” Ibid.

Regarding liability for verdicts in excess of policy limits, the trial court referred to a State Farm document titled the “Excess Liability Handbook”; written before the Campbell accident, the handbook instructed adjusters to pad files with “self-serving” documents, and to leave critical items out of files, for example, evaluations of the insured’s exposure. Id., at 127a-128a (internal quotation marks omitted). Divisional superintendent Bill Brown used the handbook to train Utah employees. Id., at 134a. While overseeing the Campbell case, Brown ordered adjuster Summers to change the portions of his report indicating that Mr. Campbell was likely at fault and that the settlement cost was correspondingly high. Id., at 3a. The Campbells’ case, according to expert testimony the trial court recited, “was a classic example of State Farm’s application of the improper practices taught in the Excess Liability Handbook.” Id., at 128a.

The trial court further determined that the jury could find State Farm’s policy “deliberately crafted” to prey on consumers who would be unlikely to defend themselves. Id., at 122a. In this regard, the trial court noted the testimony of several former State Farm employees affirming that they were trained to target “the weakest of the herd” — “the elderly, the poor, and other consumers who are least knowledgeable about their rights and thus most vulnerable to trickery or deceit, or who have little money and hence have no real alternative but to accept an inadequate offer to settle a claim at much less than fair value.” Ibid, (internal quotation marks omitted).

*434 The Campbells themselves could be placed within the “weakest of the herd” category. The couple appeared economically vulnerable and emotionally fragile. App. 3360a-3361a (Order Denying State Farm’s Motion for Judgment NOV and New Trial Regarding Intentional Infliction of Emotional Distress). At the time of State Farm’s wrongful conduct, “Mr. Campbell had residuary effects from a stroke and Parkinson’s disease.” Id., at 3360a.

To further insulate itself from liability, trial evidence indicated, State Farm made “systematic” efforts to destroy internal company documents that might reveal its scheme, App. to Pet. for Cert. 123a, efforts that directly affected the Campbells, id., at 124a. For example, State Farm had “a special historical department that contained a copy of all past manuals on claim-handling practices and the dates on which each section of each manual was changed.” Ibid. Yet in discovery proceedings, State Farm failed to produce any claim-handling practice manuals for the years relevant to the Campbells’ bad-faith case. Id., at 124a-125a.

State Farm’s inability to produce the manuals, it appeared from the evidence, was not accidental. Documents retained by former State Farm employee Samantha Bird, as well as Bird’s testimony, showed that while the Campbells’ case was pending, Janet Cammack, “an in-house attorney sent by top State Farm management, conducted a meeting ... in Utah during which she instructed Utah claims management to search their offices and destroy a wide range of material of the sort that had proved damaging in bad-faith litigation in the past — in particular, old claim-handling manuals, memos, claim school notes, procedure guides and other similar documents.” Id., at 125a. “These orders were followed even though at least one meeting participant, Paul Short, was personally aware that these kinds of materials had been requested by the Campbells in this very case.” Ibid.

Consistent with Bird’s testimony, State Farm admitted that it destroyed every single copy of claim-handling manu *435 als on file in its historical department as of 1988, even though these documents could have been preserved at minimal expense. Ibid. Fortuitously, the Campbells obtained a copy of the 1979 PP&R manual by subpoena from a former employee. Id., at 132a. Although that manual has been requested in other cases, State Farm has never itself produced the document. Ibid.

‘As a final, related tactic,” the trial court stated, the jury could reasonably find that “in recent years State Farm has gone to extraordinary lengths to stop damaging documents from being created in the first place.” Id., at 126a. State Farm kept no records at all on excess verdicts in third-party cases, or on bad-faith claims or attendant verdicts. Ibid. State Farm alleged “that it has no record of its punitive damage payments, even though such payments must be reported to the [Internal Revenue Service] and in some states may not be used to justify rate increases.” Ibid. Regional Vice President Buck Moskalski testified that “he would not report a punitive damage verdict in [the Campbells’] case to higher management, as such reporting was not set out as part of State Farm’s management practices.” Ibid.

State Farm’s “wrongful profit and evasion schemes,” the trial court underscored, were directly relevant to the Camp-bells’ case, id., at 132a:

“The record fully supports the conclusion that the bad-faith claim handling that exposed the Campbells to an excess verdict in 1983, and resulted in severe damages to them, was a product of the unlawful profit scheme that had been put in place by top management at State Farm years earlier. The Campbells presented substantial evidence showing how State Farm’s improper insistence on claims-handling employees’ reducing their claim payouts ... regardless of the merits of each claim, manifested itself ... in the Utah claims operations during the period when the decisions were made not to offer to settle the Campbell case for the $50,000 policy limits— *436 indeed, not to make any offer to settle at a lower amount. This evidence established that high-level manager Bill Brown was under heavy pressure from the PP&R scheme to control indemnity payouts during the time period in question. In particular, when Brown declined to pay the excess verdict against Curtis Campbell, or even post a bond, he had a special need to keep his year-end numbers down, since the State Farm incentive scheme meant that keeping those numbers down was important to helping Brown get a much-desired transfer to Colorado.. .. There was ample evidence that the concepts taught in the Excess Liability Handbook, including the dishonest alteration and manipulation of claim files and the policy against posting any superse-deas bond for the full amount of an excess verdict, were dutifully carried out in this case. . . . There was ample basis for the jury to find that everything that had happened to the Campbells — when State Farm repeatedly refused in bad-faith to settle for the $50,000 policy limits and went to trial, and then failed to pay the ‘excess’ verdict, or at least post a bond, after trial — was a direct application of State Farm’s overall profit scheme, operating through Brown and others.” Id., at 133a-134a.

State Farm’s “policies and practices,” the trial evidence thus bore out, were “responsible for the injuries suffered by the Campbells,” and the means used to implement those policies could be found “callous, clandestine, fraudulent, and dishonest.” Id., at 136a; see id., at 113a (finding “ample evidence” that State Farm’s reprehensible corporate policies were responsible for injuring “many other Utah consumers during the past two decades”). The Utah Supreme Court, relying on the trial, court’s record-based recitations, understandably characterized State Farm’s behavior as “egregious and malicious.” Id., at 18a.

*437 I > — I

The Court dismisses the evidence describing and documenting State Farm’s PP&R policy and practices as essentially irrelevant, bearing “no relation to the Campbells’ harm.” Ante, at 422; see ante, at 424 (“conduct that harmed [the Campbells] is the only conduct relevant to the reprehensibility analysis”). It is hardly apparent why that should be so. What is infirm about the Campbells’ theory that their experience with State Farm exemplifies and reflects an overarching underpayment scheme, one that caused “repeated misconduct of the sort that injured them,” ante, at 423? The Court’s silence on that score is revealing: Once one recognizes that the Campbells did show “conduct by State Farm similar to that which harmed them,” ante, at 424, it becomes impossible to shrink the reprehensibility analysis to this sole case, or to maintain, at odds with the determination of the trial court, see App. to Pet. for Cert. 113a, that “the adverse effect on the State’s general population was in fact minor,” ante, at 427.

Evidence of out-of-state conduct, the Court acknowledges, may be “probative [even if the conduct is lawful in the State where it occurred] when it demonstrates the deliberateness and culpability of the defendant’s action in the State where it is tortious....” Ante, at 422; cf. ante, at 419 (reiterating this Court’s instruction that trial courts assess whether “the harm was the result of intentional malice, trickery, or deceit, or mere accident”). “Other acts” evidence concerning practices both in and out of State was introduced in this case to show just such “deliberateness” and “culpability.” The evidence was admissible, the trial court ruled: (1) to document State Farm’s “reprehensible” PP&R program; and (2) to “rebut [State Farm’s] assertion that [its] actions toward the Campbells were inadvertent errors or mistakes in judgment.” App. 3329a (Order Denying Various Motions of State Farm to Exclude Plaintiffs’ Evidence). Viewed in this light, there surely was “a nexus” between much of the “other *438 acts” evidence and “the specific harm suffered by [the Camp-bells].” Ante, at 422.

Ill

When the Court first ventured to override state-court punitive damages awards, it did so moderately. The Court recalled that “[i]n our federal system, States necessarily have considerable flexibility in determining the level of punitive damages that they will allow in different classes of cases and in any particular case.” Gore, 517 U. S., at 568. Today’s decision exhibits no such respect and restraint. No longer content to accord state-court judgments “a strong presumption of validity,” TXO, 509 U. S., at 457, the Court announces that “few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” Ante, at 425.2 Moreover, the Court adds, when compensatory damages are substantial, doubling those damages “can reach the outermost limit of the due process guarantee.” Ibid,.; see ante, at 429 (“facts of this case ... likely would justify a punitive damages award at or near the amount of compensatory damages”). In a legislative scheme or a state high court’s design to cap punitive damages, the handiwork in setting single-digit and 1-to-l benchmarks could hardly be questioned; in a judicial decree imposed on the States by this Court under the banner of substantive due process, the numerical controls today’s decision installs seem to me boldly out of order.

* * *

1 remain of the view that this Court has no warrant to reform state law governing awards of punitive damages. *439 Gore, 517 U. S., at 607 (Ginsburg, J., dissenting). Even if I were prepared to accept the flexible guides prescribed in Gore, I would not join the Court’s swift conversion of those guides into instructions that begin to resemble marching orders. For the reasons stated, I would leave the judgment of the Utah Supreme Court undisturbed.

By switching the focus from the ratio of punitive to compensatory damages to the potential loss to the plaintiffs had the defendant succeeded in its illicit scheme, the Court could describe the relevant ratio in TXO as 10 to 1. See BMW of North America, Inc. v. Gore, 517 U. S. 559, 581, and n. 34 (1996).

TXO Production Corp. v. Alliance Resources Corp., 509 U. S. 443, 462, n. 8 (1993), noted that “[ujnder well-settled law,” a defendant’s “wrongdoing in other parts of the country” and its “impressive net worth” are factors “typically considered in assessing punitive damages.” It remains to be seen whether, or the extent to which, today’s decision will unsettle that law.