Opinion ID: 1415450
Heading Depth: 2
Heading Rank: 1

Heading: Using Evidence of an Insurer's Out-of-State Conduct in a Bad Faith Action

Text: In this proceeding Mr. Jackson introduced evidence of bad faith conduct by State Farm that was litigated in a case filed in the state of Utah. Although the trial court permitted the evidence, it instructed the jury that the Utah case was being reviewed by the United States Supreme Court. Here, State Farm assigned error to the admission of this evidence. The majority opinion glossed over the issue in a footnote without resolving the matter. I believe this is an important federal constitutional issue, because in State Farm Mutual Insurance v. Campbell, 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003) the United States Supreme Court instructed all courts in the nation on how they are to treat such evidence, when it involves lawful out-of-state conduct by an insurer. [1] 1. Factual background of Campbell. Campbell was a first-party bad faith action against an insurer that was filed in Utah. The plaintiff had previously been sued as a result of an automobile accident. The verdict exceeded his liability policy coverage. The insurer refused to pay the excess judgment. The plaintiff thereafter instituted a bad faith claim against his insurer. During the course of the Campbell trial, the plaintiff sought to prove that the insurer had a nationwide policy of engaging in bad faith conduct. To prove this contention, the plaintiff was allowed to introduce evidence of all types of lawful out-of-state conduct that was committed by the insurer. The jury eventually returned a verdict in favor of the plaintiff. The plaintiff was awarded $1 million in compensatory damages and $145 million in punitive damages. After the Utah supreme court affirmed the judgment, the United States Supreme Court granted certiorari. One of the issues addressed by the Supreme Court involved the use of an insurer's lawful out-of-state conduct. 2. Guidelines for using evidence of an insurer's out-of-state conduct. Justice Kennedy, writing for the majority in Campbell, [2] indicated that as a general rule, a plaintiff cannot introduce evidence of lawful or unlawful out-of-state conduct by a defendant, for the sole purpose of punishing the defendant. The court stated: A State cannot punish a defendant for conduct that may have been lawful where it occurred. Nor, as a general rule, does a State have a legitimate concern in imposing punitive damages to punish a defendant for unlawful acts committed outside of the State's jurisdiction. Campbell, 538 U.S. at 421, 123 S.Ct. at 1522, 155 L.Ed.2d at 603 (citations omitted). Later, however, in the Campbell opinion, the Court carved out an exception to the general rule regarding the introduction of evidence of lawful out-of-state conduct by a defendant. [3] The opinion held: Lawful out-of-state conduct may be probative when it demonstrates the deliberateness and culpability of the defendant's action in the State where it is tortious, but that conduct must have a nexus to the specific harm suffered by the plaintiff. A jury must be instructed, furthermore, that it may not use evidence of out-of-state conduct to punish a defendant for action that was lawful in the jurisdiction where it occurred. ... A defendant should be punished for the conduct that harmed the plaintiff, not for being an unsavory individual or business. Due process does not permit courts, in the calculation of punitive damages, to adjudicate the merits of other parties' hypothetical claims against a defendant under the guise of the reprehensibility analysis.... Punishment on these bases creates the possibility of multiple punitive damages awards for the same conduct; for in the usual case nonparties are not bound by the judgment some other plaintiff obtains. Campbell, 538 U.S. at 422-423, 123 S.Ct. at 1522-1523, 155 L.Ed.2d at 604 (citations omitted). In essence, Justice Kennedy concluded that there was no nexus between the lawful out-of-state conduct of the insurer and the conduct complained of by the plaintiff. Campbell, 538 U.S. at 424, 123 S.Ct. at 1524, 155 L.Ed.2d at 605. [4] Before the Utah court, the plaintiffs were permitted to introduce evidence pertaining to State Farm's performance, planning and review or PP & R policy. The PP & R policy pertained to State Farm's business practices for over twenty years in numerous states. In fact, these practices bore no relation to a third-party automobile insurance claim, the type of claim underlying the Campbell's complaint against the company. In determining, that the evidence was inadmissible, the Campbell court held: The Campbells have identified scant evidence of repeated misconduct of the sort that injured them. Nor does our review of the Utah court's decisions convince us that State Farm was only punished for its actions toward the Campbells. Although evidence of other acts need not be identical to have relevance in the calculation of punitive damages, the Utah court erred here because evidence pertaining to claims that had nothing to do with a third-party lawsuit was introduced at length. Other evidence concerning reprehensibility was even more tangential. For example, the Utah Supreme Court criticized State Farm's investigation into the personal life of one of its employees and, in a broader approach, the manner in which State Farm's policies corrected its employees. 538 U.S. 408 at 423-424, 123 S.Ct. at 1523, 155 L.Ed.2d at 605. In concluding the Court held: In this case, because the Campbells have shown no conduct by State Farm similar to that which harmed them, the conduct that harmed them is the only conduct relevant to the reprehensibility analysis. 538 U.S. 408 at 424, 123 S.Ct. at 1524, 155 L.Ed.2d at 605. In summary, the ruling in Campbell on the use of a defendant's lawful out-of-state is binding on the courts of West Virginia. Campbell based its ruling on the requirements of the Due Process Clause of the Fourteenth Amendment. [5] Insofar as Campbell's ruling is constitutionally based, I believe the majority opinion should have addressed this matter.