Opinion ID: 2566656
Heading Depth: 1
Heading Rank: 4

Heading: federal due process guideposts

Text: ¶ 19 In Gore, the Supreme Court established three guideposts for punitive damages awards in Gore: (1) the degree of reprehensibility of the defendant's misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases. Campbell II, 538 U.S. at 418, 123 S.Ct. 1513 (citing Gore, 517 U.S. at 574-75, 116 S.Ct. 1589). The Supreme Court structured its constitutional review of our reinstatement of the jury's $145 million punitive damages award in Campbell I within the framework of these guideposts. ¶ 20 In Campbell I, we conducted two separate reviews of the trial court's punitive damages award, under both state and federal law. [3] In Campbell II, the Supreme Court limited its review of the constitutionality of our award to the Gore guideposts. Since Campbell II, we have continued to apply our state standards, recognizing that they substantially reflect the Supreme Court's directives and modifying them as necessary to fully meet the federal requirements. See, e.g., Smith v. Fairfax Realty, 2003 UT 41, ¶ 31, 82 P.3d 1064. However, in this case we follow the lead of the Supreme Court and restrict our review to the guideposts set forth in Gore.
¶ 21 Just as we reinstated the jury's $145 million punitive damages award primarily because of our assessment of the reprehensibility of State Farm's conduct, Campbell I, 2001 UT 89, ¶¶ 27-36, 53, 65 P.3d 1134 (analyzing reprehensibility under Crookston standards), so do we again look primarily to Gore's reprehensibility guidepost to fix those damages on remand. We do so in recognition of the Supreme Court's reaffirmation in Campbell II that reprehensibility is `[t]he most important indicium of the reasonableness of a punitive damages award.' 538 U.S. at 419, 123 S.Ct. 1513 (quoting Gore, 517 U.S. at 575, 116 S.Ct. 1589). ¶ 22 Because any determination of reprehensibility inevitably implicates moral judgments and is therefore susceptible to an arbitrary, inexplicable, and disproportionate outcome, the Supreme Court has fashioned certain measuring tools. These include consideration of whether the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident. Id. ¶ 23 First, we consider whether the harm was economic or physical. We are mindful of the Supreme Court's observation that the harm [in this case] arose from a transaction in the economic realm, not from some physical assault or trauma. Id. at 426, 123 S.Ct. 1513. We do not, however, read this comment to foreclose our value-based assessment of the type of injuries which may flow from the abuse of transactions in the economic realm, nor to bar us from judging the reprehensibility of such abusive conduct. The Supreme Court's observation is carefully phrased. It does not classify the injury inflicted on the Campbells by State Farm as economic. Rather, it notes that the transaction which gave rise to the injury was in the economic realm. ¶ 24 If we were to hold the view that insurance has no purpose beyond providing economic compensation for loss, there would be little reason to dwell on this first reprehensibility factor. So interpreted, not only would the harm caused by State Farm be purely economic in nature, but the economic harm sustained by the Campbells would be minimal. State Farm ultimately paid the entire judgment which was awarded against the Campbells, including amounts in excess of the policy limits. However, we do not believe that the Campbells' injuries were limited to their economic loss. ¶ 25 Instead, we recognize that the gravity of harm which an insurer may potentially inflict on an insured is unique to the nature of the product and service that insurance provides. Life is fraught with uncertainty and risk. In Utah alone, our citizens pay nearly $1 billion annually in automobile insurance premiums in an effort to ameliorate the anxiety caused by uncertainty and risk. [4] ¶ 26 We have shaped our law relating to first party insurance contracts to recognize the practical reality that insurance frequently is purchased not only to provide funds in case of loss, but to provide peace of mind for the insured or his beneficiaries. Beck v. Farmers Ins. Exch., 701 P.2d 795, 802 (Utah 1985). Peace of mind clearly plays a central role in accounting for the appeal of liability insurance. In insurance each party must take a risk. But it is inaccurate to assert that if the insured event does not occur then the insured receives nothing in return for the premium payment made. Each insured receives at the time of contract formation present assurance of compensation if the loss occurs which is a valuable peace-of-mind protection. 1-1 Holmes' Appleman on Insurance 2d § 1.3. ¶ 27 An allegation that one's negligent conduct has caused the injury or death of another inevitably triggers fear and apprehension that insurance succors. Insureds buy financial protection and peace of mind against fortuitous losses. They pay the requisite premiums and put their faith and trust in their insurers to pay policy benefits promptly and fairly when the insured event occurs. Good faith and fair dealing is their expectation. It is the very essence of the insurer-insured relationship. In some instances, however, insurance companies refuse to pay the promised benefits when the underwritten harm occurs. When an insurer decides to delay or to deny paying benefits, the policyholder can suffer injury not only to his economic well-being but to his emotional and physical health as well. Moreover, the holder of a policy with low monetary limits may see his whole claim virtually wiped out by expenses if the insurance company compels him to resort to court action. 2-8 Holmes' Appleman on Insurance 2d § 8.7. ¶ 28 As the facts of this case make clear, misconduct which occurs in the insurance sector of the economic realm is likely to cause injury more closely akin to physical assault or trauma than to mere economic loss. [5] When an insurer callously betrays the insured's expectation of peace of mind, as State Farm did to the Campbells, its conduct is substantially more reprehensible than, for example, the undisclosed repainting of an automobile which spawned the punitive damages award in Gore. [6] ¶ 29 State Farm expressly assured the Campbells that their assets would not be placed at risk by the negligence and wrongful death lawsuit brought against them. The company then unnecessarily subjected the Campbells to the risks and rigors of a trial. State Farm disregarded facts from which it should have concluded that the Campbells faced a near-certain probability of having a judgment entered against them in excess of policy limits. When this probability came to pass, State Farm withdrew its expressions of assurance and told the Campbells to place a for sale sign on their house. These acts, all of which the Supreme Court conceded that State Farm had committed, Campbell II, 538 U.S. at 419, 123 S.Ct. 1513, and for which State Farm has not voiced so much as a whisper of apology or remorse, caused the Campbells profound noneconomic injury. ¶ 30 It simply will not do to classify this injury as solely economic for the purposes of evaluating it under the first prong of the Gore reprehensibility test, and we decline to do so. We turn now to the remaining Gore indicia for evaluating reprehensibility. ¶ 31 The second factor in assessing reprehensibility is whether State Farm showed indifference or reckless disregard for the health and safety of the Campbells. There is little doubt that State Farm could reasonably have known that its conduct would cause stress and trauma to a policyholder. State Farm was clearly indifferent to this result, evincing a reckless disregard for the Campbells' peace of mind. ¶ 32 The third factor is whether the victims were financially vulnerable. It remains obvious to us that not only were the Campbells financially vulnerable, but their vulnerability enabled, if not motivated, State Farm's conduct. We need stray no further into the record than to the post-judgment advice given to the Campbells by State Farm's attorney that they put a for sale sign on their house to make this point. It is difficult to imagine State Farm making this statement to a sophisticated insured whom State Farm believed to have the wherewithal to protect himself from its predations. ¶ 33 Fourth, we consider whether the reprehensible conduct was repeated or merely an isolated incident. We take up this measure of reprehensibility with considerable caution because, although Gore instructs us to consider whether the conduct involved repeated actions or was an isolated incident, id. (citing Gore, 517 U.S. at 576-77, 116 S.Ct. 1589), the Supreme Court expressly found that we erred in determining that State Farm was a recidivist. Id. at 423, 123 S.Ct. 1513. Repeated misconduct justifies a more severe sanction both because it minimizes the likelihood that the conduct was a unique aberration and because it justifies the imposition of punitive damages as a deterrent. Although we are bound by the Supreme Court's finding that State Farm was not a recidivist, absence of prior bad acts does not mean that State Farm has forsworn the conduct that caused the Campbells' injury, and that the citizens of Utah therefore have no reason to deter State Farm's future conduct. State Farm's obdurate insistence that its treatment of the Campbells was proper clearly calls out for vigorous deterrence. ¶ 34 In Campbell I, we voiced our incredulity over State Farm's protestations of blamelessness. We noted: State Farm refuses in its brief on appeal to concede any error or impropriety in the handling of the Campbell case. Rather, testimony at trial indicated that State Farm was proud of the way it treated the Campbells. Further, State Farm asserts that it is in fact a victim in this case because it is the target of the secret conspiracy perpetrated by the Campbells, Ospital, Slusher, and their attorneys to bring this bad faith lawsuit and to share any recovery received. 2001 UT 89 at ¶ 35, 65 P.3d 1134 (internal citations omitted). The Supreme Court did not take issue with this observation. Since Campbell I, State Farm has directed us to no evidence suggesting that it has gained insight into the wrongfulness of its behavior or has reconsidered its feelings of pride and victimization. ¶ 35 We will not and, consistent with our duty on remand, cannot invoke deterrence as a justification for punitive damages based on conduct dissimilar to that which State Farm inflicted on the Campbells. We can, however, find ample grounds to defend an award of punitive damages in the upper range permitted by due process based on our concern that State Farm's defiance strongly suggests that it will not hesitate to treat its Utah insureds with the callousness that marked its treatment of the Campbells. See Diversified Holdings, L.C. v. Turner, 2002 UT 129, ¶¶ 21, 34, 63 P.3d 686 (stating that the chief aggravating factor was a lack of remorse increasing the likelihood of recidivism). ¶ 36 Lastly, we consider whether the substantial emotional damages sustained by the Campbells were the result of State Farm's intentional malice, trickery, and deceit. We conclude that the damages sustained by the Campbells were no mere accident. At trial, Ray Summers, the adjuster who handled the Campbell case, testified that State Farm resorted to various tactics to create prejudice in the event the case ever went before a jury. Campbell I, 2001 UT 89 at ¶ 29, 65 P.3d 1134. For example, State Farm manager Bob Noxon instructed Summers to manufacture the false story that Todd Ospital, who was killed in the automobile accident for which Mr. Campbell was found to be at fault, was speeding because he was on his way to see a pregnant girlfriend. Id. In truth, there was no pregnant girlfriend, nor was Mr. Ospital even speeding; this story was invented only to cause prejudice in the record. Id. This deceitful conduct can only be explained as part of a scheme to reduce State Farm's economic exposure. The possibility that its dissembling would expose the Campbells to an excess judgment must have been apparent to State Farm. To react as it did when the excess judgment became a reality only confirms the toxicity of State Farm's behavior.
¶ 37 We turn now to the second Gore guidepost: the ratio between actual and punitive damages awarded. State Farm focuses its attention on the Supreme Court's statement that [w]hen compensatory damages are substantial, then a lesser ratio [of compensatory to punitive damages], perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee. Campbell II, 538 U.S. at 425, 123 S.Ct. 1513. The compensatory damages award to the Campbells was substantial and, in the Supreme Court's view, provided them complete compensation. Id. at 426, 123 S.Ct. 1513. This is due at least in part to the possibility, recognized by the Supreme Court, that the compensatory damages award for emotional distress incorporated within it a punitive component. [7] Id. ¶ 38 Such a conclusion, though plausible as an abstract proposition, does not account for the circumstances of the compensatory damages award in this case. The jury awarded the Campbells $2.6 million in compensatory damages. The trial court granted State Farm's motion for remittitur and reduced the award to $1 million: $600,000 for Mr. Campbell and $400,000 for Mrs. Campbell. The trial court's ruling was supported by extensive and detailed findings explaining the basis for the reduced compensatory damages award. Based on this thorough record, we conclude that the trial court's compensatory damages award was purged of elements which may have been more properly placed in the category of punitive damages. We are convinced that the combined efforts of the jury and the trial judge ensured that the compensatory damages award was what it purported to be: compensation based on considered evaluation of the degree of emotional harm inflicted on the Campbells by State Farm. Because it is exclusively for actual harm sustained by the Campbells, the compensatory damages award supports a punitive damages award exceeding $1 million. ¶ 39 In its discussion of the relationship between compensatory and punitive damages, the Supreme Court reaffirmed that ratios exceeding single-digits, which it strongly implied mark the outer limits of due process, may be appropriate only where `a particularly egregious act has resulted in only a small amount of economic damages,' or where `the monetary value of noneconomic harm may have been difficult to determine.' Id. at 425, 123 S.Ct. 1513 (quoting Gore, 517 U.S. at 582, 116 S.Ct. 1589). These circumstances are not present here. But, neither is this a proper case to limit a punitive damages award to the amount of compensatory damages. The 1-to-1 ratio between compensatory and punitive damages is most applicable where a sizeable compensatory damages award for economic injury is coupled with conduct of unremarkable reprehensibility. This scenario, likewise, does not describe this case. ¶ 40 Here, the Campbells were awarded substantial noneconomic damages for emotional distress. As the Supreme Court noted, Much of the distress was caused by the outrage and humiliation the Campbells suffered at the actions of their insurer; and it is a major rule of punitive damages to condemn such conduct. Id. at 426, 123 S.Ct. 1513. The trial court valued the extent of the Campbells' injury at $1 million. We have no difficulty concluding that conduct which causes $1 million of emotional distress and humiliation is markedly more egregious than conduct which results in $1 million of economic harm. Furthermore, such conduct is a candidate for the imposition of punitive damages in excess of a 1-to-1 ratio to compensatory damages. Simply put, the trial court's determination that State Farm caused the Campbells $1 million of emotional distress warrants condemnation in the upper single-digit ratio range rather than the 1-to-1 ratio urged by State Farm. ¶ 41 When considered in light of all of the Gore reprehensibility factors, we conclude that a 9-to-1 ratio between compensatory and punitive damages, yielding a $9,018,780.75 punitive damages award, serves Utah's legitimate goals of deterrence and retribution within the limits of due process.
¶ 42 The application of Gore's final guidepost, the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases, to State Farm's conduct does not cause us to retreat from our determination that a punitive damages award nine times greater than the compensatory damages is called for here. ¶ 43 In Campbell II, the Supreme Court pointed to a potential $10,000 fine for fraud as the most relevant civil sanction to which State Farm was exposed for its conduct toward the Campbells. [8] 538 U.S. at 428, 123 S.Ct. 1513; see also Utah Code Ann. § 31A-26-303 (2003). According to the Supreme Court, this fine was dwarfed by the $145 million punitive damages jury award. Id. It is unclear, however, what amount of punitive damages would be supported by a $10,000 fine. The Supreme Court endorsed a punitive damages award of $1 million, which is one hundred times greater than the $10,000 fine. Presumably, then, this 100-to-1 ratio does not offend due process. Thus, somewhere between $1 million and $145 million, the difference between the $10,000 civil penalty and the punitive damages award becomes so great that the latter dwarfs the former. State Farm claims in its brief that the Supreme Court impliedly found that the civil penalty would be dwarfed by a $17 million punitive damages award. Whether or not this is true, we hold fast to our conviction that a punitive damages award of $9,018,780.75 is in line with the third Gore guidepost. ¶ 44 The nature of a civil or criminal penalty provides some useful guidance to courts when fixing punitive damages because it reflects legislative judgments concerning appropriate sanctions for the conduct at issue. Browning-Ferris, 492 U.S. at 301, 109 S.Ct. 2909 (O'Connor, J., concurring in part and dissenting in part). However, the quest to reliably position any misconduct within the ranks of criminal or civil wrongdoing based on penalties affixed by a legislature can be quixotic. For example, while a $10,000 fine for fraud may appear modest in relationship to a multi-million dollar punitive damages award, it is identical to the maximum fine which may be imposed on a person in Utah for the commission of a first degree felony, the classification assigned our most serious crimes. Utah Code Ann. § 76-3-301 (2003). ¶ 45 The Campbells invite us to conduct anew an analysis of the potential penalties to which State Farm may be exposed, based on the narrowed range of conduct deemed relevant by the Supreme Court. While we agree that the Supreme Court opened the door to such a reassessment, we believe that it is unnecessary in light of our conclusion that $9,018,780.75 is amply supported by the $10,000 civil penalty. ¶ 46 In sum, the Supreme Court affirmed the authority of a state to make its own reasoned judgment about what conduct is permitted or proscribed within its borders. Campbell II, 538 U.S. at 422, 123 S.Ct. 1513 (citing Gore, 517 U.S. at 569, 116 S.Ct. 1589). It follows, therefore, that each state retains the right and the responsibility to draw on its own values and traditions when assessing the reprehensibility of tortious conduct for the purpose of reviewing the propriety of a punitive damages award, so long as that review conforms to the Gore guidelines and the demands of due process. To the extent that our conclusions about what size punitive damages award best serves the legitimate interests of Utah exceeds an award suggested by the Supreme Court, we are exercising what we interpret to be a clear grant of discretion to do so. We have carefully considered the scope of the Supreme Court's mandate and have endeavored scrupulously to confine ourselves to it.