Opinion ID: 2275888
Heading Depth: 2
Heading Rank: 1

Heading: state farm and extraterritoriality

Text: In State Farm , the plaintiffs pursued punitive damages in their bad faith claim on the basis that the insurance company employed a scheme to cap payouts on the company's claims. To prove this scheme the plaintiffs presented testimony about State Farm's fraudulent practices occurring nationwide. The trial court determined that such evidence was admissible for the determination of whether State Farm's conduct was reprehensible. After deliberation, the jury returned a punitive damages award of $145 million against State Farm. The United States Supreme Court (Supreme Court) granted State Farm's petition for certiorari, reversed the decision of the Supreme Court of Utah, which had reinstated the punitive damages award, and remanded the case for further proceedings with regard to punitive damages. Citing its previous decisions in Cooper Industries, Inc. v. Leatherman Tool Group, Inc., [3] BMW of North America, Inc. v. Gore, [4] TXO Production Corp. v. Alliance Resources Corp., [5] and Pacific Mutual Life Insurance Company v. Haslip, [6] the Supreme Court stated that although the States possess discretion over the imposition of punitive damages, ... the Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments. [7] The Supreme Court held that the punitive damages award in State Farm violated the Due Process Clause of the Fourteenth Amendment as it was grossly excessive and expressed particular concern over the evidence of State Farm's out-of-state/extraterritorial conduct: 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. [8] In the Supreme Court's opinion, the conduct upon which the punitive damages award was based bore no relation to the plaintiffs' harm, which resulted in the case ... [being] used as a platform to expose, and punish, the perceived deficiencies of State Farm's operations throughout the country, [9] instead of being used to condemn State Farm for its conduct towards the plaintiffs. The Supreme Court held that the punitive damages award was unreasonable and irrational and remanded the case for further proceedings with appropriate instructions.