A Video Explaining the Application of Campbell v. State Farm to Punitive Damages Awards

Punitive Damages Limited by Reprehensibility of the Defendant's Conduct

In State Farm Mut. Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408, the United States Supreme Court held that "'the most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant's conduct.'" (Id. at p. 419.) Moreover, in Campbell, the high court noted that its "'holdings that a recidivist may be punished more severely than a first offender recognize that repeated misconduct is more reprehensible than an individual instance of malfeasance.'"

In California punitive damages have long been a part of traditional state tort law. [Pacific Mutual Life Insurance Co. v. Haslip (1991) 499 U.S. 1, 15, 111 S.Ct. 1032, 113 L.Ed.2d 1 (Haslip)], and the states have “broad discretion” with respect to their imposition. But because a state's system for awarding punitive damages may deprive a defendant of fair notice of the severity of the penalty that a State may impose and threaten arbitrary punishments, the United States Supreme Court has found that the Constitution imposes certain limits, in respect both to procedures for awarding punitive damages and to amounts forbidden as grossly excessive. [Philip Morris USA v. Williams (2007) 549 U.S. 346, 352–353, 127 S.Ct. 1057, 166 L.Ed.2d 940 (Williams).)

Although the Supreme Court declined to impose a bright-line ratio which a punitive damages award cannot exceed, the U.S. Supreme Court, guided by this history, concluded that in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process. Following the high court's guidance, the California Supreme Court explained that “ratios between the punitive damages award and the plaintiff's actual or potential compensatory damages significantly greater than 9 or 10 to 1 are suspect and, absent special justification cannot survive appellate scrutiny under the due process clause. [Nickerson v. Stonebridge Life Ins. Co., 63 Cal.4th 363, 371 P.3d 242, 203 Cal.Rptr.3d 23 (Cal., 2016)

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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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