Damage Control

Can punitive awards be tamed?

In 1981 a 63-year-old retiree named Curtis Campbell was driving with his wife on a two-lane highway in Cache County, Utah, when he switched lanes to pass a slow-moving truck. Realizing that a car was heading toward him faster than he'd thought, Campbell yanked his Ford LTD back into the northbound lane, his heart pounding as he narrowly avoided a head-on collision.

The other driver, a 19-year-old college student named Todd Ospital, was not so lucky. Swerving to avoid Campbell's car, he lost control of his Mercury Bobcat and slammed into a van driven by Robert Slusher, a 26-year-old welder. Ospital was killed. Slusher suffered severe injuries, including permanent impairment of his left arm.

Campbell's tragic miscalculation gave rise to a recent decision in which the U.S. Supreme Court tried once again to put limits on punitive damages, one of the wild cards that make justice in American courtrooms such a gamble. The award the Court overturned arose not from the accident itself but from the way it was handled by Campbell's insurer, State Farm.

After Ospital's parents and Slusher sued Campbell, State Farm assured him he was not liable and refused to settle the case. In 1983 a jury found Campbell 100 percent responsible for the crash and awarded the plaintiffs $185,849 in damages.

The limit on Campbell's policy was $50,000, and State Farm said it would not cover the extra amount, telling the Campbells they'd better sell their home. In 1984 the plaintiffs agreed to drop their claims against Campbell in exchange for his agreement to sue State Farm for bad faith and give them 90 percent of any verdict.

In their lawsuit, the Campbells argued that State Farm had refused to settle, even though it knew the plaintiffs had a good chance of winning much more than they had offered to accept, because of a company policy aimed at minimizing claim payments. State Farm, which eventually agreed to cover the full amount of the verdict against Campbell, said it had made an honest mistake.

The Campbells' argument did not make much sense on the face of it, since settling the crash lawsuit would have been in State Farm's interest as well as theirs. And since Campbell had always insisted he was not responsible for the accident, he was essentially suing State Farm for agreeing with him.

Still, the insurer did treat the Campbells shabbily, at first assuring them everything would be OK, then abandoning them after the trial. A jury decided that the ensuing year and a half of uncertainty was worth $2.6 million.

The judge reduced the compensatory damages to $1 million, which still seems a bit high, especially since the death of one young man and the permanent disability of another had rated less than $200,000 in the first lawsuit. But the real shocker in the case against State Farm was the punitive damage award: $145 million.

"We have no doubt that there is a presumption against an award that has a 145-to-1 ratio" of punitive to compensatory damages, the Supreme Court said. It concluded that the verdict violated the 14th Amendment's guarantee of due process because it "was neither reasonable nor proportionate to the wrong committed." Rather, "it was an irrational and arbitrary deprivation" of the defendant's property.

One of three dissenters, Justice Antonin Scalia, argued that "the Due Process Clause provides no substantive protections against 'excessive' or 'unreasonable' awards of punitive damages." He added that the Court's "punitive damages jurisprudence…is insusceptible of principled application."

Given the Court's hemming and hawing about "concrete constitutional limits" on the ratio between punitive and compensatory damages, Scalia may be right. But the same lack of principle is apparent in the very concept of punitive damages, which invites irrational and arbitrary awards by muddying the distinction between civil and criminal justice.

While both systems help deter antisocial behavior, the focus of civil justice is supposed to be compensation, making victims whole. Yet punitive "damages" (which are not really damages at all) are explicitly aimed at retribution. No wonder juries are confused.

Punitive damages serve the same function as criminal fines—punishment and deterrence—but with much less statutory guidance and fewer protections for the accused. It's not surprising that a majority of the Supreme Court thinks such punishments should be governed by the requirements of due process. Surely they should be governed by something other than the whims of juries.