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January 18, 2005

This is one of a series of articles under the by line “Butler on Bad Faith” originally published in Mealey’s Litigation Report: Insurance Bad Faith, Vol. 18, #18, p. 25 (January 18, 2005). © Copyright Butler 2005.


Given that the Utah Supreme Court (“Utah”) previously reinstated a $145 million punitive damages award in favor of the Campbells, it is not surprising that on remand from the U.S. Supreme Court, this same state high court goes to great lengths to justify the largest punitive damages award it believes could possibly survive further constitutional review. In Campbell v. State Farm Mut. Auto Ins. Co. (“Campbell III”),[FN1] Utah responds to the U.S. Supreme Court’s decision in State Farm Mut. Auto Ins. Co. v. Campbell (“Campbell II”).[FN2] This judicial response is reflective of many things, including the difficulty of creating clarity through language. It is also indicative of the fact that Courts are composed of human beings who have “egos” and “feelings” too.

In reading Campbell III it is difficult not to envision six justices, black-robed and spurred, saddling upon the back of the U.S. Supreme Court, while gripping their decision in one hand and waving their Ten Gallon hats in the other, as they gleefully kick their spurs. Clearly Utah carefully chooses its stated facts so as to avoid another constitutional challenge, while rationalizing the largest punitive damages award it believes it can. 
Campbell Revisited

The trial record of Campbell is familiar to most, although the specific facts an appellate court, or even appellate judge, may wish to recite or ignore, have arguably created multiple “factual” versions of Campbell. A sanitized version of the Campbell facts, however, appears to be as follows.

Mr. Campbell was involved in an automobile accident that disabled one man and killed another. His policy provided $25,000 of liability coverage. His insurer did not settle the case for policy limits when presented with the opportunity to do so and, after trial on the merits, the jury determined that he was 100% responsible for the accident. This resulted in an excess judgment against him of $110,000 more than the policy limit. Initially the insurer refused to pay more than the policy limit of liability. Although the insurer subsequently paid the entire judgment, Campbell still sued for “bad-faith.”

The trial court permitted Campbell to introduce evidence contending that the insurer had a comprehensive nationwide practice of handling certain claims in a like manner. At the close of the evidence, the jury awarded the Campbells $2.6 million in compensatory damages[FN3] and $145 million in punitive damages. The insurer made several post-verdict motions, including motions for a judgment notwithstanding the verdict, for a new trial, and for remittitur of the damage awards.

Ultimately, the trial court denied all of the insurer’s motions for a judgment notwithstanding the verdict and for a new trial. However, the trial court did order a remittitur of the damage awards to $1 million in compensatory damages and $25 million in punitive damages.[FN4] In addition, the trial court awarded the Campbells $400,834.70 (forty percent of the compensatory damages award) for attorney fees and $400,747.78 for litigation expenses.

The Utah Supreme Court reinstated the original verdict of $145 million in punitive damages (“Campbell I”).

The U.S. Supreme Court reversed and remanded (“Campbell II”). The basis for the remand was a determination that, under the circumstances of this particular case, a punitive damages award of $145 million violated constitutional due process protections. In Campbell II, the U.S. Supreme Court provided its most specific guidelines and commentary on how courts must deal with punitive damages claims while maintaining constitutionality.

Campbell III is the Utah Supreme Court’s response upon remand. It is difficult to describe Utah’s rationalization of its remanded award of more than $9 million in punitive damages, nine times the compensatory damages, as anything other than a bitter “take that” reaction. 

A “Piece” of Mind

Utah recognized its obligation to recalculate the punitive damages award according to the principles articulated by the U.S. Supreme Court in Campbell II. Utah noted the insurer’s argument that the U.S. Supreme Court had mandated an “impenetrable ceiling on the punitive damages award of $1,002,086.75, based on a 1-to-1 ratio on punitive damages to compensatory damages.” However, in a clear signal of what was to come, Utah responded that the U.S. Supreme Court had declined to fix a substitute award. Instead, Utah stated that the U.S. Supreme Court had elected to entrust the calculation of a punitive damages award to the State Court’s judgment. While true, the U.S. Supreme Court did so with the admonition that the award needed to achieve the legitimate objectives of punitive damages and the demands of due process. Unfortunately, Utah immediately relegates those considerations to subordinate status. Utah coyly noted:

We take seriously the Supreme Court’s direction that ‘[t]he proper calculation of punitive damages under the principles we have discussed should be resolved, in the first instance, by the Utah courts.’

(Emphasis supplied). Such acquiescence to U.S. Supreme Court “directive” is revealing, particularly, as we shall see shortly, coming from a state high court that defines U.S. Supreme Court “directives” so narrowly.

Utah then stated, some may suggest insincerely, that “[t]o faithfully exercise our discretion, we must properly identify and apply the Supreme Court’s principles announced Campbell II.” With all the subtlety of a stampede, Utah then shifts the focus of the discussion from the constitutional infirmaries of its earlier decision to the object of its own obsession. Utah announces that the Supreme Court “has also consistently recognized punitive damages as a means to ‘further States legitimate interest in punishing unlawful conduct and deterring its repetition.’. . . [t]aken together, these things create a logical underpinning to an interpretation of the Supreme Court’s remand Order which sanctions and expects us to exercise a considerable measure of independent judgment in fixing the punitive damages award.” If the Utah Justices had been at least circling the campfire of the Supreme Court’s decision, they now unmistakably saddle up and ride off down their earlier, familiar trail. They advise:

Even the Supreme Court’s observation that this case ‘likely would justify a punitive damages award at or near the amount of compensatory’ does not cause us to retreat from our view that we have been granted discretion to determine the amount of punitive damages.

One can almost hear the yelling, “Hee Haw!” Then, with linguistic skill that would make Justice Scalia proud, Utah stated:

Contrary to State Farm’s assertions, this language cannot reasonably be interpreted as a conclusive determination that the magnitude of State Farm’s blameworthiness merits a punitive damages award no greater than the compensatory award. These are words of prediction, not direction, and are wholly compatible with a remand order which both instructs us to apply the Supreme Court’s standards with fidelity and recognizes that Utah courts are best able to address our States legitimate interests. Consistent with that view, the Supreme Court has clearly communicated its intention to cede to us the responsibility to assess the reprehensibility of State Farm’s conduct, to identify Utah’s legitimate interests, and to exercise reasoned judgment in fixing punitive damages.

(Emphasis supplied). Words of “prediction” not “direction.” Putting aside the fact that the U.S. Supreme Court seldom writes in the capacity of bookmaker or seer, it is difficult to believe that Utah actually believes this. As one reads, one begins to look for the definition of “is.” Like many great written works, greatness comes from a perception of layered ambiguity that allows great minds to see different truths within – apparently the Utah court sees the Campbell Trilogy as no exception.

Lest we come to think that the tone of defiance is based on the law, Utah reveals its sensitive side, stated that “[t]he Supreme Court chided us for basing our reinstatement of the jury’s $145 million punitive damages award on State Farm’s ‘nationwide policies’ rather than for the conduct direct [sic] toward the Campbells.’” Obviously no one likes to be “chided,” especially by those who the Utah court believes fail to use proper grammar. Apparently retribution and punishment are not limited to the parties involved.

Utah then went on to state:

We are mindful that it was our consideration of irrelevant extra-territorial evidence concerning reprehensibility which attracted most of the Supreme Court’s criticism in Campbell II. We therefore reevaluate State Farm’s conduct based solely on its behavior that affected the Campbells and took place within Utah.

(Emphasis supplied). Anyone who has read the Campbell II decision would know that it was the unconstitutional level of the award that “attracted most of the Supreme Court’s criticism.” It is also clear that the U.S. Supreme Court noted Utah’s consideration of irrelevant extra-territorial evidence merely to underscore how the unconstitutional award may have occurred.

Riding forward with guns drawn, Utah then prefaced the “factual” basis for its decision with an acknowledgment that the U.S. Supreme Court could have made its own conclusive findings concerning the degree of “blameworthiness.” But to do so, according to Utah, would have been announcing a federal standard measuring reprehensibility:

By creating such a national reprehensibility standard, however, the Supreme Court would have collided with its own rationale for limiting the scope of relevant reprehensibility evidence to intra-state conduct. The Supreme Court’s rejection of our consideration of State Farm’s conduct and other states was grounded in recognition that much of the out-of-state conduct was lawful where it occurred. The Supreme Court respected State’s autonomy to make policy choices about the lawfulness of union and corporate behavior within their borders, and used that difference to justify disallowing out-of-state conduct as an indicator of reprehensibility. . . . As long as the Supreme Court stands by its view that punitive damages serve a legitimate means to set aside State’s objectives to punish or deter behavior which it deems unlawful or tortuous based on its own values and traditions, it would seemingly be bound to avoid creating and imposing on the states a nationwide code of personal and corporate behavior.

Not surprisingly, Utah then found that the “blameworthiness” of the insurer’s behavior towards the Campbells to be several degrees more offensive than the U.S. Supreme Court’s “less than condemnatory view” that the insurer’s behavior “merits no praise.” And hence the spurs begin to draw blood. The highest court in the land of Utah then held:

We reach this conclusion after applying the relevant reprehensibility standards to the facts approved for consideration of State Farm’s reprehensibility in Campbell II, and in light of Utah’s values and traditions. We now turn to explaining how we exercise the discretion granted us by the Supreme Court to award the Campbells $9,018,780.75 in punitive damages.

The authors of this commentary shall take the high road and not comment upon the apparently self-perceived elevated “values and traditions” of Utah.

The U.S. Supreme Court observed that in the Campbell matter “the harm [in this case] arose from the transaction in the economic realm, not from such physical assault or trauma.” In what can only be described as a memorable feat of mental gymnastics, Utah rationalizes its finding by asserting: “The U.S. Supreme Court did not actually classify the injury itself as ‘economic’ and not ‘physical.’” Utah then proceeds to justify its constitutionally extreme 9-to-1 punitive damages award by holding that the harm done to the Campbells was not just economic, but rather “physical” as well. It would be interesting, and no doubt quite revealing, to see how Utah would react to such a tortured interpretation of its own decisions.

Through the course of this jurisprudential rodeo, Utah makes some interesting observations about insurance and insurance contracts. It acknowledges that if it 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 [economic vs. physical harm].” Utah acknowledged that if insurance is only providing economic compensation for loss not only would the harm caused by the insurer be purely economic in nature, but the economic harm sustained by the Campbells would be minimal. Note, the insurer paid the entire judgment that was awarded against the Campbells, included amounts in excess of the policy limits. However, Utah believes that insurance contracts provide more than an economic arrangement, which Utah believes is distinct from any other commercial contract.

Life is fought 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. 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 an essential role in accounting for the appeal of liability insurance. . . . Insureds buy financial protection and peace of mind against gratuitous losses. They pay the requisite premiums and put their faith and trust in their insurers to pay policy benefits properly 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 refused to pay the promised benefits when the underwritten harm occurs. When an insurer decides to delay or deny paying benefit, 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. . . . 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 then to mere economic loss. When an insurer callously betrays the insured’s expectation and peace of mind, as State Farm did to the Campbells, its conduct is substantially more reprehensible. . .

(Emphasis supplied).

While this is familiar language in support of “bad-faith” damages; it is perhaps long past time to point out that the horse has no blanket, the cowboy no clothes. How, in this context, does the economic commercial contract known as an “insurance contract” differ from any other commercial contract? When one purchases an automobile, she buys “peace of mind” that in an emergency the car will start and get her loved-one to the emergency room in time. Certainly as one approaches a sharp turn and applies the brakes, if they fail, there is an emotional toll that may even result in physical health issues, anxiety, and a loss of “peace of mind.” When one buys a burglar alarm system, and a burglar enters the house and steals without the system being triggered, no doubt there would be emotional, and probably even physical illness as a result of the anxiety caused and, yes, even a loss of one’s “peace of mind.”

How does the breach of such commercial contracts differ in the effect upon anyone’s loss of security or “peace of mind” from that of the breach of an insurance contract? Without passing judgment upon the “correctness” of the Utah punitive damages award of 9—to—1, it would seem fair criticism to suggest that its rationale for such, based upon a view that damage to one’s “peace of mind” is somehow unique to insurance contracts, is dubious at best.

In furtherance of its basic “peace of mind” analysis, Utah then stated that the “second” factor in assessing “reprehensibility” is whether the insurer showed indifference or reckless disregard for the health and safety of the Campbells. Accordingly, Utah found that there is “little doubt that [the insurer] could have reasonably known that its conduct would cause stress and trauma to a policyholder” in that the insurer “was clearly indifferent to this result, evincing a reckless disregard for the Campbells’ peace of mind.” Again, it seems clear that the majority of alleged breaches of contracts are the result of intentional conduct which the actor may or may not believe to constitute a breach. It also seems apparent that most such acts would reasonably be known to cause stress and trauma to the other contracting party. Should all of these cases now merit the imposition of punitive damages?

For example, a building contractor agrees to have your house certified for occupancy within six months. That contractor knows that you have already sold your previous house and your temporary rental property has a six month lease. Nevertheless, seven months later the building contractor has yet to complete even the dry-in of your home. Surely such conduct “evinces a reckless disregard for [the house owners] peace of mind.” In the context of evaluating the constitutionality of punitive damages, the assertion that the Court’s “peace of mind” rationale is somehow specific to insurers seems to be wanting.

Then, Utah, again showing some “slight” irritation, acknowledged that the U.S. Supreme Court expressly found that it “erred in determining that State Farm was a recidivist.” Utah acknowledged that it was bound by the Supreme Court’s finding that the insurer was not a recidivist, but then went on to state that the absence of prior bad acts does not mean that the insurer 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. Utah stated that “State Farm’s obdurate insistence that its treatment of the Campbells was proper clearly called out for vigorous deterrents.” Utah rationalizes its 9—to—1 punitive damages award by reluctantly acknowledging that State Farm was not a recidivist, but that the insurer’s failure to acknowledge its wrongful conduct concerning the Campbells is indicative of its intent to become a recidivist:

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 indicate 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. . . and their attorneys to bring this bad-faith lawsuit and to share any recovery received. 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. We will not and, consistent with our duty on remand, cannot evoke deterrents 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, 63 P.3d 686 (stating that the chief aggravating factor was ‘a lack of remorse increasing the likelihood of recidivism’).

And thus, we have Utah’s response to the U.S. Supreme Court. While the conduct complained of occurred more than twenty four years ago, Utah advises that, since the U.S. Supreme Court prevents them from punishing the insurer for being a recidivist, they shall punish it because it will likely become a recidivist! Take that, U.S. Supreme Court.

Because it had to, Utah then addressed the apparent disconnect between its decision and the Supreme Court’s guidance concerning the ratio between compensatory damages and punitive damages. Utah acknowledges that the U.S. Supreme Court reaffirmed that punitive to compensatory damage ratios exceeding single-digits marked the outer limits of due process. Utah noted that such awards 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 non-economic harm may have been difficult to determine.” Utah acknowledged the U.S. Supreme Court had noted that such “circumstances are not present here.”

Despite this clear direction, however, Utah asserts that the facts of Campbell make it an inappropriate case to limit a punitive damages award to the amount of compensatory damages. In an almost Kafkaesque interpretation of Supreme Court guidance, Utah advises that the 1—to—1 ratio between compensatory and punitive damages is most applicable where a sizeable compensatory damage award for economic injury is coupled with conduct of “unremarkable reprehensibility.” Where in the real world does one find such a thing as “unremarkable reprehensibility?”

Without blushing, Utah then proceeds to turn the analysis of the U.S. Supreme Court on its head, finding that:

We have no difficultly 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 1—to—1 ratio to compensatory damages. Simply put, the trial court’s determination of State Farm caused the Campbells $1 million of emotional distress warrants condemnation in the upper single-digit ratio range rather than the 1—-to—2 ratio urged by State Farm. 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 $9,018,780.75 in punitive damages award, serves Utah’s legitimate goals of deterrence and retribution within the limits of due process.

As one reads the Utah decision one is struck by the tone of sardonic bitterness as well as an almost palpable sense of moral superiority. This tone seems best expressed when Utah addressed the U.S. Supreme Court’s point that a potential $10,000 fine for fraud was “dwarfed” by the $145 million punitive damages jury award.

According to the Supreme Court, this fine was “dwarfed” by the $145 million punitive damages jury award. 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 100 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 become so great that the latter “dwarfs” the former.

As one reads Campbell III one begins to wonder as to which court is passing judgment upon which court? No doubt Hamilton, Jefferson, and Madison would have had fun with this one. 


Many lessons can and will be extracted from the Campbell Trilogy. Certainly one is that language and the legal process are imperfect truth-seeking mechanisms. Another is the confirmation of “result-oriented” jurisprudence. Courts first determine their conclusion then work back to formulate their rationale or justification. Third, our civil judicial system is broken, notwithstanding common American braggadocio there is none better.[FN5]

What is the true legacy of the Campbell saga? How much has it cost the consumer and taxpayer over the past 24 years? An analysis of these uncounted costs go far beyond the Campbell claim and litigation. As the Campbell estate is presently arguing with their attorneys over distribution of the nine million dollars, it is difficult to find “justice” emanating anywhere from this sordid saga.



  1. Campbell v. State Farm Mut. Auto. Ins. Co., 98 P.3d 409 (Utah 2004)
  2. State Farm Mutual Automobile Insurance Company v. Campbell, 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003).
  3. The jury awarded $1.4 million to Mr. Campbell and $1.2 million to Mrs. Campbell.
  4. The trial court initially granted State Farm a remittitur or, in the alternative, a new trial. The Campbells accepted the remittitur. The reduction resulted in an award of $600,000 to Mr. Campbell and $400,000 to Mrs. Campbell.
  5. Tort remedies for breach of contract have had a pronounced negative impact on insurance markets. Despite that impact, judicial behavior, like that of Utah, has been remarkably contrary. The perspective appears to be that insurers are well heeled and can afford to be on the cutting edge of judicial opinions which promised a redistribution of wealth from shareholders and investors to plaintiff’s lawyers and their clients.

It seems clear that Utah’s antipathy for the insurer in Campbell contributed to the Court’s lack of fidelity to the due process guidance of the Supreme Court. We noted above that Utah’s defensive rationale, that damage to one’s “peace of mind” is somehow unique to insurance contracts, is dubious at best. While the price of its defiance seems lost on the Utah court, the implications of a recent decision by the California Supreme Court serves to highlight the danger of Utah’s position.

In a 6—1 decision on December 23, 2004, the California Supreme Court affirmed a $6 million in punitive damage award that Los Angeles jurors awarded Torrance-based Robinson Helicopter Co. for faulty safety clutches built by the Dana Corp. of Toledo, Ohio. Robinson had sued Dana for intentionally concealing that its parts failed to meet federal specifications. Robinson was awarded $1.5 million in compensatory damages, plus the punitive damages.

In its decision last year, Second District Court of Appeal in Los Angeles had reversed the jury’s award of punitive damages, finding that punitive damages weren’t permissible under the state’s economic loss rule. Like similar rules in many states, California’s law prohibits tort damages in contractual disputes unless someone is physically injured. None of the helicopters with faulty parts crashed. In reversing, the California Supreme Court held that the economic loss rule doesn’t bar fraud claims if they are independent of the underlying breach. Given the facts of the case, it seems difficult to see how the intentional delivery of non-conforming parts under a contract, apparently the only basis for a claim that the contact had been breached, could be “independent” of the breach.

In her decision, Justice Brown appeared justify the Court’s apparent departure from the economic loss rule on public policy grounds. In a footnote which seems to mirror the focus of the Utah Court, the majority advises that the economic loss rule was designed to limit liability in commercial activities where the breach is accidental, “not to reward malefactors who affirmatively misrepresent and put people at risk.” According the Justice Brown, allowing the plaintiff to recover punitive damages for “affirmative misrepresentation” will discourage similar practices in the future and, at the same time, encourage a “business climate free of fraud and deceptive practices.”

As laudable as the Court’s social engineering goals might be, it seems clear that providing a path to punitive damages for every intentional breach of contract will ultimately prove to be a cure that is worse than the disease. As noted above, the Supreme Court in Campbell advises that we are to presume the plaintiff has been made whole for his injuries by compensatory damages. Punitive damages should only be awarded if the defendant’s conduct “is so reprehensible as to warrant the imposition of further sanctions to achieve the punishment or deterrence.” Like the Utah Court, the California Court now seems to adopt the position that any intentional breach of contract warrants punitive damages.