Amicus Curiae Brief — State Farm Mutual Automobile Insurance v. Campbell

Supreme Court, U.S.

b FILED

'

AUG 2 3 2004

|_OFFICE OF TH™ ULERK

Steet

No. 04-116

IN THE

Supreme Cot of the United States

STATE FARM MUTUAL AUTOMOBILE

INSURANCE COMPANY,

Petitioner,

INEZ PREECE CAMPBELL and MATTHEW C. BARNECK,

Special Administrator and Personal Representative of the

ESTATE OF CURTIS B, CAMPBELL,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UTAH SUPREME COURT

BRIEF FOR NATIONAL ASSOCIATION OF MUTUAL

INSURANCE COMPANIES AND PROPERTY CASUALTY

INSURERS ASSOCIATION OF AMERICA

AS AMICI CURIAE IN SUPPORT OF PETITIONER

SETH P. WAXMAN

Counsel of Record |

RANDOLPH D. Moss

DANIELLE SPINELLI

WILMER CUTLER PICKERING

HALE AND DORR LLP

2445 M Street, N.W.

Washington, DC 20037

(202) 663-6000

A A Le a I a si TT TE TT TS NT, SEE

TABLE OF CONTENTS

Page(s)

EE Ce Ce ecisinintciniiaieincinsitnnsanainiinnaionaniniiaan ii

i Sh, SR anne 1

INTRODUCTION AND STATEMENT OF THE

SORTER EERE HEHE EEE EEE EEE EEE EEE EEE EEE ESSE EE EEEEEE EEE EE OEE EEE EEE OEE ED

REASONS FOR GRANTING THE WRIT... eee 3

THE UTAH SUPREME COURT’S AWARD OF

PUNITIVE DAMAGES CONTRAVENED THIS

COURT’S MANDATE AND THE REQUIREMENTS

Sr re I ciestitiabiniecinkadinecttetiniedicnlindaininnitimnsininniiini 4

I.

II.

CONCLUSION

A.

The Utah Supreme Court Failed To Re-

spect This Court’s Reprehensibility

Analysis And Erroneously Held That

Breach Of An Insurance Contract Is

Equivalent To Physical Injury. ..................0

The Utah Supreme Court Improperly Ig-

nored This Court’s Conclusions Regarding

The Appropriate Ratio Of Punitive To

Compensatory Damages On The Facts Of

SR I saiiiccdiuasansionctacienceitoiglediieedlansnbedintniiptaiinicinapies

The Utah Supreme Court Failed To Con-

duct Any Reasoned Analysis Of The Com-

parable Penalties Guidepost. ............ccceeseeeee

THIS CASE IS OF PARAMOUNT IMPORTANCE

TO THE DEVELOPMENT OF REASONED STAN-

DARDS GOVERNING IMPOSITION OF PUNITIVE

DAMAGES, PARTICULARLY IN INSURANCE

Sern TTEs -salaesichaalbaanasstdsetimidecaleitiplestensnbsecishadansitencheniiseisibsncnbtilcnbinicitene 17

(i)

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SHOES ESE EE HEE SESE SE SESES ESSE EE SEEESEEEESE SESE ES ESEEESEEEESEEEES

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atnantiin 11

sisaneane 16

i |

TABLE OF AUTHORITIES

CASES

Page(s)

2660 Woodley Road Joint Venture v. ITT Sheraton

Corp., 369 F Sal TSS (Sal Cit, BODE) ..sccscesscscesssssvessnsvesssesses 12

Advocat, Inc. v. Sauer, 111 S.W.3d 346 (Ark.), cert.

Gemsedl, TD6 5. Ch, Ba Ce) ccnnnstdnaibecaeettacecentasccsentitonsactns 13

Austin v. Specialty Transportation Services, Inc.,

358 S.C. 208 (S.C. Ct. Appr, BBDE) ...cossccevevesssescccesscasesensoiee 13

BMW of North America, Inc. v. Gore, 517 U.S, 559

CB BBG) ..1.000+0.s20ssenreninsiassbintienndeeneaeiapnibaeinansanmpimelats passim

Bigelow v. Virginia, 421 U.S. 809 (1975)... ccsscsssscersessesees 7

Bogle v. McClure, 332 F.3d 1347 (11th Cir. 2008) eee 12

Bordenkircher v. Hayes, 434 U.S. 357 (1978) .o.ccececeseeseeeees 10

Browning-Ferris Industries of Vermont, Inc. v.

Kelco Disposal, Inc., 492 U.S. 257 (1989) wo... eee 17, 19

Campbell v. State Farm Mutual Automobile In-

surance Co., 65 P.3d 1134 (Utah 2001)... sesesseeeeeees 9

Ceimo v. General American Life Insurance Co.,

No. CV-00-1386-PHX-FJM (D. Ariz. Sept. 17,

ZIID ) ..0..2<22s020eshnsnsnli esi bsonsensdeesiaise eae unenLaeinienna eiaarenibapiabinees 13

Cooper Industries, Inc. v. Leatherman Tool Group,

Iuec., GBB US. G6 CIE) ss ccncenieveetatsieemnantiaiictn 5, 7

Eden Electronics, Ltd. v. Amana Co., 370 F.3d 824

(Std Cir, BBG) scnesscsesstzvninistsindasesainasecuuoanaeaiaataenienaes 12

Gallegos v. Elite Model Management Corp., No.

120577/00, 2004 WL 51604 (N.Y. Sup. Ct. Jan.

©, BIDE) ...<verscnsnssnnnnnicinisenkiisanisslaenmdliataaningiadaiamaaaiaeimaeliaaliad 13

Hangarter v. Provident Life & Accident Insurance

Co., 373 F.3d GOB (Oth Cir, BOOK) ..ncscnssscscesssssssrsnsnmsnssrens 12

Henley v. Philip Morris Inc., 9 Cal. Rptr. 3d 29

(Cal. Ct. App.), rev. granted, 88 P.38d 497 (Cal.

SBOE) ........00:01scennsanissehcssteconetieeleiessieslanniissanaiansLasDaaanaIaaanIbA 13

Honda Motor Co. v. Oberg, 512 U.S. 415 (1994) we. 2,19

Honzawa v. Honzawa, 766 N.Y.S.2d 29 (N.Y. App.

DEV. SIQGB).....n<nsssnsssesiecssncessinasinsinsenshaanlonnaleniglsalaiaiieasataiaaai 13

In re the Exxon Valdez, 296 F. Supp. 2d 1071 (D.

Aclealce, BOG) ocscsassnsisavnvicinnitnscinsieanaiaiaeisldeniaiiaiaiaatidediaaitiaiaes 12

ee

iil

TABLE OF AUTHORITIES—Continued

Page(s)

Interclaim Holdings Ltd. v. Ness, Motley, Load-

holt, Richardson & Poole, 298 F. Supp. 2d 746

cg, IE EE TT nT 12

Pacific Mutual Life Insurance Co. v. Haslip, 499

Le) SRST ES SC Dea 2, 10, 11, 14, 18

Republic Tobacco, L.P. v. North Atlantic Trading

Co., No. 98 C 4011, 2003 WL 22794561 (N.D. IIl.

en tg SEE LT AE TT: ETER E 13

Rhone-Poulenc Agro, S.A. v. DeKalb Genetics

Corp., 345 F.3d 1366 (Fed. Cir. 2003), cert. de-

SOUR, EAPO Oe. TR, BABB CIE) assscsecscsesccssstsacactccsacesocsasecsnse 12

Roginsky v. Richardson-Merrell, Inc., 378 F.2d 832

i ES ETA ee ED LOE 15

Romo vy. Ford Motor Co., 6 Cal. Rptr. 3d 793 (Cal.

SRC IETS Rete ce net en nei ae NR 13

Smith v. Fairfax Realty, Inc., 82 P.3d 1064 (Utah

2003), cert. denied, 124 S. Ct. 1716 (2004) vocccccccccccccsceee 13

State Farm Mutual Automobile Insurance Co. v.

Campbell, 538 U.S. 408 (2008).....ccccccscscscsesesesessseees passim

Sufix U.S.A. Inc. v. Cook, 128 S.W.3d 838 (Ky. Ct.

TTI Chita sich dilabnhchihbinniapiecdnanhiieanisarhsnsnakcicateninkaosateas 13

Sumner v. Mata, 455 U.S. 591 (1982) .cocccccccccccosccscsceccecccceeseeeees 4

IVT Records v. Island Def Jam Music Group, 279

F’. Supp. 2d 413 (S.D.N.Y. 2008)......c.ccccccscsssssssessesessssssees 12

TXO Production Corp. v. Alliance Resources

ig Oe Oo, WO (LID E) occ sscssvesssnisncsnsesssavensaseransees 11,14

Union Pacific Railroad Co. v. Barber, No. 03-57,

2004 WL 352525 (Ark. Feb. 26, 2004).....ccccceceseseeeeeeees 13

STATUTES AND RULES

Utah Code Ann. § 76-3-203(1) ........cccsscssssssssssssessescessnssnssnscnsenes 17

I eile henhesaiaseptcpnanatennkéieubidasnadasimiaind 3

OTHER AUTHORITIES

Bauman, John H., Emotional Distress Damages

and the Tort of Insurance Bad Faith, 46 Drake

I sai cealnenanccsensnpnanircanbtrnannaunannt 19, 20

iv

TABLE OF AUTHORITIES—Continued

Page(s)

Moller, Erik, et al., Punitive Damages in Financial

Injury Jury Verdicts (RAND Institute for

Se IE SITES cnchcahiceoenesnennsicc tesa cnsnnstcbtaiepcieaiasnamiindiinaricieteanieicl 2

Polinsky, A. Mitchell & Steven Shavell, Punitive

Damages: An Economic Analysis, 111 Harv.

iin: Se Ns ME IDE cichichsckietcshcrildsecdbb niatalieSinldadicnliananeatine 20

Restatement (Second) of Torts § 908 (1977)... eeeeeeeeees 15

Stern, Robert L., et al., Supreme Court Practice

ee CE MU siininiresh-tcsinniberies th tnschentelaian inti bveibnatiidabaneibareniiels 4

Syverud, Kent D., The Duty to Settle, 76 Va. L.

OT Ree Ce seins iicnicecninintianisieialtinidisceaellphaininhamialansiniciies 19

IN THE

Supreme Court of the United States

No. 04-116

STATE FARM MUTUAL AUTOMOBILE

INSURANCE COMPANY,

Petitioner,

INEZ PREECE CAMPBELL and MATTHEW C. BARNECK,

Special Administrator and Personal Representative of the

ESTATE OF CURTIS B. CAMPBELL,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UTAH SUPREME COURT

Amici curiae National Association of Mutual Insurance

Companies (NAMIC) and Property Casualty Insurers Asso-

ciation of America (PCIAA) respectfully submit this brief in

support of the petition for a writ of certiorari.'

INTEREST OF AMICI

NAMIC and PCIAA are two of the leading trade asso-

ciations of property and casualty insurers. NAMIC repre-

sents over 1350 member companies, and PCIAA represents

over 1000 member companies, which collectively write every

type of property and casualty insurance in every state.

Amici and their members have a substantial interest in

seeing that this Court’s decision in State Farm Mutual

' No counsel for a party authored this brief in whole or in part, and

no person or entity other than amici and their counsel made any monetary

contribution toward the preparation or submission of this brief. Letters

indicating the parties’ consent to the filing of anicus briefs have been

submitted to the Clerk.

2

Automobile Insurance Co. v. Campbell, 588 U.S. 408 (2003),

is respected and its guidance to the lower courts faithfully

applied. The proliferation of outsize punitive damages

awards has been a problem of special concern to the insur-

ance industry... The Utah Supreme Court’s decision on re-

mand from this Court in State Farm threatens to exacerbate

that problem by disregarding this Court’s considered judg-

ment as to the proper measure of punitive damages for State

Farm’s conduct, and distorting and misapplying the consti-

tutional standards for review of punitive damages awards

articulated in State Farm. In particular, the Utah court’s

reasoning raises the specter of excessive and arbitrary puni-

tive damages awards in insurance cases.

INTRODUCTION AND STATEMENT OF THE CASE

“Punitive damages are a powerful weapon. Imposed

wisely and with restraint, they have the potential to advance

legitimate state interests. Imposed indiscriminately, how-

ever, they have a devastating potential for harm.” Pacific

Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 42 (1991) (O’Connor,

J., dissenting); see also State Farm, 538 U.S. at 417; Honda

Motor Co. v. Oberg, 512 U.S. 415, 482 (1994) (“Punitive dam-

ages pose an acute danger of arbitrary deprivation of prop-

erty.”).

Prompted by “concerns over the imprecise manner in

which punitive damages systems are administered” and the

resulting danger of arbitrary awards, this Court originally

granted certiorari in this case and set aside the Utah Su-

preme Court’s reinstatement of a $145 million punitive dam-

ages judgment against State Farm. State Farm, 538 U.S. at

417. The plaintiffs, who had purchased third-party liability

insurance from State Farm, had been awarded $1 million in

compensatory damages for emotional distress resulting from

* One empirical study of jury verdicts in financial injury cases found

that the ratio of punitive to compensatory damages was higher in insur-

ance cases than in any other type of case. See Erik Moller et al., Punitive

Damages in Financial Injury Jury Verdicts 22-24 & tbl. 3.3 (RAND In-

stitute for Civil Justice 1997).

terre

3

State Farm’s failure to settle a lawsuit against them within

policy limits. See id. at 412-415.

Applying and elucidating the constitutional standard

previously articulated in BMW of North America, Inc. v.

Gore, 517 U.S. 559 (1996), the Court found that this case was

“neither close nor difficult” and thee the $145 million award

was an arbitrary deprivation of property in violation of due

process. State Farm, 538 U.S. at 418, 429. Based on its own

application of the Gore/State Farm guideposts to the facts of

this case, this Court concluded that those guideposts “likely

would justify a punitive damages award at or near the

amount of compensatory damages”—that is, approximately

$1 million. Jd. at 429. Accordingly, the Court vacated the

Utah Supreme Court’s judgment and remanded for further

proceedings not inconsistent with its opinion. See id.

On remand, the Utah Supreme Court disregarded this

Court’s guidance. Instead, it determined that a punitive

damages award of $9,018,780.75 was warranted—an amount

nine times greater than the award this Court had endorsed.

App. la.’ To reach this conclusion, the Utah Supreme Court

contradicted this Court’s specific findings and seriously mis-

apprehended and distorted the constitutional standard set

out in Gore and State Farm. The resulting decision not only

is inconsistent with this Court’s guidance on the precise

question at issue, but, even more seriously, undermines

State Farm’s utility in providing much-needed guidance to

the lower courts.

REASONS FOR GRANTING THE WRIT

Amici respectfully submit that this Court should grant

the petition for a writ of certiorari and summarily reverse

the judgment of the Utah Supreme Court, pursuant to Su-

preme Court Rule 16. In the alternative, the Court should

grant plenary review and set the case for briefing and argu-

ment. Granting the writ is appropriate here for two reasons.

* The opinion of the Utah Supreme Court is reproduced in the Ap-

pendix to the Petition for a Writ of Certiorari, which is cited as “App.”

First, the Utah Supreme Court flouted this Court’s

opinion and mandate, disregarding the Court’s carefully rea-

soned conclusions as to the degree of reprehensibility of

State Farm’s conduct and the proper proportion between

punitive and compensatory damages in this case. Summary

reversal is therefore appropriate to correct the Utah Su-

preme Court’s failure to heed this Court’s clear direction.

See, e.g., Sumner v. Mata, 455 U.S. 591, 596-597 (1982)

(granting certiorari and summarily vacating and remanding

where the lower court “apparently misunderstood the terms

of our remand” and reached a result inconsistent with the

Court’s prior opinion); Robert L. Stern et al., Supreme

Court Practice 322 n.101 (8th ed. 2002) (“Summary reversal

may ... be grounded on the inherent power of the Court...

to ensure compliance with its own remand orders.”).

Second, review is necessary to fulfill the Court’s objec-

tive in reviewing and reversing the Utah Supreme Court's

prior judgment in this case: to alleviate serious “concerns

over the imprecise manner in which punitive damages sys-

tems are administered” and to provide a specific, reasoned,

and consistent standard for lower courts to follow when

evaluating punitive damages awards. State Farm, 538 US.

at 417. Because it so drastically misinterprets and misap-

plies this Court’s State Farm decision, if allowed to stand,

the Utah court’s decision threatens to undermine the princi-

ples articulated in State Farm and to reintroduce into the

administration of punitive damages the dangerous arbitrari-

ness that due process precludes. Moreover, the Utah court’s

rationale is likely to prove particularly pernicious to insur-

ers; if emulated, it could ultimately jeopardize the availabil-

ity of affordable liability insurance.

I. THE UTAH SUPREME COURT’S AWARD OF PUNITIVE DAM-

AGES CONTRAVENED THIS COURT’S MANDATE AND THE

REQUIREMENTS OF DUE PROCESS.

As this Court explained in Gore, and reiterated in State

Farm, grossly excessive or arbitrary awards of punitive

damages violate the Due Process Clause because

“[ejlementary notions of fairness . . . dictate that a person

EE ————————— EE

D

receive fair notice not only of the conduct that will subject

him to punishment, but also of the severity of the penalty

that a State may impose.” Gore, 517 U.S. at 574; accord

State Farm, 538 U.S. at 418.

To ensure that this basic requirement of fair notice has

been met, Gore and State Farm mandate that courts review-

ing punitive damages awards “consider three guideposts: (1)

the degree of reprehensibility of the defendant’s misconduct;

(2) the disparity between the actual or potential harm suf-

fered 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.” State Farm, 538 U.S. at 418; accord

Gore, 517 U.S. at 575; Cooper Indus., Inc. v. Leatherman

Tool Group, Inc., 582 U.S. 424, 435 (2001).

In State Farm, this Court both refined the Gore test and

applied it to the specific facts of this case, concluding that “a

punitive damages award at or near the amount of compensa-

tory damages” was appropriate. State Farm, 538 U.S. at

429. On remand, the Utah Supreme Court failed to follow

this Court’s.clear direction and entered an award of punitive

damages nine times larger. In doing so, it impermissibly re-

jected this Court’s specific findings, and misapprehended

and misapplied each of the three State Farm guideposts.

A. The Utah Supreme Court Failed To Respect This

Court’s Reprehensibility Analysis And Erroneously

Held That Breach Of An Insurance Contract Is

Equivalent To Physical Injury.

“(T]he most important indicium of the reasonableness of

a punitive damages award is the degree of reprehensibility

of the defendant’s conduct.” State Farm, 538 U.S. at 419

(quoting Gore, 517 U.S. at 575). In order to ensure that the

reprehensibility guidepost is susceptible of reasoned and

consistent application, this Court in State Farm instructed

lower courts to consider 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 fi-

6

nancial 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.” /d.;

see also Gore, 517 U.S. at 576-577. As the Utah court ac-

knowledged, this Court intended these five factors as

“measuring tools” to prevent assessments of reprehensibil-

ity from reaching “arbitrary, inexplicable, and dispropor-

tionate outcome|[s].” App. 8a. Together, these factors estab-

lish a federal constitutional standard for evaluating a defen-

dant’s reprehensibility.

This Court -assessed the blameworthiness of State

Farm’s conduct in light of that standard, and concluded that-

while “State Farm’s handling of the claims against the

Campbells merits no praise, ... a more modest punishment

for this reprehensible conduct could have satisfied the

State’s legitimate objectives.” State Farm, 517 U.S. at 419-

420. The Court ultimately determined punitive damages of

approximately $1 million would be appropriate. See id. at

429. On remand, the Utah Supreme Court disregarded this

Court’s considered analysis, finding that, “in light of Utah’s

values and traditions,” State Farm’s conduct should be

deemed “several degrees more offensive than the Supreme

Court’s less than condemnatory view that [it] ‘merits no

praise.”” App. 7a (quoting State Farm, 517 U.S. at 419).

The Utah court erred by assuming “Utah’s values and

traditions” licensed it to reinterpret the federal constitu-

tional standards for measuring reprehensibility set out in

State Farm.’ And the court misapplied each of the five indi-

*The Utah court wrongly believed that State Farm did not “an-

nounce| | a federal standard measuring reprehensibility.” App. 6a. It rea-

soned that “|b]y creating such a national reprehensibility standard, . . . 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 respected states’ autonomy to make policy choices about

the lawfulness of human and corporate behavior within their own bor-

ders....” Jd. That reasoning misses the mark. Gore and State Farm

held that, in imposing punitive damages, a state may as a general rule

consider only conduct that occurred in that state. See State Farm, 538

U.S. at 421; Gore, 517 U.S. at 572-573. That rule derives from the basic

constitutional and structural principle that a state has no power to regu-

: 7

cia of reprehensibility identified by this Court. In particular,

the court ignored this Court’s express conclusion that State

Farm’s actions caused no physical harm and the conduct in

question was not repeated—and therefore a high award of

punitive damages could not be grounded on either of those

factors.” In both instances, the Utah court’s analysis evis-

cerates the restraints that this Court identified, and opens

the door to the indiscriminate and arbitrary imposition of

punitive damages—particularly in insurance disputes.

1. This Court expressly found that the harm to the

Campbells “arose from a transaction in the economic realm,

not from some physical assault or trauma” and “there were

no physical injuries.” State Farm, 538 U.S. at 426. More-

over, because State Farm paid the excess judgment before

the bad faith action was brought, “the Campbells suffered

only minor economic injuries for the 18-month period in

which State Farm refused to resolve the claim against

them.” Jd.

Although it claimed to be “mindful” of these conclusions

(App. 9a), the Utah Supreme Court disregarded their clear

import. It reasoned that policyholders purchase insurance in

part to obtain “peace of mind,” and failure to pay claims may

cause psychological distress. App. 10a (citation and internal

quotation marks omitted). It thus concluded that the harm

late conduct occurring outside its borders. See State Farm, 538 U.S. at

421; Gore, 517 U.S. at 572-573; see also, e.g., Bigelow v. Virginia, 421 U.S.

809, 824 (1975) (noting that a state has no “power or supervision over the

internal affairs of another [s|tate”). Needless to Say, it does not follow

that the federal Constitution imposes no limitations on a state’s “auton-

omy” to decide how to punish conduct occurring within that state. Al-

though states may possess broad discretion with respect to the imposition

of punitive damages, that discretion may be exercised only within the sub-

stantive boundaries set by the Due Process Clause. See, e.g., Cooper In-

dus., 582 U.S. at 433; State Farm, 538 U.S. at 417. And the standards for

measuring reprehensibility set out in Gore and State Farm recognize that,

as a matter of federal constitutional law, “some wrongs are more blame-

worthy than others.” Gore, 517 U.S. at 575.

* Amici agree with petitioner’s discussion of the Utah Supreme

Court’s treatment of the remaining three factors (see Pet. Br. 11-13, 15-16)

but believe it is unnecessary to repeat that discussion here.

8

caused by State Farm—and, indeed, any “misconduct which

occurs in the insurance sector of the economic realm”—is

“more closely akin to physical assault or trauma than to

mere economic loss.” App. 10a-11a.

~ The Utah court’s remarkable analysis not only contra-

dicts this Court’s express findings, but strips the “physical

harm” factor of any usefulness in distinguishing between

conduct of greater and lesser culpability. As Gore explained,

the physical harm factor reflects the basic principle, embod-

ied in tort and criminal law, that “nonviolent [wrongs] are

less serious than [wrongs] marked by violence or the threat

of violence.” Gore, 517 U.S. at 577 (quoting Solem v. Helm,

463 U.S. 277, 292-293 (1983)). Conduct, like State Farm’s

here, that does not threaten or inflict any physical harm is

thus lower on the scale of reprehensibility than conduct that

does cause physical injury—as this Court recognized.

The Utah Supreme Court’s contrary conclusion is likely

to result in particularly harmful consequences to insurers. |

Under the Utah court’s analysis, every breach of an insur- |

ance contract is elevated into an injury of the same gravity |

as physical assault. That reasoning threatens to expose in- |

surers to the prospect of uncontrolled punitive damages

awards in cases where failure to settle within policy limits

results in claimed emotional distress—even where, as here,

there is no physical injury and no significant economic

harm.® Far from advancing the States’ legitimate interest in

deterrence, such indiscriminate awards merely create incen-

tives for insurers to settle unmeritorious claims and ulti-

mately make liability insurance more difficult or costly to

obtain. See infra Part IT.

2. The reprehensibility test articulated in Gore and

State Farm recognizes that “repeated misconduct is more

reprehensible than an individual instance of malfeasance,”

and that recidivism can therefore justify a higher award of

punitive damages. Gore, 517 U.S. at 577; see State Farm,

° The Utah court conceded that, because State Farm ultimately paid

the entire excess judgment, “the economic harm sustained by the Camp-

bells [was] minimal.” App. 9a.

OO ooo

9

538 U.S. at 419. In its original decision, the Utah Supreme

Court found that this factor supported the punitive damages

award because, in light of what the Utah court viewed as

State Farm’s lack of remorse, and the lack of evidence that

its policies had changed, “the probability of recurrence of

State Farm’s misconduct appears extremely high.” Camp-

bell v. State Farm Mut. Auto. Ins. Co., 65 P.3d 1134, 1150

(Utah 2001) (citation omitted).

This Court specifically found that the Utah Supreme

Court had erred in finding chat State Farm was a recidivist.

State Farm, 538 U.S. at 423. And the Court admonished

that “because the Campbells have shown no conduct by

State Farm similar to that which harmed them, the conduct

that harmed them is the only conduct relevant to the repre-

hensibility analysis.” Jd. at 424 (emphasis added).

This Court thus made perfectly clear that, on these

facts, the “repeated misconduct” factor could not justify an

award of punitive damages. But the Utah Supreme Court

defied that judgment. Although it grudgingly acknowledged

that it was “bound by the Supreme Court’s finding that

State Farm was not a recidivist” (App. 13a), it nevertheless

reverted to the very same mistaken rationale it had previ-

ously employed, concluding that, based on its putative lack

of remorse, State Farm was likely to become a recidivist in

the future. State Farm’s supposed lack of remorse, in turn,

was based on nothing more than its assertion in the litigation

of the case against it, and in its brief on appeal, that its ac-

tions had not been wrongful. Jd. The court reasoned that

“absence of prior bad acts does not mean that State Farm

has forsworn the conduct that caused the Campbells’ in-

jury... . State Farm’s obdurate insistence that its treat-

ment of the Campbells was proper clearly calls out for vigor-

ous deterrence.” Jd.

This analysis not only contradicts this Court’s decision,

but threatens to eviscerate the “repeated misconduct” factor

altogether. If a reviewing court’s mere speculation that a

defendant might commit bad acts in the future can justify a

finding of reprehensibility—in the absence of any evidence

of repeated wrongful conduct—then such a finding is possi-

10

ble in nearly every case. The Utah court’s distortion of the

repeated misconduct factor contravenes this Court’s admo-

nition that punitive damages be reserved for the exceptional

case where the defendant’s conduct “is so reprehensible as

to warrant the imposition of further sanctions” beyond com-

pensatory damages. State Farm, 538 U.S. at 419.

In State Farm, this Court made clear that “[a] defen-

dant should be punished for the conduct that harmed the

plaintiff, not for being an unsavory individual or business.”

Id. at 423. The Utah court’s analysis flouts that instruction

and permits punitive damages to be based solely on the

court’s subjective conclusion that the defendant is the type

of “unsavory” business that is likely to commit bad acts in

the future—rendering the reprehensibility inquiry suscepti-

ble to precisely the kind of arbitrary and discriminatory ap-

plication this Court has been concerned to avoid. “[{T]he

point of due process—of the law in general—is to allow citi-

zens to order their behavior. A State can have no legitimate

interest in making the law so arbitrary that citizens will be

unable to avoid punishment based solely upon bias or whim.”

Haslip, 499 U.S. at 59 (O’Connor, J., dissenting); accord

State Farm, 588 U.S. at 418.

Finally, resting an award of punitive damages on a de-

fendant’s refusal to admit wrongdoing in the litigation

against it creates significant due process problems in its own

right. As this Court admonished in this very case, due proc-

ess does not permit the assessment of punitive damages

against a defendant for lawful conduct. See id. at 421; Gore,

517 U.S. at 572-573. Nor does it permit a defendant to be

punished for exercising its right to defend itself and to ap-

peal from an adverse judgment. See, e.g., Bordenkircher v.

Hayes, 434 U.S. 357, 363 (1978) (“To punish a person because

he has done what the law plainly allows him to do is a due

process violation of the most basic sort”; a person cannot

constitutionally be punished for appealing a conviction)

(cited in Gore, 517 U.S. at 573 n.19). The Utah court’s con-

trary reasoning impermissibly burdens defendants’ exercise

of their constitutionally protected right to defend against

11

liability and erroneously expands the boundaries of the rep-

rehensibility analysis far beyond those set by this Court.

B. The Utah Supreme Court Improperly Ignored This

Court’s Conclusions Regarding The Appropriate

Ratio Of Punitive To Compensatory Damages On

The Facts Of This Case.

It is well-settled that punitive damages “must bear a

‘reasonable relationship’ to compensatory damages.” Gore,

517 U.S. at 580 (citation omitted); see also TXO Prod. Corp.

v. Alliance Res. Corp., 509 U.S. 443, 459 (1993); Haslip, 499

U.S. at 23. In State Farm, this Court did more than in any

past case to give meaningful guidance to the lower courts on

what constitutes a “reasonable relationship” between puni-

tive and compensatory damages. Specifically, the Court

made clear that “few awards exceeding a single-digit ratio

between punitive and compensatory damages, to a signifi-

cant degree, will satisfy due process.” State Farm, 538 U.S.

at 425. Although it noted that greater ratios “may comport

with due process where ‘a particularly egregious act has re-

sulted in only a small amount of economic damages,” id.

~ (quoting Gore, 517 U.S. at 582), it explained that “[t]he con-

verse is also true .... When compensatory damages are

substantial, then a lesser ratio, perhaps only equal to com-

pensatory damages, can reach the outermost limit of the due

process guarantee,” id.

That scenario, the Court found, precisely captured the

facts of this case: “The compensatory award in this case was

substantial; the Campbells were awarded $1 million for a

year and a half of emotional distress. This was complete

compensation.” Jd. at 426. Moreover, “(t]he compensatory

damages for the injury suffered here . . . likely were based

on a component which was duplicated in the punitive award.

Much of the distress was caused by the outrage and humilia-

tion the Campbells suffered at the actions of their insurer,

and it is a major role of punitive damages to condemn such

conduct. Compensatory damages, however, already contain

this punitive element.” Jd. “[I]n light of the substantial

compensatory damages awarded (a portion of which con-

tained a punitive element),” the Court concluded that this

a eT

12

case “likely would justify a punitive damages award at or

near the amount of compensatory damages.” Id. at 429.’

The Utah Supreme Court paid no heed to that conclu-

sion. Instead, it distorted this Court’s careful articulation of

the reasonable relationship inquiry beyond recognition, dis-

regarded this Court’s express finding that the compensatory

damages award here contained a punitive element, and ulti-

mately adopted a punitive damages award nine times higher

than the award this Court had endorsed.*

’The Utah court reasoned that it was not bound to follow this

Court’s conclusions regarding the appropriate measure of punitive dam-

ages because “|t|hese are words of prediction, not direction.” App. 5a.

That reading of this Court’s opinion wholly fails to acknowledge that this

Court carefully considered the application of the constitutional standards

to the facts of this case, and, although it chose not to specify the precise

amount of punitive damages that could be awarded, provided clear guid-

ance to the Utah court that an award “at or near the amount of compensa-

tory damages” would be proper. State Farm, 538 U.S. at 429.

* Since State Farm, in cases where compensatory damages were at

least $1 million, the nine-to-one ratio approved by the Utah Supreme

Court here is the highest ratio of which amici are aware to have been up-

held against a federal constitutional challenge. See Hangarter v. Provi-

dent Life & Accident Ins. Co., 373 F.3d 998 (9th Cir. 2004) ($1,920,849 in

compensatory damages and $5 million in punitive damages, for ratio of

2.6:1); Eden Elec., Ltd. v. Amana Co., 370 F.3d 824 (8th Cir. 2004) ($2.1

million in compensatory damages and $10 million in punitive damages, for

ratio of 4.8:1; affirming district court’s reduction of punitive damages from

$17,875,000 to $10 million in light of State Farm); 2660 Woodley Road

Joint Venture v. ITT Sheraton Corp., 369 F.3d 732 (3d Cir. 2004)

($1,350,000 in compensatory damages and $2,025,000 in punitive damages, i

for ratio of 1.5:1); Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp.,

345 F.3d 1366 (Fed. Cir. 2003) ($15 million in compensatory damages and

$50 million in punitive damages, for ratio of 3.3:1), cert. denied, 124 S. Ct.

1423 (2004); Bogle v. McClure, 332 F.3d 1347 (11th Cir. 2003) (approxi-

mately $3.5 million in aggregate compensatory damages and approxi-

mately $13.3 million in aggregate punitive damages, for ratio of 3.8:1);

Interclaim Holdings Ltd. v. Ness, Motley, Loadholt, Richardson & Poole,

298 F. Supp. 2d 746 (N.D. Ill. 2004) ($8.3 million in compensatory damages

and $27.7 million in punitive damages, for ratio of 3.3:1); In re the Exxon

Valdez, 296 F. Supp. 2d 1071 (D. Alaska 2004) ($513,147,740 in compensa-

tory damages and $4.5 billion in punitive damages, for ratio of 8.8:1); 7VT

Records v. Island Def Jam Music Group, 279 F. Supp. 2d 418 (S.D.N.Y.

2003) ($23,496,746 in compensatory damages and $29,125,000 in punitive

damages, for ratio of 1.2:1; reducing punitive damages from $108 million to

LS ee

13

First, the Utah court misstated, and in doing so dra-

matically narrowed, the circumstances in which this Court

explained that a low ratio of punitive to compensatory dam-

ages is proper. The court erroneously suggested that the

one-to-one ratio endorsed by this Court in this precise case

is appropriate only “where a sizeable compensatory damages

award for economic injury is coupled with conduct of unre-

markable reprehensibility.”. App. 15a-16a. Because the

compensatory damages in this case were for emotional dis-

tress, the Utah court reasoned that a one-to-one ratio was

insufficient: “We have no difficulty concluding that conduct

which causes $1 million of emotional distress and humiliation

$29,125,000 in light of State Farm); Republic Tobacco, L.P. v. North At-

lantic Trading Co., No. 98 C 4011, 2003 WL 22794561 (N.D. Ill. Nov. 21,

2003) ($3.36 million in compensatory damages and $4.08 million in punitive

damages, for ratio of 1.2:1); Ceimo v. General Am. Life Ins. Co., No. CV-

00-1386-PHX-FJM (D. Ariz. Sept. 17, 2003) ($6,692,610.60 in compensa-

tory damages and $7 million in punitive damages, for ratio of 1:1; reducing

punitive damages from $79 million to $7 million in light of State Farm);

Union Pac. R.R. Co. v. Barber, No. 03-57, 2004 WL 352525 (Ark. Feb. 26,

2004) ($5.1 million in compensatory damages and $25 million in punitive

damages, for ratio of 4.9:1); Advocat, Inc. v. Sauer, 111 S.W.3d 346 (Ark.)

($5 million in compensatory damages and $21 million in punitive damages,

for ratio of 4.2:1), cert. denied, 124 S. Ct. 582 (2004); Henley v. Philip Mor-

ris Inc., 9 Cal. Rptr. 3d 29 (Cal. Ct. App.) ($1.5 million in compensatory

damages and $9 million in punitive damages, for ratio of 6:1; reducing pu-

nitive damages from $25 million to $9 million in light of State Farm), rev.

granted, 88 P.3d 497 (Cal. 2004); Romo v. Ford Motor Co., 6 Cal. Rptr. 3d

793 (Cal. Ct. App. 2003) ($4,574,429 in compensatory damages and

$23,723,287 in punitive damages, for ratio of 5.2:1; reducing punitive dam-

ages from $290 million to $23,723,287 in light of State Farm); Sufix U.S.A.

Inc. v. Cook, 128 S.W.3d 838 (Ky. Ct. App. 2004) (approximately $2.8 mil-

lion in compensatory damages and approximately $3 million in punitive

damages, for ratio of 1.1:1); Honzawa v. Honzawa, 766 N.Y.S.2d 29 (N.Y.

App. Div. 2003) ($11 million in compensatory damages and $15 million in

punitive damages, for ratio of 1.4:1); Gallegos v. Elite Model Mgmt. Corp.,

No. 120577/00, 2004 WL 51604 (N.Y. Sup. Ct. Jan. 6, 2004) ($1.1 million in

compensatory damages and $2.6 million in punitive damages, for ratio of

2.4:1); Austin v. Specialty Transp. Servs., Inc., 358 S.C. 298 (S. C. Ct. App.

2004) ($1,025,000 in compensatory damages and $2,600,000 in punitive

damages, for ratio of 2.5:1); Smith v. Fairfax Realty, Inc., 82 P.3d 1064

(Utah 2003) ($1,007,221 in compensatory damages and $5.5 million in puni-

tive damages, for ratio of 5.5:1), cert. denied, 124 S. Ct. 1716 (2004).

14

is markedly more egregious than conduct which results in $1

million of economic harm.” App. 16a.

But the rule articulated by this Court is nowhere lim-

ited to cases in which the damages were solely for economic

injury. Rather, this Court explained that a low ratio of puni-

tive to compensatory damages is likely to be appropriate in

any case where “compensatory damages are substantial.”

State Farm, 538 U.S. at 425. And it expressly concluded

that a ratio at or near one-to-one was appropriate in this

case despite the fact that all the damages were for non-

economic injury. Likewise, the Utah court could not justify

its disregard of this Court’s direction by suggesting that a

one-to-one ratio is appropriate only in cases of “unremark-

able reprehensibility.” This Court itself assessed the repre-

hensibility of State Farm’s conduct, and found a ratio at or

near one-to-one warranted.

The limitations the Utah court imposed not only contra-

dict this Court’s conclusions regarding the facts of this very

case, but fail to take into account the reason that, as this

Court stated, substantial compensatory damages generally

support a lower ratio of punitive damages. That is so be-

cause, in cases where the plaintiff is fully compensated, and

compensatory damages are thus a fair measure of the full

extent of the harm caused by the defendant’s conduct, puni-

tive damages that significantly exceed compensatory dam-

ages are not necessary to achieve the goals of punishment

and deterrence. See id. at 419 (punitive damages are appro-

priate only where compensatory damages do not adequately

punish and deter).

The Utah Supreme Court’s misguided rationale thus

significantly undermines the purpose of the ratio inquiry—to

ensure that punitive damages bear a reasonable relationship

to the actual or potential harm caused by the defendant’s

conduct. See Gore, 517 U.S. at 580; TXO, 509 U.S. at 459;

Haslip, 499 U.S. at 23. In cases involving damages for non-

economic harm, the Utah court’s reasoning fails to take an

accurate measure of the harm caused, and injects into the

ratio inquiry the same subjective considerations that dis-

torted its reprehensibility analysis. .

Second, the Utah court’s conclusion flies in the face of

this Court’s determination that a substantial compensatory

award solely for emotional distress generally—and in this

particular case—supports a lower ratio of punitive damages

to compensatory damages. As this Court explained, because

damages for emotional distress, like punitive damages, are

intended to condemn outrageous conduct, such damages al-

ready include a punitive component by definition. See State

Farm, 538 U.S. at 426, 429;-Restatement (Second) of Torts

§ 908 emt. ¢ (1977) (“In many cases in which compensatory

damages include an amount for emotional distress . . . there

is no clear line of demarcation between punishment and

compensation and a verdict for a specified amount fre-

quently includes elements of both.”); cf- also Roginsky v.

Richardson-Merrell, Inc., 378 F.2d 832, 841 (2d Cir. 1967)

(“Many awards of compensatory damages doubtless contain

something of a punitive element ....”). Accordingly, in such

a situation, punitive damages are likely to be duplicative of

the compensatory award, and hence excessive in relation to

the legitimate purposes of retribution and deterrence.

~ Indeed, this Court specifically found such duplication

had occurred here, concluding that a portion of the compen-

satory damages award “contained a punitive element,” and

that a ratio of punitive to compensatory damages at or near

one-to-one was therefore appropriate. State Farm, 538 U.S.

at 429. The Utah court disregarded that conclusion, assert-

ing that although this Court’s concern over duplication was

“plausible as an abstract proposition,” the compensatory

damages here were “purged of elements . . . more properly

placed in the category of punitive damages.” App. 15a. -For

the reasons given by petitioner (Br. 27), the Utah court’s

rejection of this Court’s specific finding—which, properly

understood, was binding on the lower court—was error.

As discussed above, however, the Utah Supreme

Court’s error went beyond its disregard of this Court’s spe-

cific conclusions regarding the facts of this case. The Utah

court’s failure to heed this Court’s guidance regarding the

considerations that should govern the ratio inquiry threat-

ens to render that inquiry an empty form, and once again to

16

permit arbitrary and subjective assessments to prevail over

the reasoned standards articulated in State Farm. This

Court should correct that error.

C. The Utah Supreme Court Failed To Conduct Any

Reasoned Analysis Of The Comparable Penalties

Guidepost.

The third guidepost by which Gore and State Farm in-

struct reviewing courts to examine punitive damages

awards is “the disparity between the punitive damages

award and the ‘civil penalties authorized or imposed in com-

parable cases.” State Farm, 538 U.S. at 428 (quoting Gore,

517 U.S. at 575). As with the first two guideposts, this Court

expressly considered the application of the comparable pen-

alties guidepost to the facts of this case, finding that “[t]he

most relevant civil sanction under Utah state law . . . ap-

pears to be a $10,000 fine for an act of fraud.” Jd. at 428. Al-

though the Utah Supreme Court accepted this Court’s find-

ing, it conducted no reasoned analysis whatsoever of the re-

lationship between that legislatively authorized penalty and

the over $9 million award of punitive damages.

Instead, while paying lip service to the comparable pen-

alties inquiry, the Utah court disparaged its usefulness,

commenting that “the quest to reliably position any miscon-

duct within the ranks of criminal or civil wrongdoing based

on penalties affixed by a legislature can be quixotic.” App.

17a. In support of that notion, it noted that “while a $10,000

fine for fraud may appear modest in relationship to a multi-

million dollar punitive damages award,” that amount is the

maximum fine that may be imposed on a person under Utah

law for commission of a first-degree felony. Jd. And it ob-

served that “[t]he Supreme Court endorsed a punitive dam- |

ages award of $1 million, which is one hundred times greater |

than the $10,000 fine.” Jd. Based on these two observations,

_ the court concluded that the award of over $9 million was

“amply supported by the $10,000 civil penalty.” App. 18a.

This approach to the comparable penalties inquiry emp-

ties it of any meaningful content. The Utah court’s analogy

between the $10,000 civil fine that this Court deemed the

———~7~TS

17

appropriate point of reference here and the $10,000 fine that

may be imposed under Utah law for a first-degree felony

cannot bear scrutiny. A first-degree felony is punishable not

only by a $10,000 fine, but also by a prison term, which may

in some instances be life. See Utah Code Ann. § 76-3-203(1).

Accordingly, whether the court meant to suggest that con-

duct punishable by a $10,000 civil fine is as reprehensible as

a first-degree felony, or merely that the amount of the fine is

an unreliable guide to the legislature’s judgment regarding

the seriousness of the conduct at issue, its reasoning is un-

sound. As this Court expressly found, see State Farm, 538

US. at 428, the $10,000 civil fine best reflects the “legislative

judgment[] concerning appropriate sanctions for the conduct

at issue,” Browning-Ferris Indus. of Vt., Inc. v. Kelco Dis-

posal, Inc., 492 U.S. 257, 301 (1989) (O’Connor, J., concurring

in part and dissenting in part). The Utah court improperly

discounted that legislative judgment. Nor is it clear how

this Court’s conclusion that an award of $1 million would be

appropriate can justify the Utah court’s choice of an award

nine times higher. Indeed, the opposite is true.

Most fundamentally, the Utah court’s reasoning utterly

disregards the purpose of the comparable penalties inquiry:

to ensure that a defendant in a civil action, consistent with

the requisites of due process, has “fair notice not only of the

conduct that will subject him to punishment, but also of the

severity of the penalty that a State may impose.” Gore, 517

U.S. at 574; accord State Farm, 538 U.S. at 417. The Utah

court did not even attempt to explain how the possibility of a

$10,000 fine could put a defendant on notice that its conduct

might result in a $9 million punishment.

II. THIS CASE IS OF PARAMOUNT IMPORTANCE TO THE DE-

VELOPMENT OF REASONED STANDARDS GOVERNING IM-

POSITION OF PUNITIVE DAMAGES, PARTICULARLY IN IN-

SURANCE CASES.

This Court was originally led to grant certiorari in this

case and to reverse the Utah Supreme Court’s judgment by

its “concerns over the imprecise manner in which punitive

damages systems are administered” and the consequent

18

danger of unconstitutionally excessive and arbitrary awards

of punitive damages. State Farm, 538 U.S. at 418. In order

- to ameliorate that danger, this Court undertook to clarify

the constitutional standards governing review of punitive

damages. Although the guideposts set out in State Farm

built on those identified in Gore, State Farm greatly fur-

thered the development of a rational, consistent jurispru-

dence of punitive damages by elucidating those guideposts

and making them more specific and concrete.

The Utah Supreme Court’s decision, if allowed to stand,

threatens to undo the work done in State Farm to achieve a

rational and consistent federal standard for reviewing puni-

tive damages. The Utah court either disregarded this

Court’s guidance, or applied it in such a way as to render it a

nullity. Although it purported to apply the five factors this

Court identified as governing the reprehensibility analysis,

it believed itself free to reinterpret those factors “in light of

Utah’s values and traditions.” App. 7a. If other courts fol-

low the Utah court’s approach, State Farm will do little to

restrain the imposition of arbitrary and excessive awards,

and the “devastating potential for harm” posed by such

awards will go unchecked. Haslip, 499 U.S. at 42 (O’Connor,

J., dissenting); see State Farm, 538 U.S. at 417.

—-—- The Utah court’s reasoning poses a particular threat of

excessive and harmful punitive damages awards in insur-

ance actions. The Utah court rendered meaningless the dis-

tinction drawn by this Court between economic injury and

physical harm—and profoundly skewed the calculus of rep-

rehensibility set out by this Court—by theorizing that

breaches of an insurance contract that result in emotional

distress are “akin to physical assault.” App. 10a. It flouted

this Court’s admonition that a finding of reprehensibility

may not be premised on acts dissimilar to the conduct at is-

sue (or on entirely lawful conduct) by speculating that an k

insurer’s refusal to admit bad faith in the litigation against it

meant it was likely to be a recidivist in the future. App. 12a-

14a. And it failed to heed this Court’s clear direction that, in

a case like this one, where a plaintiff has received substantial

and full compensation for emotional distress stemming from

aot

4

eS

NA RIORERR SE a ps J

19

breach of an insurance contract, punitive damages should be

limited to an amount at or iiear the amount of compensatory

damages—instead approving an award nine times greater.

App. 14a-16a.

These distortions of the guideposts set out by this Court

in State Farm open the door to the possibility of grossly ex-

cessive, and potentially biased, punitive damages awards in

bad-faith suits against insurers. See, e.g., Oberg, 512 U.S. at

432 (without clear standards guiding their imposition, puni-

tive damages may be used to “express biases against big

businesses, particularly those without strong local pres-

ences”); accord State Farm, 538 U.S. at 417. Large insur-

ance companies may be particularly vulnerable to anti-big

business, and anti-insurer, animus, and the Utah court’s

analysis does nothing to restrain the expression of such ani-

mus through the imposition of excessive punitive damages.

Punitive damages awards exceeding what is necessary

for the legitimate purposes of retribution and deterrence can

have serious negative social consequences. See, e.g., Brown-

ing-Ferris, 492 U.S. at 282 (O’Connor, J., concurring in part

and dissenting in part) (noting that the “threat of . . . enor-

mous awards” can deter the development of new and poten-

tially beneficial products); Gore, 517 U.S. at 593 (Breyer, J.,

concurring) (noting that excessive awards can result in

overdeterrence of socially useful activity). That is particu-

larly true in the case of insurance bad-faith actions. The

threat of a bad-faith suit can potentially be a factor in nearly

all litigation against a defendant with liability insurance

where there is a possibility of a judgment in excess of policy

limits. Indeed, it is routine practice for plaintiffs’ attorneys

to “‘set up’ the [defendant’s] liability insurer by making a

policy limits demand.” If the insurer refuses to settle the

claim for the limits of the policy, and a judgment is later en-

” John H. Bauman, Emotional Distress Damages and the Tort of In-

surance Bad Faith, 46 Drake L. Rev. 717, 746 (1998); see also Kent D.

Syverud, The Duty to Settle, 76 Va. L. Rev. 1113, 1169 (1980) (explaining

that plaintiffs “attempt to ‘set up’ insurers for excess liability claims under

current duty-to-settle law”).

20

tered against the insured in excess of the policy limits, “the

insured has a potentially valuable claim against the insurer

for violation of the duty to settle. This claim is often as-

signed to the victorious plaintiff in exchange for a covenant

not to execute on the judgment.”"° (Indeed, that is precisely

what occurred in this case. See State Farm, 538 U.S. at 413-

414.) Because the threat of a bad-faith claim is present

whenever an insurer considers whether to settle a claim

against its insured for the limits of the policy, the risk of ex-

cessive punitive damages awards for conduct that a jury

finds to be in bad faith is likely to skew insurers’ incentives

and to lead them to settle nonmeritorious claims.'' The end

result is that liability insurance—a social good—will be more

difficult or more costly to obtain.

The “devastating potential for harm” posed by arbitrary

and excessive punitive damages awards—ameliorated by the

guidance provided in State Farm—is revived and exacer-

bated by the Utah Supreme Court’s decision. It is thus criti-

cal that this Court correct that decision, not only to ensure

compliance with its mandate in this case, but to ensure the

continuing vitality of the constitutional standards for review

of punitive damages that State Farm articulates.

CONCLUSION

The petition for a writ of certiorari should be granted.

The judgment of the Utah Supreme Court should be sum-

marily reversed and the case should be remanded with in-

structions to enter an award of punitive damages at or near

the amount of compensatory damages, consistent with this

Court’s opinion and mandate in State Farm. In the alterna-

tive, the Court should grant plenary review and set this case

for briefing and argument.

'° Bauman, supra note 9, at 746.

'' Cf, e.g., id. at 747 (discussing possibility that broad availability of

emotional distress damages in bad-faith cases could induce insurers to

settle invalid claims); see generally A. Mitchell Polinsky & Steven Shavell,

Punitive Damages: An Economic Analysis, 111 Harv. L. Rev. 869 (1998)

(discussing risk of overdeterrence from excessive punitive damages).

ai a a

21

Respectfully submitted,

SETH P. WAXMAN

Counsel of Record

RANDOLPH D. Moss

DANIELLE SPINELLI

WILMER CUTLER PICKERING

HALE AND DORR LLP

2445 M Street, N.W.

Washington, DC 20037

(202) 663-6000

AUGUST 2004

og aT ea nel ae tee TY ea