Utah Supreme Court Hears Arguments in State Farm Case

Utah Supreme Court Hears Arguments in State Farm Case

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SALT LAKE CITY (AP) -- The Utah Supreme Court has taken under advisement arguments over how much punitive damages State Farm Insurance should pay in a suit alleging it underpaid insurance claims, cheated customers and destroyed documents.

At issue are punitive damages the insurer must pay to Inez Campbell of Lewiston. She and her late husband, Curtis, were awarded $1 million in compensatory and $145 million in punitive damages for an alleged State Farm Mutual Automobile Insurance scheme to pay policyholders less than their claims were worth.

But in a 6-3 ruling in April, the U.S. Supreme Court held that $145 million was unconstitutionally large when the actual damages were $1 million.

It kicked the case back to the Utah Supreme Court, which on Monday heard arguments as to what punitive damages the federal justices might consider to be constitutionally allowable.

State Farm now says it should pay $1 million in punitive damages, while Campbell's attorneys have said the insurer should pay at least $17 million.

Former Utah Supreme Court Justice Michael Zimmerman and co-counsel Sheila Birnbaum, representing the insurance company, told the Utah court it must implement the "letter and spirit" of the April decision.

"If you don't find one to one (punitive to compensation) or somewhere close to that, the Supreme Court mandate will not be followed," Birnbaum said.

They also said that the April ruling prevents the Utah court from considering dissimilar, out-of-state conduct by State Farm. At trial, jurors heard evidence of company misdeeds ranging from car repairs made with low-quality parts in Colorado to unfairly low earthquake-damage settlements in California.

State Farm has said that it has since changed the way it does business.

Harvard Law School Professor Laurence Tribe, representing the plaintiffs, said the federal court also had made it clear that certain egregious behavior may warrant a higher ratio.

He said Utah's justices should be able to consider the so-called Performance, Planning and Review policy manual that laid out the insurer's practice of rewarding adjustors for offering claimants less than their claims merited.

"It does not follow that the scheme by which the Campbells were defrauded ... somehow has to be disregarded," Tribe said. "That's not what the Supreme Court said."

Utah Chief Justice Christine M. Durham questioned what role deterrence of future bad acts should play in the court's decision in the Campbell case.

In the Utah Supreme Court's 2001 opinion upholding the $145 million award, Durham wrote the large amount was needed to deter the insurer from further bad conduct and represented about one quarter of 1 percent of State Farm's wealth.

State Farm officials allegedly intentionally destroyed documents related to the scheme, and harassed and intimidated claimants who threatened litigation.

The Campbell case first began following an accident found to have been caused by Curtis Campbell in 1981. The wreck killed Todd Ospital, 19, and permanently disabled Robert Slusher, 26.

Ospital's parents and Slusher sued Curtis Campbell, but offered to settle for the $50,000 limit of his State Farm policy. The insurer reassured Campbell he had nothing to worry about, but in 1983 a Logan jury awarded about $250,000 to Slusher and the Ospitals.

After the verdict, Campbell testified, he asked his State Farm-hired attorney what to do and was told to put a "For Sale" sign on his home.

State Farm eventually paid.

(Copyright 2003 by The Associated Press. All Rights Reserved.)

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