The Rehnquist Court (1986–2005)
How did the Rehnquist Court deal with the issue of punitive damages?
The Rehnquist Court reaffirmed the principle that the Due Process Clause imposes some limits on excessive punitive damage awards. In BMW, Inc. v. Gore (1996), the Court overturned by a vote of 5–4 a $2 million punitive damage award given by an Alabama jury to a doctor who purchased a BMW automobile with a faulty paint job. The Court focused on the large ratio between the actual (compensatory damages) damages suffered by Ira Gore Jr. and the punitive damage award.
“Elementary notions of fairness enshrined in our constitutional jurisprudence dictate that a person 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,” the Court wrote.
Justices Antonin Scalia and Clarence Thomas dissented, believing that the issue was one for state courts: “Since the Constitution does not make that concern any of our business, the Court’s activities in this area are an unjustified incursion into the province of state governments.”
In State Farm Mutual Automobile Insurance Co. v. Campbell (2003), the U.S. Supreme Court struck down a $145 million punitive damage award by a vote of 6–3. The case involved an insurance company’s representation of its insured in an automobile accident. The insured caused an automobile accident that resulted in a fatality. The insurance company rejected two $50,000 settlement offers from the opposing side and assured its customer that his personal assets were safe from a legal judgment. The insurance company was wrong and a jury imposed $185,000 in damages. The insured then filed a bad-faith action against his insurance company. A jury imposed $1 million in compensatory damages and $145 million in punitive damages. The insurance company appealed all the way to the U.S. Supreme Court, contending that the punitive damage award was so excessive as to violate the Due Process Clause.
“While States possess discretion over the imposition of punitive damages, it is well established that there are procedural and substantive constitutional limitations on these awards,” Justice Anthony Kennedy wrote for the majority. “The Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor [defendant]…. To the extent an award is grossly excessive, it furthers no legitimate purpose and constitutes an arbitrary deprivation of property.”