The Supreme Court last week refused to hear State Farm v. Campbell – an appeal from a decision of the Supreme Court of Utah. Of the U.S. Supreme Court’s decision this year, it may be its most important. Despite this, the court’s decision not to review the case has received little or no attention.

The facts of the case are as follows:

Curtis Campbell and his wife were driving in Utah, when Mr. Campbell, finding himself behind six vans on a two-lane highway, decided to pass the vans. A second driver, traveling in the opposite direction, swerved to avoid Mr. Campbell and collided with another automobile. The driver of that automobile was severely injured; the driver in the car that swerved to avoid Mr. Campbell was killed; Mr. Campbell and his wife were untouched.

When Mr. Campbell was sued, his insurance company, State Farm, contested his responsibility for the collision. With the opportunity to settle the case for $50,000, the policy limit, State Farm declined, contravening the recommendation of at least one of its investigators. A jury, determining that Mr. Campbell was entirely at fault, returned a judgment for $185,849.

State Farm refused to pay the amount that the judgment exceeded the policy limit and told the Campbells that they should think of putting their house up for sale. Mr. Campbell then retained separate counsel and appealed the judgment. When that appeal failed, State Farm agreed to pay the entire judgment.

The Campbells were, however, not done. They sued State Farm for bad faith in rejecting a settlement for the policy limit. In that suit, they claimed to have suffered emotional distress during the period in which they thought they would be responsible for $135,849,the amount beyond the limit of their policy. The Campbells agreed to give 90% of any money they recovered to the two other individuals involved in the accident.

A jury awarded the Campbells $2.6 million in compensatory damages and $145 million in punitive damages. The trial court reduced the award of compensatory damages to $1 million and the punitive damages to $26 million. The Supreme Court of Utah upheld the compensatory damages and raised the punitive damages back to $145 million.

Last year, the Supreme Court of the United States reversed and remanded. In that decision, the court held that the punitive damages award was excessive. Invoking principles of due process, the court held that when compensatory damages are substantial, the appropriate ratio of punitive to compensatory damages is 1:1. When, on the other hand, a “particularly egregious” act results in damages that are relatively slight, then a ratio of 9:1 may be justified. The court clearly implied that Mr. Campbell fell into the former category but remanded the case to the Utah Supreme Court for further review.

On remand, the Supreme Court of Utah reduced the award of punitive damages to $9 million. It is from this decision that State Farm sought review from the Supreme Court.

The reason why the case is of such significance is that the lower courts – the Utah Supreme Court being just one – appear to be in open revolt against the Supreme Court’s directives limiting punitive damages. Specifically, while the Supreme Court in its earlier decision stated that the correct ratio of punitive to compensatory damages is 1:1 where compensatory damages are substantial, the lower courts are regularly awarding damages in ratios that exceed this, justifying their decisions on the grounds that the conduct of the defendant is “particularly egregious.”

According to an amicus brief filed in support of the petition for a writ of certiorari, in over 80% of the cases where there has been award of $250,000 in compensatory damages, the accompanying punitive award has exceeded 2:1. In the case of the Campbells, the ratio of punitive to compensatory damages was 9:1. Why has this occurred?

One of the reasons is that juries, judges, and law clerks are inevitably tempted to do justice in the individual case before them. This is particularly true when it comes to damages, where it is assumed that any decision will have little effect on other cases, i.e., damage awards have little weight as precedent. So if the impact on future cases is minimal, the thinking goes, why not give out an award that takes care of everyone’s problems.

There were certain facts of the Campbell case, for example, that would have been hard for the jury, judge, and clerks to have ignored, even though their relevance to the case was arguable: The Campbells were elderly; Mr. Campbell suffered from Parkinson’s disease; his first wife was murdered, his second wife left him, and his third wife died of cancer; and the Campbells’ house had previously gone into foreclosure owing to the actions of Mrs. Campbell’s first husband. On top of this, as noted, the Campbells had pledged 90% of the award to the innocent victims of the accident.

The argument on the other side is that due process, as rooted in notions of fairness, requires that the members of society be given sufficient warning of the consequences of their actions. This is clearest in the criminal context but applies to civil actions: in a well ordered and just society, citizens should have some idea of the circumstances under which they may be subject to crushing economic penalties.

Moreover, unpredictable punitive awards also affect the profitability of corporations and that has real economic consequences for employees and shareholders. Large punitive awards may achieve some measure of justice in the individual case, but over the long run, they are extremely corrosive.

By refusing to take Campbell for a second time, the Supreme Court has in effect guaranteed that punitive awards throughout this country will be up to nine times what they would have been had the court taken the case and applied its previous ruling.

Mr. Rips, who was a law clerk to Justice Brennan, practiced law in New York. His book “The Face of a Naked Lady: An Omaha Family Mystery,” will be published in the spring of 2005 by Houghton Mifflin.