Insurer’s acts in other states not proof of bad faith
By A. Janay Ferguson

An insurer’s alleged bad faith in one state generally is not evidence of its bad faith in another state, the United States Supreme Court has held.

In Campbell v. State Farm, no. 01-1289 (Apr. 2003), the policyholder, Curtis Campbell, was awarded $25 million in punitive damages for State Farm’s bad faith in handling the defense of a third-party automobile insurance claim. Washington does not allow punitive damage awards, but the Campbell ruling marks the evidentiary limit for the use of an insurer’s conduct outside Washington in bad faith claims.

In 1981, Campbell was driving in Utah. He tried to pass six vans traveling ahead of him on a two-lane highway. Todd Ospital was driving in the oncoming lane in a small car. To avoid a head-on collision with Campbell, Ospital swerved and collided with a vehicle being driven by Robert Slusher. Ospital was killed. Slusher was permanently disabled. Campbell was unharmed.

Ospital and Slusher sued Campbell. Witnesses and investigators, including one of State Farm’s own investigators, agreed early in the case that Campbell’s unsafe pass caused the crash. However, State Farm declined Ospital and Slusher’s offers to settle for policy limits. The case proceeded to trial. State Farm assured the Campbells that their assets were safe, that State Farm would represent their interests, and that they did not need to procure separate counsel. A jury held Campbell 100 percent at fault for the accident and awarded $135,849 in excess of the policy limits. State Farm refused to pay the excess or to post a bond for the Campbells’ appeal.

In late 1984, while the appeal was pending, Slusher, Ospital, and Campbell agreed that Slusher and Ospital would not execute their claims against Campbell, and Campbell would assign to them part of his bad-faith claims against State Farm. Slusher and Ospital’s attorneys would represent Campbell, and settlement and major decisions in the bad-faith action could be made only with Slusher and Ospital’s agreement. Campbell lost his appeal and State Farm paid the full judgment, including the sum exceeding policy limits.