The ruling came in the case of a Utah man who received a $1 million "compensatory" award against an auto insurance company for actual damages, but was given an additional $145 million in punitive damages by a jury.
The Supreme Court majority Monday said judges and juries can use the "guideposts" contained in a landmark 1996 decision, BMW of North America vs. Gore, to determine whether punitive damages are excessive.
Monday's ruling was an important reaffirmation of the Gore case's tenets.
The most important indicator of the "reasonableness" of an award is "the degree of reprehensibility of a defendant," the justices said in Gore. In other words, how reckless was the defendant?
The second Gore "guidepost" is the ratio between compensatory and punitive damages. Writing for the majority Monday, Justice Anthony Kennedy said although there is no hard and fast rule, "in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy" the Constitution's guarantee of due process, or fair proceedings.
Kennedy cited the 4-1 ratio approved by the court majority in Gore.
"In the context of this case," he added, "we have no doubt that there is a presumption against an award that has a 145-1 ratio."
The third Gore guidepost "is the disparity between the punitive damages award and the 'civil penalties authorized or imposed in comparable cases,'" Kennedy said.
In the case at hand, the "most relevant civil sanction under Utah state law for the wrong done to the (plaintiffs) appears to be a $10,000 fine for an act of fraud ... an amount dwarfed by the $145 million punitive damages award."
Scalia reiterated his dissent in Gore -- the Constitution's due process clause "provides no substantive protections against 'excessive' or 'unreasonable' awards of punitive damages."
Citing his dissent in a 2001 case, Thomas said he dissented because "I continue to believe that the Constitution does not constrain the size of punitive damages awards."
Ginsburg noted that the high damages award was allowed under state law. "I remain of the view that this court has no warrant to reform state law governing awards of punitive damages," she said.
The $145 million judgment in Utah was against State Farm Mutual Automobile Insurance.
State Farm questioned whether the award violated "fundamental principles of due process," or fair proceedings guaranteed by the Constitution.
The insurance company also questioned whether the award violated 1996's BMW vs. Gore.
In May 1981, while driving north on a highway near Logan, Utah, Curtis Campbell "unsafely passed a car driven by Robert Slusher," according to court records.
Kennedy said Campbell had decided to pass six vans ahead of him on a two-lane highway.
" ... This unsafe maneuver forced a southbound car, driven by Todd Ospital, to veer onto the shoulder of the road and collide with Slusher's car a split second later," court records said.
Ospital was killed at the scene and Slusher was disabled.
In September 1981, Slusher filed suit against Campbell, Ospital's estate and Kenneth Brooks, who owned the car driven by Ospital, for damages resulting from the collision.
Ospital's estate then cross-filed a suit against Campbell for wrongful death liability, and Campbell cross-filed a suit against Ospital's estate for partial liability.
Before trial, State Farm gathered evidence blaming Campbell for the accident, and Slusher and the Ospital estate continually invited the company to settle the suits for the limits of the Campbell policy -- $25,000 per claimant.
Rejecting a report by their own investigator, State Farm officials decided not to settle, court records said. One official, Bill Brown, even ordered the investigator to change parts of his report showing Campbell's liability, again according to court records.
After Ospital's estate settled with Slusher, the case against Campbell went to trial.
A jury found Campbell at fault for the accident and entered a $135,000 judgment for Slusher and a $50,849 judgment for Ospital's estate.
Campbell and his wife were told by State Farm not to hire separate lawyers and that their assets were safe, according to court records.
After the judgment, again according to court records, State Farm made it clear that it did not intend to post a bond of more than the $25,000 cap, times two, on the Campbell policy.
In 1989, the Utah Supreme Court affirmed the damages against the Campbells. State Farm then paid all of the damages, both its policy limit and the Campbells' personal liability.
A short time later, the Campbells filed suit against State Farm, alleging bad faith and intentional infliction of emotional distress, among other things.
A state judge ruled for State Farm without hearing a trial, but state appeals courts reversed.
Eventually a state jury awarded the Campbells $2.6 million in compensatory damages -- reduced to $1 million by the judge -- attorneys fees and $145 million in punitive damages.
The Utah Supreme Court ultimately upheld the damages, and State Farm asked the Supreme Court of the United States for review.
The justices heard the case last December, and handed down their decision Monday.
The ruling reverses the Utah Supreme Court and sends the case back for a new ruling based on the U.S. Supreme Court majority opinion.
(No. 01-1289, State Farm Mutual Insurance vs. Campbells.)