A Brief Look Inside An Insurance Company’s Secret Playbook

Picking a good insurance company is important, but avoiding the wrong ones is more important. This brief article will discuss a case out of Utah, Campbell v. State Farm, 2001 UT 89. In it, the Utah Supreme Court discusses the business practices employed nationwide by State Farm intended to maximize profits while minimizing expenses. The Court’s decision is quite detailed in its discussion of State Farm’s practices which may or may not have changed since this decision was published over fifteen years ago.

Campbell v. State Farm

After a trial, a Utah jury found that State Farm’s documented business model was so outrageous, they awarded the plaintiff $145,000,000 ($145 million) in punitive damages which are intended to punish a defendant for its malicious and/or fraudulent conduct. The question becomes, what did State Farm do that caused a jury to punish it so harshly? The answer is that the jury was able to hear secret information about State Farm’s “national scheme to meet corporate fiscal goals by capping payouts on claims company wide. This scheme was referred to as State Farm’s ‘Performance, Planning and Review,’ or PP & R, policy.” Id. at ¶ 11.

This nationwide “PP & R” program involved numerous strategies used to reduce State Farm’s costs while maximizing its profits. Keep in mind that these strategies were nationwide, meaning the practices State Farm engaged in were not limited to Utah or any other state. Below are a few quotes from the Utah Supreme Court about what State Farm’s PP & R program actually meant for insureds and consumers. Keep in mind that these are quotes from the court and not opinions. Some of the Court’s language will be emphasized.

1. First, State Farm repeatedly and deliberately deceived and cheated its customers via the PP & R scheme. For over two decades, State Farm set monthly payment caps and individually rewarded those insurance adjusters who paid less than the market value for claims.

o Agents changed the contents of files, lied to customers, and committed other dishonest and fraudulent acts in order to meet financial goals.

§ For example, a State Farm official in the underlying lawsuit in Logan instructed the claim adjuster to change the report in State Farm’s file by writing that Ospital was “speeding to visit his pregnant girlfriend.” There was no evidence at all to support that assertion. Ospital was not speeding, nor did he have a pregnant girlfriend. Id. The only purpose for the change was to distort the assessment of the value of Ospital’s claims against State Farm’s insured.

o State Farm’s fraudulent practices were consistently directed to persons—poor racial or ethnic minorities, women, and elderly individuals—who State Farm believed would be less likely to object or take legal action. Campbell at ¶ 29 (internal citations omitted).

2. Second, State Farm engaged in deliberate concealment and destruction of all documents related to this profit scheme. State Farm’s own witnesses testified that documents were routinely destroyed so as to avoid their potential disclosure through discovery requests.

o Such destruction even occurred while this litigation was pending.

o Additionally, State Farm, as a matter of policy, keeps no corporate records related to lawsuits against it, thus shielding itself from having to disclose information related to the number and scope of bad faith actions in which it has been involved. ¶ 30 (internal citations omitted).

3. Third, State Farm has systematically harassed and intimidated opposing claimants, witnesses, and attorneys.

o For example, State Farm published an instruction manual for its attorneys mandating them to “ask personal questions” as part of the investigation and examination of claimant in order to deter litigation. Several witnesses at trial […] testified that these practices had been used against them..

o Specifically, the record contains an eighty-eight page report prepared by State Farm regarding [one of these witnesses’] personal life, including information obtained by paying a hotel maid to disclose whether DeLong had overnight guests in her room.

o There was also evidence that State Farm actually instructs its attorneys and claim superintendents to employ “mad dog defense tactics”—using the company’s large resources to “wear out” opposing attorneys by prolonging litigation, making meritless objections, claiming false privileges, destroying documents, and abusing the law and motion process. ¶ 31 (internal citations omitted).

4. Taken together, these three examples show that State Farm engaged in a pattern of “trickery and deceit,” “false statements,” and other “acts of affirmative misconduct” targeted at “financially vulnerable” persons … Moreover, State Farm has strategically concealed “evidence of [its] improper motive” to shield itself from liability, which was furthered by State Farm’s treatment of opposing witnesses and counsel … Such conduct is malicious, reprehensible, and wrong. ¶ 32 (internal citations omitted).

Having this information, the jury decided to punish State Farm for its conduct by awarding the plaintiffs $145 million in punitive damages. The purpose behind punitive damages is to punish a corporation for acting maliciously or fraudulently. Corporations only change their practices if the practices are not profitable, that is the nature of a corporation. So presumably, State Farm would have felt the hit of a $145 million award against it and changed its “malicious, reprehensible, and wrong” behavior to avoid ever being punished so substantially again, right?

Not necessarily. Unfortunately, the story does not end here. While you and I would certainly feel such a huge financial hit and change our behavior (as is the purpose of punitive damages), State Farm is a truly massive corporation. So massive, in fact, that at the time of this case in 2001, “$145 million is only 0.26 of one percent of State Farm’s wealth.” Campbell at ¶ 29. State Farm is so massive, that even a penalty of $145 million is relatively insignificant and constitutes less than 1/4 of 1% of State Farm’s total wealth in 2001. With such massive resources, which have only grown more massive over the last decade and a half, the punitive damages awarded against State Farm were not so massive as to substantially effect the company. They could have easily paid the damages, corrected their behavior to avoid additional suits, and moved on with an emphasis on rehabilitating its image in the public’s eyes.

But State Farm was not interested in paying the plaintiffs in Campbell $145 million. Worried that the decision inspire others who had suffered similar treatment to that of the Campbells to file similar suits, which would lead to more punitive damages, State Farm appealed the Utah Supreme Court’s decision to reinstate the $145 million punitive damages award against it (note: the jury’s award was initially reduced by the trial court, but after reviewing State Farm’s conduct, Utah’s Supreme Court reinstated the jury’s original punitive award). State Farm appealed to the United States Supreme Court, arguing that the amount of punitive damages violated its right to due process under the Constitution. Amazingly, the United States Supreme Court sided with State Farm and ruled that the size of the award was Constitutionally prohibited.

The High Court’s ruling in Campbell has set the standard for what is Constitutionally permissible when a jury awards punitive damages against a corporation. It is important to note that a jury can award anything it wishes, but the Supreme Court’s decision in Campbell requires the trial court judge to reduce large awards of punitive damages to, at the most, 9 times the compensatory damages. Compensatory damages are damages that are intended to compensate an individual for things like medical expenses, emotional distress, lost wages, etc.


So, as an example of what the Supreme Court’s decision means, consider a case where the compensatory damages awarded by a jury against a defendant corporation (let’s call them “Insurance Company X,”) are $100k. Let’s also say that the jury found the Insurance Company X acted so unreasonably, so incredibly maliciously and fraudulently, that it has to be punished for its actions so that in the future, Insurance Company X will find its malicious (but very profitable) conduct ends up costing it more than it makes. That’s the idea behind punitive damages against a corporation: make the bad behavior unprofitable and it will stop. Let’s also say that after hearing all of the evidence, the jury finds the conduct of Insurance Company X so outrageous it decides to send it a message by punishing it with a $10 million dollar punitive award, as Insurance Company X is a big company, but not so big that it won’t feel the sting of losing $10 million. The jury members will go home thinking, “we just send a strong message to all insurance companies that their malicious and fraudulent actions are no longer going to be tolerated and that if they choose to subject people to that kind of malice, they will not be rewarded in the form of profits but instead will be punished in the form of punitive damages.”

But what the jury is never told is that Insurance Company X will never pay anything close to $10 million dollars for its behavior. Regardless of a corporations malicious, fraudulent or wrongful behavior, and without consideration of whether a punitive damage award of $10 million will even be felt by Insurance Company X because of its enormous wealth, the trial court will have to follow the US Supreme Court’s decision in Campbell and will reduce the punitive damages to, at the very most, 9 times the compensatory damages (in our example, the compensatory damages are $100k). Thus, Insurance Company X gets to escape the “punitive” portion of the damages by reducing that $10 million to no more than $900k (9 times the compensatory damage award). Insurance Company X can easily afford to pay that and because its business practices are so profitable (even though they are also malicious, fraudulent and wrong). In this example, Insurance Company X has no incentive whatsoever to cease acting maliciously or stop committing fraud against its insureds or claimants.

However, the Supreme Court went a step further and stated that a punitive damages award of just 4 times the compensatory damages (meaning punitives of $400k when compensatory damages are $100k) is “close to the line of constitutional impropriety.” State Farm Mut. Automobile Ins. Co. v. Campbell, 538 U.S. 408 (2003). Insurers can easily afford to pay that amount of money if they are making huge profits by acting with malice and fraud. So, Insurance Company X continues its horrendous behavior and becomes even more wealthy as it defrauds consumers and destroys lives of innocent people injured by its insureds.


A corporation’s purpose is to maximize profits while minimizing costs. That is what makes shareholders wealthy. However the world of insurance is different than just about any other corporation. Insurance companies have legal and contractual obligations to take care of their insureds and deal fairly with injured people making claims. But that doesn’t always happen. The conflict inherent in acting for the benefit of an insured while also maximizing profits creates a very real problem. That problem is not theoretical, but as the Utah Supreme Court documented, it is very real and creates the opportunity for insurance companies to put their own financial gains ahead of all else, even the welfare of their paying customers.

Do some research before selecting an insurance company. Not all are equal. And if you feel like you have been wronged by your insurer, no matter who it is, talk to a lawyer about it.