344 Or 232 | Omnilex

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232
Argued and submitted January 4, 2007, decision of Court of Appeals affirmed as
modified by this opinion; judgment of circuit court vacated and remanded with
instructions to grant defendant's motion for new trial, limited to punitive damages,
unless plaintiff agrees to remittitur of punitive damages to four times compensa
tory damages award March 6, reconsideration denied May 29, 2008
Margie A. GODDARD,
as Personal Representative for the Estate of
Marc E. Goddard, Deceased,
Petitioner on Review,
v.
FARMERS INSURANCE COMPANY OF OREGON,
an Oregon corporation,
Respondent on Review.
(CC 9005-03204; CA A 1 18750; SC 8053405)
179 P3d 645

Cite as 344 Or 232 233

234 Goddard v . Farmers Ins. Co.

Cite as 344 Or 232 (2008) 234-a
CJS, Constitutional Law § 1399.
En Banc
On review from the Court of Appeals.*
Jeffrey M. Batchelor, Markowitz, Herbold, Glade
& Mehlhaf PC, Portland, argued the cause and filed the
briefs for petitioner on review. With him on the briefs were
William A Barton and Kevin K Strever, of Barton & Strever,
PC, Newport, and David W. Melville, Portland.
James N. Westwood, Stoel Rives LLP, Portland, argued
the cause and filed the brief for respondent on review. With
him on the brief was Thomas H. Tongue, Dunn Carney
Higgins Allen & Tongue LLP, Portland.
William F. Gary and Sharon A Rudnick, Harrang Long
Gary Rudnick PC, Eugene, filed a brief on behalf of amicus
curiae Associated Oregon Industries.
GILLETTE, J.
The decision of the Court of Appeals is affirmed as modi
fied by this opinion. The judgment of the circuit court is
vacated and remanded with instructions to grant defendant's
* Appeal from Multnomah County Circuit Court, Douglas G. Beckman, Judge.
202 Or App 79, 120 P3d 1260 (2005), modified and adh'd to as modified on recons,
203 Or App 744, 126 P3d 682 (2006).

234-b Goddard v. Farmers Ins. Co.
motion for new trial, limited to punitive damages, unless
plaintiff agrees to remittitur of punitive damages to four
times compensatory damages award.

Cite as 344 Or 232 235
GILLETrE, J.
This case involves a constitutional challenge to a
punitive damages award that a jury imposed on a liability
insurance company, based on the company's bad faith failure
to settle a third-party's claim against one of its insureds
within policy limits.
The underlying case is a wrongful death proceeding.
The insured, John Munson, caused an automobile accident in
1987 while driving under the influence of alcohol. The acci
dent killed Marc Goddard. Goddard's mother (plaintiff)
brought a wrongful death action against Munson. Munson's
insurer, Farmers Insurance Company of Oregon (defendant),
undertook Munson's defense, but failed to settle plaintiffs
wrongful death action within policy limits, after which a jury
returned a verdict that resulted in a judgment against
Munson for $863,274. Munson, who asserted that defen
dant's failure to settle was an act of bad faith, assigned his
bad faith claim against defendant to plaintiff, who prose
cuted the action. A jury awarded plaintiff $863,27 4 in com
pensatory damages and $20, 7 18,576 in punitive damages.
Defendant moved to reduce both awards. The trial court
reduced the compensatory damages award in certain
respects, but left the punitive damages award in place. Both
sides appealed. The Court ofAppeals reinstated two amounts
that the trial court had deducted from the compensatory
damages award, but also significantly reduced the punitive
damages award. Goddard u. Farmers Ins. Co. , 202 Or App 79,
120 P3d 1260 (2005), modified and adh'd to as modified on
recons, 203 Or App 744, 126 P3d 682 (2006). Plaintiff sought
review, which we allowed. For the reasons that follow, we
affirm the decision of the Court of Appeals.
I. FACTS
Plaintiffs "failure to settle" action against defendant
is based on defendant's conduct in the wrongful death action
against Munson, so we begin there. For the most part, the
parties do not contest the facts as set out in the Court of
Appeals opinion,1 from which we quote liberally.
1 Defendant asks this court simply to adopt the Court of Appeals' statement of
the facts. Plaintiff agrees that the Court of Appeals opinion is accurate as far as it

236 Goddard v. Farmers Ins. Co.
A. Wrongful Death Action
The accident at issue was a collision between a truck
(which Munson was driving) and a car driven by the
deceased. The accident potentially was covered by two sepa
rate insurance policies issued by defendant. First, Munson
himself had a $100,000 automobile insurance policy with
defendant. Second, the truck that Munson was driving was
owned by Helen Foley, who also had a $100,000 automobile
insurance policy with defendant. Separate litigation would
eventually determine that the accident was covered only by
Foley's policy.
"The fatal accident occurred on October 29, 1987. Munson,
who had consumed a large quantity of alcohol, made a left
turn into a tavern parking lot and collided with Marc
Goddard's oncoming vehicle, killing Goddard. Shortly after
the collision, Foley, who was to meet Munson at the tavern,
arrived on the scene. Both Munson and Foley told a police
officer that Munson had been driving Foley's truck with
Foley's permission. Although Munson believed that he was
not impaired by alcohol at the time of the collision, his blood
alcohol level taken at the hospital was more than twice the
legal limit for operating a motor vehicle."
Goddard, 202 Or App at 86.
On November 2 , 1987, Foley and Munson both told
the defendant's claim representative, Sellers, that Munson
had been driving the truck with Foley's permission. Id.
Munson also admitted to Sellers that he had had "eight to ten
beers" before the accident. Id. Despite strong evidence that
Munson was at fault in the collision, defendant's employees
resisted plaintiff's attempts to resolve liability:
"On November 5, 1987, [attorney) Carl Amala wrote to
Sellers, stating that he had been retained by Marc
Goddard's estate and seeking to discuss liability, property
goes, but she argues that the Court of Appeals does not go far enough in describing
defendant's reprehensible conduct: Much of her brief to this court is devoted to
highlighting evidence that, according to plaintiff, "depict a [defendant] more
treacherous than the malicious and deceitful [defendant] seen in the Court of
Appeals opinion." We do not feel compelled to include plaintiffs detailed additions
in our explication of the facts. Her suggested additions confirm the malicious and
deceitful nature of defendant's conduct, but do not alter our overall assessment of
the level of reprehensibility involved.

Cite as 344 Or 237
damage, and medical and burial expenses. Sellers spoke
with Amala by telephone, indicating that Sellers did not
believe Munson was at fault in the collision. By early
December, Sellers had verified through the police that
Goddard had his headlights on at the time of the collision.
"On December 10, 1987, Amala again wrote to Sellers,
stating that the physical evidence demonstrated that the
collision occurred in Goddard's lane of travel, that
Goddard's headlights were on, and that criminal charges
against Munson were contemplated. Amala asked for any
information that called into question Munson's liability. He
also asked for information about what Farmers policies
were involved and what their limits were. By December 10,
1987, Sellers had concluded that Munson's liability for the
collision was clear. However, neither Sellers nor any other
employee of defendant responded to Amala's letter.
"On December 16, 1987, Sellers wrote an investigation
report for his supervisor, Doug Heatherington, indicating
that both Foley's and Munson's policies were potentially
involved, that Munson admitted to having consumed nine
beers prior to the accident, and that the case 'has policy lim
its potential.' The following day, Sellers wrote a claim
status report, stating that the Goddard estate 'will want
policy limits' and that '[w] e have two policies involved with
$200,000 exposure. I feel we should let things "ripen" a bit
before making any settlement talk.'
"On January 5, 1988, Heatherington wrote to Don
McClure, the regional claims manager in Portland, noting
that both Foley's and Munson's policies were potentially
involved but also noting that Munson's policy might not
apply if Munson used Foley's vehicle regularly. That letter
further stated that Munson admitted having eight to ten
beers before the collision; that Marc Goddard had been 19
years old and was single with no children; and that
Goddard was believed to have been recently released from
j ail. The letter concluded that, although ordinarily liability
would be clear for making a left turn in front of an oncoming
vehicle, Munson had suggested that Goddard might not
have had his headlights on. Heatherington requested that a
reserve, or settlement value, of $30,000 be established for
the case and suggested that police reports, blood alcohol
tests, and information on Goddard's headlights be obtained.

Goddard v. Farmers Ins. Co.
"On January 12, 1988, Amala again wrote to Sellers,
indicating that he had not received a response to his ear1ier
correspondence and seeking a response. Again, defendant
provided no response."
Id. at 87-88.
Meanwhile, internal memoranda show that defen
dant's employees had little doubt about Munson's liability for
Goddard's death.
"Sellers provided a status report to [Randy] Voth[, who had
replaced Heatherington in the Salem office,] on January 22,
1988, indicating that Goddard's vehicle had its lights on
and that Munson had simply made a left turn in front of
Goddard's vehicle after consuming nine beers. Sellers
stated, 'I think we should get some offer out on this if pos
sible soon, or perhaps we should answer a l awsuit and find
out facts on [Marc Goddard] through discovery process.'
"Munson was charged with second-degree manslaugh
ter. On March 3, 1988, Amala wrote again to Sellers, noting
that he had received no response to his three earlier letters,
that the police reports indicated that Munson was at fault
in the collision, and that Munson had been charged with
manslaughter. He again sought information about the pol
icies involved and asked that defendant respond in writing
concerning the settlement of the property damage portion
of the case. In late March, Amala spoke on the phone with
Sellers, and Sellers confirmed that Foley and Munson each
had $100,000 of coverage. Sellers also represented to
Munson's [criminal] attorney, Feitelson, that both Foley's
and Munson's policies would apply."
Id. at 88.
At that point, the noncooperative nature of the rela
tionship between plaintiff and defendant became more
formal.
"On March 28, 1988, Amala sent a demand letter to
Sellers, indicating that he would recommend to his client
that she accept $200,000 to settle all claims against
Munson, giving a three-week response time. On March 3 1 ,
1988, Sellers wrote a claim status report noting the
$200,000 demand and requesting authority to settle for up

Cite as 344 Or 232 (2008) 239
to $50,000. The report stated that Sellers was awaiting an
accident reconstruction report and that Munson's [crimi
nal] attorney, Feitelson, was trying to obtain information
on Marc Goddard's criminal history."
Id. at 88-89.
In April 1988, Sellers received an accident recon
struction report and information about Goddard's criminal
history. Id. at 89. The accident reconstruction report con
firmed that Munson had turned in front of Goddard and that
Goddard had been traveling at approximately the speed
limit, but the report could not specify whether Goddard had
been using his headlights. Id. The criminal history investi
gation by Feitelson indicated that, at the time of the collision,
Goddard had been on probation and that his probation was in
j eopardy. Id.
"On April 25, 1988, Voth, Sellers's supervisor in the
Salem office, wrote to McClure, in the Portland regional
office, indicating that the police were unable to determine
whether Goddard's headlights had been on and further
indicating that [the accident reconstruction firm) would
attempt to determine whether the headlights had been on.
On May 3, 1988, Sellers submitted a status report to Voth,
explaining that a state police report concluded that
Goddard's headlights had been on and that the present
demand was for $200,000. Sellers concluded, 'I think the
case has a value of $50,000-and feel we should make the
offer now.' On May 12, 1988, Sellers called Amala, the
attorney for Goddard's estate, indicating that he should
have an answer within a few days on settlement but that he
knew that defendant was 'not going to offer policy limits.'
Amala responded that the Goddard estate intended to file
suit shortly.
"On May 26, 1988, Voth wrote to McClure, stating that
information showed that Munson had not used a turn sig
nal before turning left and that Goddard's headlights were
on. Voth further indicated that he believed that Goddard
had recently been released from j ail and that he had an
alcohol problem. Voth stated, 'I feel it is time that we make
an offer to plaintiff's attorney' and asked for authority in
the amount of $50,000. McClure responded to Voth that he
'did not feel we have enough information to evaluate our

Id.
Goddard v. Farmers Ins. Co.
insured's exposure' and instructed Voth to seek out nega
tive information about Goddard."
Munson was convicted of criminally negligent homi
cide in early June 1988. Around the same time, plaintiff filed
her wrongful death action against Munson. Plaintiffs attor
neys notified defendant that plaintiffs offer to settle the case
for $200,000 would continue in effect for 30 days. In a letter to
Sellers, one of plaintiffs attorneys stressed that, "because
Munson had been convicted of criminally negligent homicide,
defendant was in the position of 'having to admit liability in a
case that has aggravated liability justifying punitive dam
ages.' " Id. at 90. In spite of that advice, however, defendant
never responded to plaintiffs $200,000 settlement offer. Id.
at 91.
Defendant hired the law firm o f Parks & Bauer to
defend Munson in the wrongful death action. Id. at 90.
"Voth's letter retaining that firm described Munson's con
sumption of alcohol and the fact that Goddard's headlights
had been on, but also stated that there was information
that Goddard had a criminal record. Voth further noted
that plaintiffs demand was for $200,000 under both poli
cies. Voth then wrote to Munson[,] stating that defendant
had retained Parks & Bauer 'who will enter a defense and
protect your interests' in the wrongful death case. That let
ter acknowledged that ' [i]t is possible that a judgment could
be secured in excess of the limits of your insurance policy.' "
Id. (second brackets in original).
Munson's attorneys in the criminal action were sur
prised by defendant's apparent willingness to take the civil
wrongful death action to trial. One of those attorneys,
McGehee, wrote to defendant that, in light of Munson's
"manifest criminal liability" and the strong potential for a
verdict in excess of $200,000, he was reluctant to recommend
that Munson go to trial on the wrongful death case. McGehee
warned defendant that, if the jury returned a verdict in
excess of $200,000, Munson would "be looking directly to you
for payment of the overage on the basis of bad faith settle
ment efforts." Id.

Cite as 344 Or 232 241
As noted, defendant already had recognized that
Munson's policy might not apply if Munson used Foley's vehi
cle regularly, because the policy contained a "regular use"
exception. Id. at 87. Defendant now began to work on that
angle.
"On July 25, 1988, Amala spoke with Keith Bauer, the
insurance defense attorney whom defendant had retained
to defend Munson in the wrongful death action. Bauer told
Amala that he believed that only one policy of $ 1 00,000 was
available and that the criminal sentencing would reduce
any punitive damages. Shortly thereafter, Bauer, who had
not yet conferred with Munson, filed an answer in the
wrongful death action denying that Munson had been
under the influence of intoxicants and that he had caused
the collision, but did not assert as a defense that Goddard
was negligent in any way in causing the collision.
"On July 27, 1988, [Munson's criminal lawyer,)
Feitelson, wrote to defendant, stating that neither he nor
[Munson's other criminal lawyer,) McGehee[,] had heard
back from defendant but that he understood that defendant
was taking the position that only one $ 100,000 policy was
involved. Feitelson requested a copy of any coverage opin
ion to that effect.
"On July 29, 1988, defendant retained attorney Lynn
Ashcroft to provide a coverage opinion. The letter retaining
Ashcroft stated that defendant suspected that Munson had
had frequent use of Foley's truck and asked whether, under
those circumstances, defendant was exposed to the full
$200,000 limits of both policies."2
Id. at 9 1.
In the fall of 1988, a second coverage issue, pertain
ing to whether, at the time ofthe accident, Munson was a per
missive user of Foley's truck, presented itself:
"In early August, Billy Sime, [one of the attorneys
retained to defend Munson] , attended Munson's deposition
in the wrongful death action. During the deposition,
Munson stated for the first time that Foley had told him not
2 As noted earlier, a subsequent declaratory judgment action would vindicate
defendant on this point, determining that the accident was covered under Foley's
policy but not Munson's. Id. at 82 and n 3.

242 v . Farmers Ins. Co.
to drive her pickup when he had been drinking and that
Foley had picked him up at taverns a number of times when
he was too drunk to drive home. Sime then spoke privately
with Foley, who told him that Munson 'could not even have
one drink of alcohol and drive her truck' and that she had
taken the truck away from Munson on previous occasions
when he had been drinking. Sime subsequently wrote to
defendant, stating that, although Munson's and Foley's
statements were consistent in that they agreed that
Munson was not supposed to drive the truck when he had
been drinking, their interests were potentially adverse
because Foley was a potential defendant in the wrongful
death action on the theory that she had negligently
entrusted the truck to Munson despite her knowledge of his
drinking problem.
"Shortly thereafter, defendant sent claims representa
tive Mary Kay Hendrickson to interview Foley. Foley told
Hendrickson that Munson had used her truck probably 100
times while working for her and that, on several occasions,
he had also borrowed her truck when he was getting his car
fixed. Foley also stated that she told everybody 'no drinking
when you're driving my pickup.' Foley told Hendrickson
that she had never had any reason to believe that Munson
had been driving the pickup and drinking. Foley acknowl
edged, however, that she had planned to meet Munson at
the tavern on the evening of the collision and that she knew
he would be driving her truck.
"In September 1988, because of the potential conflict
between Munson and Foley, defendant retained attorney
Sandra Haynes to represent Foley in the wrongful death
action. In the letter retaining Haynes, Voth noted that the
Goddard estate was planning to add Foley as a defendant
on the theory that she negligently entrusted her vehicle to
Munson. Haynes spoke with Foley, who denied any knowl
edge of Munson's drinking problem and any knowledge that
he had driven her truck while intoxicated. Because Foley's
statements were at odds with Munson's deposition testi
mony that Foley would pick him up at taverns after he had
had too much to drink, Haynes believed that one of the
two-probably Foley-was lying. Shortly thereafter, an
amended complaint was filed in the wrongful death action,
naming Foley as a defendant."
Id. at 91-92.

Cite as 344 Or 232 243
With Munson's and Foley's claim that Foley's per
mission was conditional, defendant saw an opportunity to
escape liability on both policies.
" [O]n October 17, Voth sent Munson a reservation of rights
letter, stating that defendant was investigating whether
there was coverage under either policy. In particular, Voth
indicated that there were two potential coverage disputes:
( 1) whether, under Foley's policy, Munson was a covered
'permissive user' of Foley's vehicle; and (2) whether Foley's
vehicle was covered under Munson's policy because it was
not a vehicle that was being temporarily used and, thus, fell
within that policy's 'regular use' exclusion. Shortly there
after, defendant obtained a coverage opinion from attorney
William Hallmark, who concluded that a driver who drove
after consuming alcohol contrary to the owner's express
instructions was not a 'permissive user' of the vehicle as
defined in the policy."
Id. at 92-93 (footnotes and citation omitted).
Plaintiff, meanwhile, continued to seek a settlement:
"In November 1988, Harris, one of the attorneys for the
Goddard estate, told Foley's attorney, Haynes, that the
Goddard estate would settle with Foley for her policy limits
of $ 100,000, and Haynes sought from defendant the author
ity to settle the case for that amount. Haynes believed that
a $100,000 policy limits settlement was reasonable, and she
did not want the case to go to trial because of her concerns
about her client's lack of candor. Haynes also recommended
that defendant adjust the claims against Foley and Munson
separately due to the conflicts of interest."
Id. at 93 (footnote omitted).
Defendant nevertheless moved to either avoid cov
erage entirely, or to settle the case well under policy limits.
"Heatherington [now in the Portland office] and
McClure then sought authority from defendant's home
office either to file [a] declaratory judgment action [respect
ing liability] or to settle for $100,000. In December 1988,
Voth received authorization from the home office to file the
declaratory judgment action, but settlement authority was
limited to $30,000. At about the same time, in a letter to
Hallmark, defendant noted that Bauer had estimated the

244 Goddard v. Farmers Ins. Co.
value at '$50,000 to $75,000, with a possible range of
$100,000.'
"On December 21, 1988, Ashcroft filed the declaratory
judgment action on defendant's behalf, seeking a declara
tion that there was no coverage under either policy.
Ashcroft noted in a letter to defendant that the existence of
the declaratory judgment action did not free defendant
from its obligations to act reasonably to negotiate settle
ment within policy limits, stating that, if the claim could
exceed policy limits, 'even if coverage is in question, [it may
be appropriate] to pay the policy limits into the court to be
held pending the outcome of the declaratory relief action.' "
Id. at 92-93.
Ashcroft echoed Haynes's earlier recommendation
that the Foley and Munson claim files be adjusted separately.
Id. at 94. While defendant did assign the Foley file to adjuster
David Strand, Voth nevertheless continued to have supervi
sory responsibility over both the Foley and Munson files.
"* * * Strand sought and received Voth's approval before
authorizing Haynes to make a settlement offer of $30,000 to
settle all claims against both Munson and Foley. Although
Haynes conveyed the offer, she believed that it was unac
ceptably low and suspected that defendant was not negoti
ating in good faith. Plaintiff declined that offer."
Id. (footnote omitted). Defendant never told Munson about
that offer or its rejection. The parties did not make any fur
ther attempts at settlement until just before trial.
Acting on Munson's behalf, attorney Feitelson con
tacted attorney Bauer several times in early 1989, asking
that defendant not expose Munson to liability exceeding pol
icy limits. Feitelson never received a response. Just before
the trial started in 1990, Feitelson again wrote to Bauer, sug
gesting that defendant was not attempting in good faith to
settle the matter and warning again that Munson would
bring a bad faith claim if the wrongful death judgment
exceeded policy limits. Id. at 94-95.
Trial was scheduled to start in January 1990. Id. at
94. With less than two weeks to go, defendant resumed its
efforts to settle the case-but still for small amounts of
money. Moreover, the evidence suggests that defendant

Cite as 344 Or 245
attempted to protect itself against any subsequent action for
failure to settle by "padding the file" with lower estimates of
potential liability.
"On January 4, 1990, Voth requested that Bauer submit an
evaluation of the case so that Voth could request settlement
authority * * *.
"On January 11, 1990, Bauer's firm wrote and had
hand-delivered to defendant an evaluation that concluded
that 'the case has a reasonable jury value between $75,000
and $ 150,000 for non-economic damages plus punitive
damages.' Later that day, however, Bauer had his staff
retrieve that letter from defendant's office and replace it
with a letter, also dated January 11, that deleted the
amounts $75,000 and $ 150,000 and substituted a much
lower range of exposure-$35,000 to $60,000-for noneco
nomic damages. Because of Goddard's criminal record,
Bauer did not believe that a jury would award economic
damages.
"The wrongful death case was tried from January 16
through January 24, 1990. On the first day of trial, Bauer
offered $30,000 to settle the case, and the offer was rejected.
At the end of the first day of trial, Bauer increased the offer
to $50,000, with the option to arbitrate any additional dam
ages up to the policy limits established in the declaratory
judgment action. [Plaintiffi countered that it would accept
$100,000 with an additional $100,000 to be paid only if the
declaratory judgment action established that both policies
applied. Bauer responded that defendant would not agree
to such a settlement. At that point, Voth was of the opinion
that Munson's exposure was between $60,000 and $ 150,000
'and maybe more.'
"On the third day of trial, Bauer offered $ 100,000, with
the understanding that, if the declaratory judgment action
determined that both policies applied, arbitration would
need to occur to establish the amount between $ 100,000
and $200,000 that defendant would pay. That is, in contrast
to the estate's counteroffer under which the estate would
automatically recover the additional $100,000 if the arbi
trator determined that both policies applied, under defen
dant's final offer any payment in excess of $100,000 would
be further conditioned upon the arbitrator's determining
that the estate was, in fact, entitled to recover wrongful

246 Goddard v. Farmers Ins. Co.
death-related damages in that amount. [Plaintifi] rejected
that final offer.
"On January 23, 1990, the case was submitted to the
j ury. Bauer's trial notes indicate that, on that day, the trial
court's judicial assistant * * told Bauer that he should set
tle the case because the jury was 'talking big dollars.' Bauer
relayed that information to Voth, who relayed it to
Heatherington and McClure. McClure decided not to
increase the settlement offer. * * *
"On January 24, 1990, the jury returned a verdict
against Munson for $188,274 in economic damages,
$425,000 in noneconomic damages, and $250,000 in puni
tive damages-a total of $863,274."
Id. at 95-96 (footnote omitted).
Defendant appealed the ensuing judgment, but the
Court of Appeals affirmed. As mentioned earlier, defendant
then brought a separate declaratory judgment action seeking
declarations that the accident that killed Goddard was not
covered under either Munson's or Foley's insurance policies.
After a number of decisions, appeals, and remands in that
action, the Court of Appeals determined that the accident
was covered by Foley's policy, but not Munson's . Defendant
chose not to appeal that decision and finally, in 1998, paid
plaintiff $175,960, representing the $100,000 limit in Foley's
policy, plus interest. See id. at 84 (noting payment).
B. Action Against Defendant for Failure to Settle within
Policy Limits
After the trial court entered j udgment against him
in the wrongful death action, Munson assigned to plaintiff all
of his potential claims against defendant. Id. at 83. In May
1990, plaintiff brought the present action against defendant
under the assignment, contending that defendant breached
its duty to Munson to make reasonable efforts to settle the
wrongful death action. Id. at 83, 85. Plaintiff sought, as com
pensatory damages, the $863, 27 4 awarded in the wrongful
death action, plus $450 million in punitive damages. Id. at
83.

Cite as 344 Or 232 247
In addition to the evidence summarized above,
plaintiff presented expert testimony regarding defendant's
conduct in handling the wrongful death case:
"James Nelson, an attorney with extensive experience in
insurance cases, testified that insurance companies some
times engage in the practice of 'stonewalling,' which
involves refusing to negotiate settlement because claim
ants often have very limited resources and mounting medi
cal and legal bills; 'stonewalling' puts psychological and
financial pressure on such claimants to accept settlements
that are less than reasonable. Nelson further testified that
another negotiation strategy, 'low-balling,' involves making
minimal settlement offers to signal that the insurance com
pany is willing to fight the claim and to lower the claimant's
expectations. In Nelson's opinion, defendant had used both
strategies in handling the Goddard claim. According to
Nelson, the $30,000 offer was a 'low-ball' offer because the
Goddard claim should, reasonably, have been valued at
over $200,000.
"Plaintiff also presented expert testimony from John
Partlow, who rendered an opinion as to whether the claim
against Munson was handled properly. Partlow had worked
as a claims auditor for a large insurance company. In that
position, he examined claims files to determine if the claims
had been handled properly, and he subsequently performed
similar functions as a consultant. Partlow testified that cov
erage limits should be communicated promptly and that
mistakes about coverage limits should be disclosed
promptly. He further testified that defendant's failure to
respond to the time-limited settlement demand violated the
company's own policies and did not comport with industry
standards. Partlow concluded that defendant had failed to
make a timely and sufficient investigation of the collision
and had failed to negotiate fairly throughout its handling of
the Goddard claim-and, indeed, that, in his 15 years of
evaluating claims, the handling of the Goddard claim was
among the worst he had ever seen.
"Plaintiff also presented expert testimony from Jeffrey
Jacobs, an attorney who had significant experience working
as in-house counsel in Oregon for an insurance company.
Jacobs testified that defendant's conduct in failing to
respond to communications from the attorneys for the
Goddard estate for many months after the collision fell

248 v. Farmers Ins. Co.
below the industry standard of care. He further testified
that a decision to let the claim 'ripen' rather than respond to
an attorney under these circumstances very seriously jeop
ardizes the protection of the person who has paid the insur
ance premiums. In Jacobs's view, liability and the value of
the case as in excess of policy limits was clear by June 1988,
when defendant failed to respond to the time-limited
demand that was made by the Goddard estate, and failing
to respond was not in keeping with industry standards.
According to Jacobs, the case should have been valued in
the range of $500,000 to $750,000.
"Plaintiff also presented evidence of defendant's use of
'low-balling' tactics in another case involving a collision
where an injury resulted from the conduct of a drunk driver
insured by defendant. In that case, in which Bauer also rep
resented the insured, the injured party accepted an offer of
less than policy limits due to financial pressures, even
though his attorney believed the case to be worth more than
policy limits. That attorney testified that Bauer had told
him, 'Voth doesn't pay policy limits.' "
Id. at 96-98 (footnote omitted).
The jury returned a special verdict for the plaintiff.
The j ury concluded that defendant was 80 percent at fault for
entry of the $863,274 wrongful death judgment against
Munson. The jury also concluded that Munson's actions after
the accident made him 20 percent responsible for the wrong
ful death judgment. The jury determined that, because of its
wrongdoing in failing to settle the wrongful death case,
defendant should pay plaintiff $20,7 18,576 in punitive
damages .
In its judgment, the trial court reduced the compen
satory damages award in several ways. Starting with the
$863,274 awarded against Munson in the wrongful death
judgment, the trial court subtracted 20 percent for Munson's
comparative fault, as determined by the jury. The court also
subtracted defendant's 1998 payment of $ 175,960, i.e. , the
$100,000 policy limit plus interest. In doing so, the court
credited $100,000 of that payment against principal, rather
than interest. Finally, the trial court subtracted $325,000, an
amount that had been paid to plaintiff on an underinsured
motorist policy that she held through another insurer. On the

Cite as 344 Or 232 249
other hand, and although defendant contended that it was
unconstitutionally large, the trial court refused to reduce the
punitive damages award. In sum, the trial court entered
judgment against defendant for "$265,6 19.20 economic dam
ages, plus prejudgment interest thereon in the amount of
$343,573.62; and $20,718,576 in punitive damages plus
interest thereon." Id. at 83-84.
Plaintiff and defendant both appealed to the Court of
Appeals. Defendant contended that the trial court erred in
admitting evidence of a "pooling agreement" between defen
dant and other related insurance companies. Defendant also
argued that the punitive damages award was unconstitution
ally large. Plaintiff contended that the trial court erred in cal
culating the amount of compensatory damages. Id. at 84.
The Court of Appeals rejected defendant's eviden
tiary argument. Id. at 100-03. Respecting the issue relating
to the calculation of compensatory damages, the court agreed
with plaintiff. The court concluded that defendant was not
entitled to a $325,000 credit for the amounts paid by the
other insurance company. Id. at 103-07. The court also held
that defendant's entire $ 1 75,960 payment to plaintiff should
have been applied to interest. Id. at 107-10. While leaving the
final calculation of interest to be made by the trial court on
remand, the court estimated "total economic damages" at
approximately $ 1,280,000, representing $690,619.20 in prin
cipal (80 percent of the $863,274 awarded in the wrongful
death judgment), plus approximately $589 ,000 in pre
judgment interest. Id. at 1 10. The Court of Appeals also
agreed with defendant that the punitive damages award was
grossly excessive and therefore unconstitutional under the
Due Process Clause of the Fourteenth Amendment to the
United States Constitution. Id. at 1 1 1-22. Finally, the court
concluded that the highest permissible punitive damages
award that the jury could have made was three times the
compensatory damages award (as correctly calculated) . Id. at
121-22.
Defendant petitioned the Court of Appeals to recon
sider, arguing (among other things) that the court had erred
in the way in which it had dealt with the roughly $589,000
in prejudgment interest on the $690,619.20 of principal.

250 Goddard v. Farmers Ins. Co.
Goddard v. Farmers Ins. Co. , 203 Or App 744, 746, 126 P3d
682 (2006). Defendant noted that the trial court's judgment
identified the prejudgment interest separately from plain
tiffs "economic damages" and that the court had refused a
proposed form ofjudgment that would have lumped prejudg
ment interest and principal together. Defendant contended
that punitive damages had to be calculated using only the
$690,619.20 in principal identified as "economic damages" in
the judgment. Doing otherwise, defendant claimed, gave
plaintiff relief on a matter that she did not assign as error on
cross-appeal.
The C ourt of Appeals agreed that it should not have
referred to the entire $1 ,280,000 as "economic damages." The
court altered its earlier opinion to refer to that amount as
"compensatory loss." But the court otherwise rejected defen
dant's argument, concluding that the prejudgment interest
should be included in the amount used to evaluate the consti
tutionality of the punitive damages award. Id. at 747-49.
Plaintiff sought review, challenging the Court of
Appeals' determination that the punitive damages award
was unconstitutional, and we allowed review.
II. DISCUSSION
As a preliminary matter, we note that, although
defendant has not cross-petitioned this court for review of the
Court of Appeals decision, it has renewed, in its arguments to
this court, certain of the claims of error that it raised on
appeal (and that the Court of Appeals rej ected). Although our
rules permit us to consider claims of error raised in that man
ner, ORAP 9.20(2), we decline to do so in this case: We
allowed plaintiffs petition for review to consider a particular
set of issues pertaining to punitive damages, and we choose
to focus only on those issues. We thus affirm the Court of
Appeals decisions with respect to claims of error that are
unrelated to the punitive damages award (specifically, defen
dant's claims that the trial court erred in admitting evidence
of a "pooling agreement" and in declining to reduce plaintiffs
damages by the amount that she received from her own
underinsured motorist insurance policy), without expressing
any opinion concerning the Court of Appeals' analysis of
those claims.

Cite as 344 Or 232 (2008) 251
A. Determining When a Punitive Damages Award Violates
the Due Process Clause
We turn, then, to the question that prompted our
decision to allow review-whether the Court of Appeals erred
in determining that the jury's punitive damages award was
grossly excessive and that the maximum constitutionally
permissible punitive damages award was three times the
amount that the jury awarded in compensatory damages.
Plaintiff contends that the Court of Appeals did err and that,
if all of the relevant circumstances are taken into account, it
is clear that the jury's award was within the permissible
range. Defendant responds that the punitive damages award
was excessive and that, if anything, the maximum constitu
tionally permissible punitive damages award is even smaller
than the Court of Appeals determined.
Punitive damages awards that are "grossly exces
sive" violate the Due Process Clause of the Fourteenth
Amendment to the United States Constitution, because
excessive punitive damages serve no legitimate purpose and
constitute arbitrary deprivations of property. BMW ofNorth
America, Inc. u. Gore, 517 US 559, 568, 1 16 S Ct 1589, 134
L Ed 2d 809 ( 1996). Excessive punitive damages also impli
cate the requirement of fair notice that is enshrined in the
Due Process Clause: Due process dictates 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." Id. at 574.
The United States Supreme Court has identified
three "guideposts" that should be considered by appellate
courts charged with determining whether a jury's punitive
damages award comports with the Due Process Clause. They
are:
"(1) the degree of reprehensibility of the defendant's mis
conduct; (2) the disparity between the actual or potential
harm suffered by the plaintiff and the punitive damages
award; and (3) the difference between the punitive damages
awarded by the jury and the civil penalties authorized or
imposed in comparable cases."
State Farm Mut. Ins. Co. u . Campbell, 538 US 408, 418, 123
S Ct 1 513, 155 L Ed 2d 585 (2003). See also Williams u. Philip

v. Farmers Ins. Co.
Morris Inc. , 340 Or 35, 55, 127 P3d 1 165 (2006), vac'd on
other grounds, 549 US 346, 127 S Ct 1057, 1 66 L Ed 2d 940
(2007), on remand, 344 Or 45, 1 76 P3d 1255 (2008) ( setting
out those guideposts and using them to analyze Oregon puni
tive damages award for excessiveness). Two of the Court's
recent cases-Gore and Campbell-elaborate on those fac
tors and illustrate how they are to be applied in determining
whether, and to what extent, a jury's punitive damages
award violates a tortfeasor's due process rights.
In Gore, the Court considered an Alabama jury's ver
dict awarding punitive damages in an amount that was 1 ,000
times the amount of the plaintiffs compensatory damages.
The case arose out of a lawsuit by a car owner, who sued the
manufacturer of his new BMW automobile because the man
ufacturer had failed to disclose to him that the vehicle had
been repainted prior to sale (the original paint j ob had been
marred en route to the United States) . 5 1 7 US at 563. The
jury awarded the car owner $4,000 in compensatory damages
and $4 million in punitive damages, id. at 565, but the
Alabama Supreme Court reduced the punitive damages
award to $2 million, largely because it concluded that the
jury had unlawfully based much of its award on BMW's out
of-state conduct, when it was unclear whether that conduct
was unlawful where it occurred. Id. at 567.
On review, the United States Supreme Court agreed
with the Alabama Supreme Court that the punitive damages
award could not be used to punish BMW for, or to deter, con
duct that was lawful in the state where it occurred. Id. at 571-
74. But the Court also concluded that, even with the Alabama
Supreme Court's adjustment to the jury's award, the punitive
damages award was grossly excessive. Although the court
warned that there was no " 'mathematical bright line
between the constitutionally acceptable and the constitution
ally unacceptable that would fit every case,' " id. at 583 (quot
ing Pacific Mut. Life Ins. Co. v. Haslip, 499 US 1, 18, 1 1 1 S Ct
1032, 1 13 L Ed 2d 1 ( 199 1)), it nevertheless set out a frame
work for determining when punitive damages awards are
grossly excessive-specifically, the three "guideposts" men
tioned above.

Cite as 344 Or 232 (2008) 253
As to the first guidepost, reprehensibility, the Court
described a number of "aggravating factors associated with
particularly reprehensible conduct." Gore, 5 1 7 US at 576.
Those aggravating factors (as the Court later summarized
them in Campbell) include whether
"the harm caused was physical as opposed to economic; the
tortious conduct evinced an indifference to or a reckless dis
regard of the health or safety ofothers; the target of the con
duct had financial vulnerability; the conduct involved
repeated actions or was an isolated incident; and the harm
was the result of intentional malice, trickery, or deceit, or
mere accident. The existence of any one of these factors
weighing in favor of a plaintiff may not be sufficient to sus
tain a punitive damages award; and the absence of all of
them renders any award suspect."
Campbell, 538 US at 419 (citation omitted). Applying those
aggravating factors to the facts, the court concluded that
BMW's conduct had not been particularly reprehensible: No
physical harm or threat to safety or health had been involved,
the plaintiff was not financially vulnerable, and there was no
clear evidence of intentional recidivism or a malicious
motive. Gore, 5 1 7 US at 575-80.
With respect to the second guidepost, the Court
noted that even the reduced $2 million punitive damages
award was 500 times the amount of actual harm, id. at 582-
a ratio that the Court described as "breathtaking," and which
"must surely raise a suspicious judicial eyebrow." Id. at 583
(internal quotation marks and citation omitted). Finally,
with respect to the third guidepost, the Court observed that
there was an enormous difference between the $2 million
punitive damages award and the civil penalty that could be
imposed in the only comparable class of cases-a $2,000 fine.
Id. at 584.
Based on its analysis, the Court concluded that the
jury's $4 million punitive damages award, and even the
Alabama Supreme Court's $2 million remitted award, were
unconstitutionally large. Id. at 585-86. However, the court
did not determine what size award would be constitutional.
Rather, it left that question to the state court to decide in the
first instance. Id. at 586.

254 Goddard v. Farmers Ins. Co.
Several years later, in Campbell, the Court again
applied the three guideposts to decide whether a punitive
damages award comported with due process. The basic fact
pattern in Campbell, a Utah case, was similar to the present
case: After an insurer failed to settle a liability lawsuit
against its insured within policy limits, the case went to trial
and the jury returned a verdict that was significantly in
excess of the policy limits. 538 US at 412-13. The insured
sued the insurer for bad faith, fraud, and intentional inflic
tion of emotional distress. Id. at 414. A jury awarded the
insured $2.6 million in compensatory damages and $ 145 mil
lion in punitive damages. The trial court reduced those
awards to, respectively, $ 1 million and $25 million. The Utah
Supreme Court reinstated the $ 145 million punitive dam
ages award. Id. at 415.
The United States Supreme Court's analysis in
Campbell essentially tracked its reasoning in Gore. The
Court began with the first Gore guidepost, reprehensibility.
In examining that factor, the court excluded from considera
tion much of the conduct that the state court had relied on in
its analysis-specifically, the defendant's out-of-state con
duct and conduct that was not similar to the underlying tort,
which the plaintiff had argued was evidence of a nationwide
policy of capping payouts on claims of all kinds. 538 US at
420-24. The Court noted, as it had in Gore , that a state may
not legitimately "punish a defendant for unlawful acts com
mitted outside of the State's jurisdiction." Id. at 42 1. Further
more, the Court concluded, the punitive damages award
should have been based only on similar conduct: "A defen
dant should be punished for conduct that harmed the plain
tiff, not for being an unsavory individual or business." Id. at
423. Given those parameters, the Court concluded, "the con
duct that harmed [plaintiffs was] the only conduct relevant to
the reprehensibility analysis." Id. at 424. With regard to that
conduct, the Court suggested that a more "modest" punitive
damages award "could have satisfied the state's legitimate
objectives, and the [state] courts should have gone no fur
ther." Id. at 419-20.
Regarding the second guidepost, the ratio between
punitive damages and actual or potential harm, the Court

Cite as 344 Or 232 (2008) 255
declined to "impose a bright-line ratio which a punitive dam
ages award cannot exceed." Id. at 425. Still, it observed that,
"in practice, few awards exceeding a single-digit ratio
between punitive and compensatory damages, to a signifi
cant degree, will satisfy due process. In [Pacific Mutual Life
u.] Haslip, [499 US 1, 1 1 1 S Ct 1032, 1 13 L Ed 2d 1 ( 199 1)]
in upholding a punitive damages award, we concluded that
an award of more than four times the amount of compen
satory damages might be close to the line of constitutional
impropriety. We cited that 4-to-1 ratio again in Gore . The
Court further referenced a long legislative history, dating
back over 700 years and going forward to today, providing
for sanctions of double, treble, or quadruple damages to
deter and punish. While these ratios are not binding, they
are instructive."
Id. (citations omitted). Having said that, the Court concluded
that there was a strong presumption against a punitive dam
ages award involving a 145-to-1 ratio, like the one before it.
Id. at 426.
With respect to the third guidepost-the relation
ship between the punitive damages award and civil or crimi
nal penalties for comparable conduct-the Court began by
discounting the value of criminal penalties to the analysis:
"Great care must be taken to avoid use of the civil process to
assess criminal penalties that can be imposed only after the
heightened protections of a criminal trial have been
observed, including, of course, its higher standards of proof."
Id. at 428. In the case at issue, the Court concluded, the only
relevant civil sanction was a $10,000 fine applicable to cer
tain acts of fraud, which the Court characterized as "an
amount dwarfed by the $145 million punitive damages
award." Id.
Taking all three of the guideposts into account, the
Court concluded that the $145 million award was an irra
tional and arbitrary deprivation of property and, as such, a
violation of due process. In addition, for the first time, the
Court suggested what the constitutionally permissible maxi
mum award might be. "An application of the Gore guideposts
to the facts of this case * * * likely would justify a punitive
damages award at or near the amount of compensatory dam
ages." Id. at 429. Still, the Court did not intend that estimate

256 Goddard v. Farmers Ins. Co.
to be binding. It held that "the proper calculation of punitive
damages under the principles we have discussed should be
resolved, in the first instance, by the Utah courts." Id.
B. Determining the Maximum Constitutionally Permissible
Punitive Damages Award
In Gore and Campbell, the Supreme Court has pro
vided some guidance for determining when a jury's punitive
damages award is so grossly excessive as to violate the Due
Process Clause. But, thus far, the Court has avoided the more
difficult question that due process challenges often present,
viz. , how to determine the maximum constitutionally permis
sible punitive damages award that may be allowed in a par
ticular set of circumstances. In Gore and Campbell-the only
two cases in which the Court struck down punitive damages
awards as grossly excessive-the Court left it to the state
courts to determine on remand what amount of punitive
damages would be constitutional. See Campbell, 538 US at
429 ("the proper calculation of punitive damages under the
principles we have discussed should be resolved, in the first
instance, by the Utah courts"); Gore , 517 US at 586
(" [w]hether the appropriate remedy requires a new trial or
merely an independent determination by the Alabama
Supreme Court of the award necessary to vindicate the eco
nomic interests of Alabama consumers is a matter that
should be addressed by the state court in the first instance").
Thus, for purposes of civil actions arising in the courts of this
state, it falls to this court to answer that question-that is, to
refine the Court's guideposts in a way that "yield[s] * * * real
answers in * * * real cases." Gore, 5 1 7 US at 606 (Scalia, J.,
dissenting). Of course, in doing so, we remain mindful of the
fact that we are dealing with a federal challenge and must
rely entirely on federal due process considerations. As we
previously have observed, " [t]here is * * * no 'state law
excessiveness challenge' under the Oregon Constitution."
Parrott v. Carr Chevrolet, Inc. , 3 3 1 Or 537, 551, 17 P3d 473
(2001) (footnote, quotation marks, and citations omitted).
It is clear that that analysis must begin, at least,
with the aforementioned guideposts from Gore and
Campbell. It is less clear how those guideposts can yield a

Cite as 344 Or 232 257
specific numerical figure that represents the maximum con
stitutionally permissible award. In that regard, we note that
the first guidepost, reprehensibility, does not generate
numerical answers at all, because the guidepost itself, and
the "subfactors" that go into it, are all qualitative, not quan
titative. Still, we may compare the level of reprehensibility
exhibited in various cases, and that comparison may lead us
to a conclusion that the constitutionally permissible limit in a
particular case is "high" or "low," relative to the limit in
another case.
The third guidepost, which examines comparable
sanctions, also fails to provide a quantitative measuring
stick. In Williams, this court discussed how Campbell had
applied the third guidepost:
"There, the most relevant civil sanction was $ 10,000; the
Court found that civil sanction was 'dwarfed' by the $145
million punitive damage award. Yet the Court approved a
punitive damage award 'at or near the amount of compen
satory damages,' i.e. , an award somewhere around $ 1 mil
lion. And a $ 1 million punitive damage award was still 100
times the comparable sanction."
340 Or at 58 (citations omitted). Ultimately, we concluded
that the Court must have intended that a pertinent civil
sanction be used as a basis for comparing one punitive dam
ages award to another, and not as a direct predictor of the
constitutional limits of an individual punitive damages
award:
"The guidepost may militate against a significant punitive
damage award if the state's comparable sanctions are mild,
trivial, or nonexistent. However, the guidepost will support
a more significant punitive damage award when the state's
comparable sanctions are severe."
Id. at 58.
We conclude that the second guidepost, i.e. , the ratio
between punitive damages and actual or potential harm to
the plaintiff, comes closest to providing numerical limits.
Although the Court has professed its reluctance to "identify
concrete constitutional limits on the ratio between harm, or
potential harm, to the plaintiff and the punitive damages
award," Campbell, 538 US at 424, it has also, at various

258 Goddard v.
times, alluded to specific numerical ratios. In Haslip, 499 US
at 23-24, for example, the Court stated that a punitive dam
ages award that is more than four times the compensatory
damages award "may be close to the [constitutional] line ." In
Gore, 5 1 7 US at 58 1 , the court interpreted a prior decision,
TXO Production Corp. v. Alliance Resources Corp. , 509 US
443, 1 13 S Ct 2 7 1 1 , 125 L Ed 2d 366 ( 1 993), as suggesting
that the ratio could not exceed ten to one. In Campbell, 538
US at 425 , the Court suggested that, although a higher ratio
may be justified when compensatory damages are small,
" [w]hen compensatory damages are substantial, * * * a * * *
ratio [that is] perhaps only equal to compensatory damages
* * * can reach the outermost limit of the due process guar
antee." And, in the same opinion, the Court indicated that
due process may be violated by "exceeding a single-digit ratio
between punitive and compensatory damages, to a signifi
cant degree." Id. at 425 .
But the Court also has conceded that the single-digit
ratio may be exceeded in certain circumstances. It has indi
cated, for example, that higher ratios may be appropriate if
"a p articularly egregious act has resulted in only a small
amount of economic damages," and in "cases in which the
injury is hard to detect or the monetary value of noneconomic
harm might have been difficult to determine." Gore, 5 1 7 US
at 582. This court has identified one other circumstance in
which an award that exceeds a single-digit ratio between
punitive and compensatory damages might satisfy due proc
ess. In Williams, we held that "extraordinarily reprehensi
ble" conduct on the part of the defendant may provide a basis
for overriding concerns that may arise from an award that
exceeds a single-digit ratio. 3 340 Or at 63.
" We concluded, i n fact. that a $79.5 million punitive damages award-an
award more than 29 times the jury's compensatory damages award-did not vio
late due process when the defendant, Philip Morris Inc., had
"engaged in a massive, continuous, near-half-century scheme to defraud the
plaintiff and many others, even when Philip Morris always had reason to sus
pect-and for two or more decades absolutely knew-that the scheme was
damaging the health of a very large group of Oregonians-the smoking
public-and was killing a number of that group."
Williams, 340 Or at 63. In cases like Williams, where a party has engaged in a pro
longed pattern of egregious and deceitful conduct that poses an extreme threat to
the health and safety of a significant segment of the population of the state, the

Cite as 344 Or 232
In sum, the second guidepost, although far from per
fect, does provide at least a rough numerical baseline for cal
culating a maximum constitutionally permissible punitive
damages award in a given case. Specifically, it suggests that
due process normally will not permit a punitive damages
award in excess of a single-digit ratio to the compensatory
damages award.
Once that rough numerical reference point is estab
lished, the other guideposts come into play. As we have sug
gested, the first (reprehensibility) guidepost primarily is a
comparative tool: If the level of reprehensibility exhibited in
a case is high relative to other cases, then so will be the con
stitutionally permissible punitive damages award. The third
guidepost also is comparative: If the comparable civil sanc
tions for certain conduct is high relative to other civil sanc
tions, then that fact may justify an upward adjustment in the
constitutionally permissible amount of punitive damages.
Such comparisons can be made to fit, albeit only
approximately, into the numerical baseline that the second
guidepost has established (which is based on the ratio
between compensatory and punitive damages). Thus, puni
tive damages at what normally is the highest constitutionally
permissible level (i.e. , a nine-to-one ratio between punitive
and compensatory damages) are justified only when the con
duct at issue is highly reprehensible (based on the subfactors
that make up the reprehensibility analysis) and, if relevant,
when that conduct subjects the actor to civil sanctions that
are high relative to other civil sanctions that the state may
impose.
Of course, the foregoing framework is still amor
phous. We offer one refinement in the hope of making it less
so.4 By long tradition, and reinforced by existing legal stan
dards at all levels of government, conduct that causes or cre
ates a risk of physical harm to persons is punished more
state's interest in punishing and/or deterring such conduct is heightened, and a
punitive damages award that exceeds the single-digit ratio may be justified.
' AB previously noted , the Supreme Court in both Gore and Campbell declined
to determine what level of punitive damages would be constitutionally permissible
for the conduct at issue in those cases, and expressly left it to the states to make
that determination "in the first instance." We take that charge seriously. We can
not reasonably expect trial courts to review punitive damages awards for gross
excessiveness without providing some concrete limits or, at least, general rules of

260 Goddard v. Farmers Ins. Co.
harshly than conduct that causes or potentially causes eco
nomic harm. The Supreme Court has recognized that distinc
tion in two of the "subfactors" that contribute to the analysis
of reprehensibility (the first of the three Gore guideposts). As
we already have observed, reprehensibility depends, to a
large degree, on whether "the harm caused was physical as
opposed to economic" and on whether "the tortious conduct
evidenced an indifference to or a reckless disregard of the
health or safety of others. " Campbell, 538 US at 419.
We would expect that distinction to be strongly
reflected in the punitive damages awards that attach to the
two kinds of harms/risks, as well as in assessments by appel
late courts of the level at which such awards become exces
sive. In fact, we think that, if a nine-to-one ratio between
punitive and compensatory damages is at the limit of what
the Due Process Clause normally will allow a court to impose
on any tortious conduct, then the limit must be significantly
lower for conduct that causes or risks only economic injury.
But what is that limit? With respect to cases (like
this one) involving inj ury to economic interests, our best esti
mate points to the four-to-one ratio between punitive and
compensatory damages that the Supreme Court sometimes
has identified as bordering on excessiveness. See Haslip, 499
US at 22-23 (stating that four-to-one ratio between punitive
and compensatory damages was close to, but did not cross,
the line of constitutional impropriety). See also Gore, 5 1 7 US
at 581 (referring to four-to-one ratio discussed in Haslip). As
the Court has observed, that ratio is consistent with the
double, triple, and quadruple damages that English and
American statutes have imposed for various analogous civil
violations. Gore, 5 1 7 US at 581. We conclude that, as a very
general rule of thumb, the federal constitution prohibits any
punitive damages award that significantly exceeds four
times the amount of the injured party's compensatory dam
ages, as long as the injuries caused by the defendant were
economic, not physical.
Of course, as with the single-digit ratio discussed
above, 344 Or at 258-59, a higher ratio might be appropriate
thumb, beyond the single-digit ratio that the Court mentions in passing. This is our
first effort in that regard.

Cite as 344 Or 232 261
in unusual circumstances, such as when the economic dam
ages are relatively small in relation to the theoretical injury,
where the injury is difficult to detect, where the conduct
causes noneconomic harm that is hard to value, or where the
conduct is "extraordinarily" reprehensible.
C. Standard ofPost-Verdict Judicial Review
Having established the foregoing general standards
for assessing punitive damages awards and the maximum
award that due process will allow in given circumstances, we
turn to still another preliminary question: What is the proper
standard for post-verdict judicial review of a punitive dam
ages award?
On balance, and based on our review of the cases, we
conclude that the proper methodology for performing a
review for gross excessiveness is the one used by the C ourt of
Appeals in its opinion in this case. See Goddard, 202 Or App
at 1 12 (describing that process). First, to determine whether
there is a factual predicate for a punitive damages award, the
court reviews the evidence in the record that is relevant to
such an award in the light most favorable to the party who
won the award.5 Second, the court applies the constitution
ally prescribed guideposts to those predicate facts to deter
mine if, as a matter of law, the award is grossly excessive. If
5 The trial court in this case instructed the jury that, to award punitive dam
ages, it must find that defendant "was guilty of wanton misconduct that caused the
j udgment to be entered against * * Munson." The court also instructed the j ury
that, in fixing the amount of punitive damages, it could properly consider
"(A) The likelihood that serious harm would arise from the defendant's
misconduct,
"(B) The degree of the defendant's awareness of that likelihood,
"(C) The profitability or potential profitability of defendant's misconduct,
"(D) The defendant's motive,
"(E) The duration of the misconduct and any concealment of it,
''(F) The attitude and character of the defendant's conduct upon discovery of
the misconduct,
"(G) The number and position of employees involved in causing or covering up
the misconduct,
"(H) The sum of money that would be required to discourage the defendant
and others similarly situated from engaging in such conduct in the future,
"(l) The income, assets and financial condition of the defendant."
No one argues that those instructions are not a correct statement of the law
relating to punitive damages in ordinary tort actions . They appear to be drawn

Goddard v. Farmers Ins. Co.
the court determines that the award is grossly excessive, it
then uses the same guideposts to determine the highest law
ful amount of punitive damages that a rational juror could
award, consistent with the Due Process Clause, i.e. , it
reviews for "gross excessiveness." Of course, in applying that
standard, the reviewing court must in some sense reexamine
the evidence in the record-not to redecide the historical
facts as decided by the jury, but to decide where, for purposes
of the Gore guideposts, the conduct at issue falls on the scale
of conduct that does or might warrant imposition of punitive
damages.
D. Was the Jury's Punitive Damages Award Grossly
Excessive in this Case ?
Having described the methodology and standard of
review that courts are to apply in reviewing a punitive dam
ages award for gross excessiveness, we turn to the task of
applying them in the present case. We begin by describing
the historical facts that a rational juror could find,6 based on
the evidence in the record. In so doing, we agree with and
adopt the excellent summary in the opinion of the Court of
Appeals:
"Given the evidence, a rational j uror could find the follow
ing facts: ( 1 ) Defendant, in calculated fashion, engaged in a
protracted course of conduct-from its initial 'stonewalling'
and 'low-balling' tactics through its fraudulent manipula
tion of the claims evaluation process and its refusal to settle
even at trial-that exposed its insured to the virtual cer
tainty of a devastating excess verdict in a 'no defense' case.
(2) Defendant willfully engaged in such conduct, heedless of
its insured's interests and in cynical violation of its obliga
tions to its insured, for its own selfish purposes of building
and maintaining a reputation for 'toughness' in claims
adjustment and settlement. (3) Defendant's conduct
towards Munson was intentional, deceitful, and malicious.
(4) Defendant's hardball tactics in this case were typical,
not merely an isolated instance * * *."
Goddard, 202 Or App at 1 12- 13.
from the Restatement (Second) of Torts § 908 ( 1979) and from this court's opinion in
State ex rel Young u . Crookham, 290 Or 61, 72, 618 P2d 1268 ( 1980).
6 See note 5, describing the standard that the jury was instructed to apply in
making its punitive damages decision.

Cite as 344 Or 232 263
Next, we employ the applicable legal criteria (includ
ing the three Gore guideposts) to determine if, as a matter of
law, the jury's punitive damages award is grossly excessive.
The parties have framed their arguments entirely in terms of
the three Gore factors. We turn to those factors and the par
ties' arguments respecting them.
For its part, defendant begins its discussion with an
argument that, defendant asserts, applies generally to the
Gore factors: Defendant notes that one ofthe due process con
cerns that the Gore analysis is designed to address is the idea
of "fair notice."7 Defendant suggests that due process
requires that defendants have fair notice that the law consid
ers their conduct to be tortious and, as such, subject to puni
tive damages, before such damages may be imposed. In the
alternative, defendant suggests that lack of fair notice of the
possibility of punitive damages should at least "mitigate" the
reprehensibility of the conduct under consideration. Defen
dant then argues that, when the conduct at issue here
occurred, it had no reason to know that such conduct might
be a proper subject of punitive damages. Defendant contends
that, at that time, an insurer's bad faith failure to settle an
insurance claim was considered to be simply a breach of con
tract and did not carry the kind of moral and legal stigma
that is associated with torts and that j ustifies the practice of
awarding punitive damages.
Defendant's argument rests heavily on this court's
opinion in Farris v. U.S. Fid. and Guar. Co. , 2 84 Or 453, 587
P2d 1 0 15 ( 1978)-a case that, according to defendant, was
this court's final word on punitive damages in breach of
insurance contract cases until this court offered an entirely
contrary view in Georgetown Realty v. The Home Ins. Co. , 3 1 3
O r 9 7 , 8 3 1 P2d 7 ( 1992)-two years afier defendant failed in
its duty to plaintiff in this case.8 In Farris, the court consid
ered whether an insured's action against his insurer for dam
ages resulting from the insurer's denial of liability insurance
7 When introducing the three guideposts in Gore, the Supreme Court began by
noting that "[e]lementary notions of fairness enshrined in our constitutional juris
prudence 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." 517 US at 574.
8 I n Georgetown Realty, this court held that, when a liability insurer under
takes to defend its insured against a claim by a third party, it may be liable in tort

Goddard v. Farmers Ins. Co.
coverage sounded in tort, so that the insured could recover for
emotional distress caused by that denial. The court con
cluded that such denials of coverage are a breach of contract
only and support only normal contract damages.
However, the Farris court distinguished between an
insurer's bad faith failure to defend and a bad faith failure to
settle:
"Assuming, but not deciding, that a cause of action for fail
ure to settle within the policy limits is one in tort, it is our
opinion that the rationale of such an action has no applica
tion to the present situation and that the present action is
not one in tort. In an action for failure to settle within the
policy limits, the insurance company is charged with acting
in a fiduciary capacity as an attorney in fact representing
the insured's interest in litigation. The company's interest
comes into conflict with that of the insured's while repre
senting him; and, arguably, acting in its own interests to
the detriment of the insured's interest while acting in such
a fiduciary capacity is a tort. In the present case defendant
did not undertake in this fiduciary duty to represent the
insured's interest in the litigation-it refused it. It did not,
in the course of representing plaintiffs, violate its fiduciary
duty arising out of the sole control of the settlement. It
never undertook any fiduciary duty by purporting to act in
the interests of the insured."
Id. at 459-60 (footnote omitted). Thus , although Farris did
hold that a liability insurer's refusal to defend its insured at
all was purely a breach of contract, it did not apply that same
holding to insurers who, like defendant, failed to settle claims
against their insureds within policy limits. In fact, it
expressly left that question open, and even suggested a
rationale for treating a failure to settle within policy limits as
a tort. It follows that, contrary to defendant's assertion,
defendant was on notice, at the relevant time, that its refusal
to settle plaintiffs action against Munson within policy limits
may well not have been immune from punitive damages.
to the insured if, without justification, it fails to settle a claim against its insured
within policy limits. The Georgetown Realty court did not announce that holding as
a change in the common law. Instead, the court appeared to believe that the hold
ing was consistent with a long line of cases that distinguish between ( 1 ) claims that
are based solely on a breach of provision in a contract, which itself spells out the
party's obligations, and (2) claims that one party to a contract caused damage to the
other by negligently or tortiously performing its obligations under the contract. 313
O r a t 102- 1 1 .

Cite as 344 Or 232 265
We do not rest our holding respecting fair notice
solely on distinctions between Farris and Georgetown Realty,
however. The legislature also has spoken in a relevant way
on this issue. Specifically, long before defendant engaged in
the conduct at issue, the legislature had enacted the Oregon
Insurance Code, which includes a provision that forbids an
insurer to use the kind oftactics that this defendant used. See
ORS 746.230 ( providing that no insurer "shall commit or per
form" an "unfair claim settlement practic [e] ,'' including " [n]ot
attempting, in good faith, to promptly and equitably settle
claims in which liability has become reasonably clear").
Defendant was (and is) an insurance company, permitted to
do business as such in Oregon. Thus, it was subject at all rel
evant times to the Code, the provisions of which it is pre
sumed to be aware, and it therefore cannot claim that it was
unaware that its actions in handling Munson's claim were
illegal. Defendant's suggestion that there is a fair notice issue
at play here that should diminish or altogether eliminate
punitive damages that otherwise might be permissible under
the three Gore factors is not well taken.
We turn, then, to the first Gore factor-reprehensi
bility. As we already have observed, "reprehensibility'' under
Gore is a function of at least five separate aggravating fac
tors: whether the resulting harm was physical as opposed to
economic; whether the conduct evinced indifference to or a
reckless disregard of the health or safety of others ; whether
the target of the conduct was financially vulnerable; whether
the conduct involved repeated actions; and whether the harm
resulted from intentional malice, trickery, or deceit. The par
ties disagree, to one extent or another, about the applicability
of each of those factors.
At the outset, defendant contends that its conduct
did not cause physical harm to either plaintiff or Munson and
did not involve a reckless disregard for the health or safety of
others. Plaintiff argues, to the contrary, that when an insurer
refuses to cover an insured's loss, the insured is denied the
peace of mind that the insurer promised and almost certainly
suffers emotional and even physical trauma as a result. We
think, however, that it is a sufficient answer to plaintiffs
argument in this case to note that plaintiffs complaint did
not seek, and the trial court's instructions to the jury and the
special verdict form submitted with those instructions did

Goddard v. Farmers Ins. Co.
not authorize, the jury to award damages for physical harm
or emotional distress to Munson, plaintiff, or anyone else.
The first two aggravating factors from Gore are not a part of
this case. We turn to the remaining three.
Plaintiff contends that Munson was financially vul
nerable and that defendant's conduct left him with a large
excess liability verdict that would have been financially dev
astating if he had been required to pay it. Defendant
acknowledges that Munson had no appreciable assets at the
time of the accident, but it contends that the "financial vul
nerability" factor is not implicated because there is no evi
dence that defendant targeted Munson because of the condi
tion of his finances. We agree that there is no evidence that
defendant specifically targeted Munson for that reason, but
there is plenty of evidence to permit the inference that defen
dant knew that Munson was vulnerable, and engaged in its
stonewalling tactics despite Munson's vulnerability. In any
event, we do not read the cases to require that the defendant
solely or even specifically targeted the victim because of his or
her financial vulnerability. It was enough, we think, that
defendant knew of Munson's vulnerability, and therefore
fairly may be deemed to have been indifferent to the harm
that its actions would cause him. Munson met this criterion.
The parties also dispute whether defendant's con
duct involved "repeated actions" within the meaning of Gore.
Plaintiff contends that that aggravating factor applies
because defendant engaged in a "course" of conduct that was
inj urious to Munson over a number of years. Defendant con
tends that a course of conduct against a single individual
does not qualify as "repeated actions ." It argues that the
"repeated actions" factor is directed at the problem of recidi
vism and applies only if the actor has engaged in identical
transgressions against different individuals in the past and
has been punished for or otherwise notified of the wrongful
ness of that conduct.
The federal cases provide little support for the theo
retical foundation of defendant's argument. As the United
States Supreme Court stated in Gore:
"[E]vidence that a defendant h as repeatedly engaged in
prohibited conduct while knowing or suspecting that it was

unlawful would provide relevant support for an argument
that strong medicine is required to cure the defendant's dis
respect for the law."
517 US at 576-77 ( emphasis added). Many circumstances
may supply the necessary warning. For example, as we have
explained, defendant had adequate notice that its miscon
duct was unlawful in this state under ORS 746.230( 1)(f)
before it engaged in the conduct at issue here.
We agree with plaintiff that, even treating Munson's
case in isolation, a modest level of "repeated action" is pres
ent here. Munson was not stonewalled once; he was stone
walled many times, over a period of years. Such actions by
defendant seem "repeated" to us. Moreover, Munson's case
was not an isolated incident. A rational j ury could have
inferred from the evidence that, as one lawyer had said,
"Voth doesn't pay policy limits"-i.e. , that "low-balling"
insureds' claims was a common practice of defendant.
That leaves us to consider the last of the five repre
hensibility factors-whether the harm the defendant's con
duct caused resulted from "intentional malice, trickery, or
deceit." Defendant essentially concedes that, under the facts
as the jury was entitled to find them, it acted with malice, i.e. ,
intentionally, without just cause or excuse, in its dealings
with Munson. Plaintiff argues that defendant's conduct and
state of mind was far worse than that. Plaintiff insists, in
fact, that the Court of Appeals did not sufficiently capture
defendant's malevolence when it recognized that defendant
had engaged in a "calculated course of conduct betraying its
obligation to its insureds," that it acted in "cynical violation of
its obligations to its insured and for its own selfish purposes,"
and that its conduct was "intentional, deceitful and mali
cious." We believe, however, that the Court of Appeals'
assessment sufficiently conveys the deplorable nature of the
thought processes of defendant's minions and correctly places
them on the scale of reprehensibility.
In summary, we conclude that defendant's actions
were directed at a financially vulnerable victim, were not
confined to this victim alone, and involved intentional malice
and deceit. On the other hand, defendant's actions caused
economic harm only and did not evince a reckless disregard

268 Goddard v. Farmers Ins. Co.
for the health or safety of others, although defendant is enti
tled to little credit for either factor--cases of economic harm
like the present one seldom provide malefactors with an
opportunity to meet either of those criteria. Taken together,
our analysis of the five reprehensibility factors set out in
Gore, considered in light of the economic nature of defen
dant's wrongdoing, leads us to conclude that defendant's
actions were very reprehensible.
Turning to the second Gore guidepost, we consider
the ratio between the punitive damages award and the
"actual and potential harm suffered by the plaintiff."
Campbell, 538 US at 418. To do so, we first must identify the
amount of actual or potential harm, because that figure is a
basis for calculating the constitutionally permissible punitive
damages award. The Court ofAppeals concluded that the cor
rect amount was $1 ,280,000-the part of the total economic
damages award that the j ury attributed to defendant
($690,6 19.20) plus interest. Both parties argue that we
should use a different figure.
Plaintiff argues that we should use the full economic
damage verdict ($863,274) without subtracting the 20 per
cent comparative fault that the jury attributed to Munson.
The full amount of the wrongful death judgment, plaintiff
contends, is the measure of Munson's ( and hence plaintiffs)
potential harm. We disagree. The jury determined that
Munson was 20 percent responsible for the large judgment in
the wrongful death case. Defendant is not responsible for
paying that part of the compensatory damages that resulted
from Munson's misconduct; neither should defendant be
made to pay extra punitive damages in proportion to
Munson's own misconduct.
Plaintiff argues in the alternative that the potential
harm includes the amount of compensatory damages that
plaintiff sought in the wrongful death case ($318,000 more
than the $863,274 that the jury awarded), on the theory that
the j ury in the wrongful death action might have awarded
that higher amount. Plaintiff misconceives what the Court
meant when it wrote of "potential" harm: That concept has
nothing to do with the amount that a jury could conceivably
have awarded to plaintiff. Rather, the actual and potential

Cite 269
harm suffered by a plaintiff is a fact to be decided by the
jury-in this case, 80 percent of $863,274.
Plaintiff next argues that, for purposes of identifying
the range of permissible ratios, defendant should not be cred
ited with its 1998 p ayment (a total of $175,960.08) that pur
ported to s atisfy the $100,000 policy limits plus interest.
Plaintiff contends that that payment did not reduce the
potential harm that Munson suffered when the trial court
entered judgment in the wrongful death action for $863,27 4.
We disagree. Defendant's responsibility to pay the $ 100,000
policy limits was contractual, and defendant eventually paid
it. The Court ofAppeals did not err in crediting defendant for
the $ 100,000 payment.9
Defendant renews the argument that it m ade on
reconsideration in the Court ofAppeals, i.e. , that the prejudg
ment interest, which the C ourt of Appeals estimated at
$589,000, may not be counted in establishing the punitive
damages ratio. That argument turns entirely on the phrasing
of the trial court's judgment, which labeled prejudgment
interest as separate from "economic damages." Although
defendant does not dispute that it must pay plaintiff that pre
judgment interest, it argues that, "unless the j ury itself
awards prejudgment interest, it does not and cannot become
'damages.' "
We reject defendant's argument. Under United
States Supreme C ourt precedent, the punitive damages
award should be proportional to the "actual or potential harm
suffered by the plaintiff." Campbell, 538 US at 418; see also
BMW, 517 US at 575 ("harm or potential harm"). By permit
ting a punitive damages award to be a multiple of "potential
harm," the C ourt demonstrated that the punitive damages
award is not limited to some multiple of the compensatory
damages actually awarded by the trial court. And we have no
problem concluding that the prejudgment interest here, how
ever labeled by the trial court, is part of Munson's "actual
9 In determining the amount of compensatory damages, the Court of Appeals
concluded that all of the payment should be applied to interest, not to principal.
Goddard, 202 Or App at 107·10. The parties do not challenge that ruling on review;
the only issue here is whether that amount counts for purposes of calculating the
constitutional limit on punitive damages.

270 Goddard v. Farmers Ins. Co.
harm." The wrongful death j udgment against Munson
included accrued interest that Munson is legally obligated to
pay. Defendant's 80 percent liability for the wrongful death
judgment necessarily makes it responsible for the interest
that accrued on that portion of that judgment.
We conclude, then, that the constitutionally permis
sible punitive damages award in this case will be some mul
tiple of the correctly calculated actual harm to Munson
$690,6 19.20 in compensatory damages, plus interest (which
the Court of Appeals estimated at $589,000).
Comparing that figure (approximately $ 1 .28 mil
lion) to the jury's punitive damages award of $20,7 18,576, it
immediately becomes clear that the ratio of punitive dam
ages that the jury awarded to the "actual and potential harm
suffered by the plaintiff' is somewhere around sixteen-to
one. That ratio significantly exceeds the four-to-one ratio
that the Court described, in Haslip , 499 US at 22-23, as being
close to the constitutional line, at least when only economic
injury is involved. Indeed, the ratio even exceeds the single
digit ratio that the Court mentioned in Campbell, 538 US at
425 ("few awards exceeding a single-digit ratio between puni
tive and compensatory damages, to a significant degree, will
satisfy due process"), as the putative limit for punitive dam
ages in any kind of case.
It may be true that, as we already have observed, a
punitive damages award that exceeds the single-digit ratio
may be acceptable in a few narrow circumstances: ( 1 ) when a
particularly egregious act causes only a small amount of eco
nomic injury; (2) when the inj ury is hard to detect; (3) when it
is difficult to place a monetary value on noneconomic harms;
and (4) when "extraordinarily reprehensible" conduct
roughly comparable to the defendant's conduct in Williams
is involved. None of those circumstances is present here: The
j ury awarded plaintiff substantial compensatory damages;
the injury that defendant caused was evident; no claim of
noneconomic harm was involved; and defendant's conduct is
in no way comparable to, for example, Philip Morris's 50-year
campaign to delude a large part of the population of Oregon
about the potentially devastating physical effects of smoking
its products, which this court described in Williams. Also,

Cite as 344 271
plaintiff has not pointed t o any other factor that w e believe
takes the case out of the normal realm of punitive damages
cases that involve economic injury alone. Although there is
no question that this is a case in which punitive damages at
some level properly may be awarded, the case is not extra
ordinary in any way that would justify a punitive damages
award that is more than four times, much less more than
nine times, the amount that the jury found was the "actual
and potential harm suffered by the plaintiff."
We proceed to the third Gore factor-consideration
of comparable criminal or civil sanctions. In Williams, this
court concluded that analysis of the comparable sanctions
guidepost proceeds in three steps:
"First, courts must identify comparable civil or criminal
sanctions. Second, courts must consider how serious the
comparable sanctions are, relative to the universe of sanc
tions that the legislature authorizes to punish inappropri
ate conduct. Third, courts must then evaluate the punitive
damage award in light of the relative severity of the com
parable sanctions. The guidepost may militate against a
significant punitive damage award if the state's compara
ble sanctions are mild, trivial, or nonexistent. However, the
guidepost will support a more significant punitive damage
award when the state's comparable sanctions are severe."
340 Or at 58. In the context of the calculation method
described here, severe comparable sanctions-if they exist
could justify a higher ratio between actual or potential harm
and the amount of punitive damages.
Plaintiff argues-and we have recognized-that
defendant's misconduct implicates civil sanctions. At the
time of the accident in this case-and today-defendant's
misconduct violated several provisions of ORS 746.230. Each
such violation was (and is) subj ect to a civil penalty of up to
$10,000. ORS 731. 988( 1).10 Furthermore, the violator may
also be required to disgorge the profits that resulted from the
10 ORS 731.988(1) provides, in part:
"Any person who violates any provision of the Insurance Code * * * shall forfeit
and pay to the General Fund of the State Treasury a civil penalty in an amount
determined by the director of not more than $10,000 for each offense * * *.
Each violation shall be deemed a separate offense."

272 Goddard v. Co.
violation. See also ORS 73 1.988(2) ( additional civil penalty
"not to exceed the amount by which such person profited in
any transaction which violates any such provision [of the
Insurance Code]"). Those sanctions are equivalent to an
amount that the legislature has authorized to be imposed
only for felony crimes (all lesser offenses are subject to fines
less than $10,000). See, e.g. , ORS 1 6 1 .635( 1)(a) ( 1987) (maxi
mum fine of $2,500 for Class A misdemeanor) ; ORS
161.655( 1)(b) ( 1 987) (maximum fine of $5,000 for certain
Class A misdemeanors committed by a corporation). In other
words, $ 10,000 is an amount that the legislature thought
appropriate to levy only in the case of felonies. See ORS
161.625( 1) ( 1987) (for all classes of felonies, fine not to exceed
$ 1 00,000); ORS 161.655(1)( a) ( 1 987) (for felony by corpora
tion, fine not to exceed $50,000) . Measured by those criteria,
a relatively severe punitive damages award would not violate
due process.
Even so, we have little difficulty in concluding that
the $20 million punitive damages award that the j ury
awarded in this case is "grossly excessive," as that term is
used by the Supreme Court. Although our analysis of the first
and third Gore factors suggests that a relatively high punitive
damages award would be appropriate, it is the second Gore
factor-the ratio of the punitive damages award to the actual
and potential harm to the plaintiff-that tells us, in more or
less absolute numerical terms, how high the punitive dam
ages award may be. Our consideration of that factor fore
closes a conclusion that the jury's $20 million dollar award is
consistent with the federal Due Process Clause: The sixteen
to-one ratio between the punitive damages award and plain
tiff's actual and potential damages far exceeds the nine-to
one ratio that (with certain specified exceptions) marks the
limits of due process. We affirm the C ourt ofAppeals' holding
to that effect.
E. What is the Maximum Constitutionally Permissible
Award in this Case ?
That leaves us to decide the remaining issue: What is
the highest amount of punitive damages that may be
awarded in this case, without violating defendant's rights
under the Due Process Clause?

Cite as 344 Or 232 273
The Court of Appeals, after following much of the
same tortuous path that we have reviewed here, reached the
following conclusions respecting the appropriate ratio
between the actual or potential damages suffered by Munson
and the punitive damages award:
"Beyond [Campbell's] admonition that a ratio exceeding
single digits is constitutionally permissible only in extra
ordinary cases and Gore's earlier caution that a ratio of 4:1
might approach constitutional limits, there is a certain cir
cularity to [the guidance offered by the Supreme Court's
cases] * * *. Presumably, the constitutionality of any award
of punitive damages within the presumptive single-digit
ratio range will depend on the application of the first (rep
rehensibility) and third (comparable civil penalties) guide
posts. Beyond that, the only ratio-specific variable appears
to be [Campbell's] instruction that, in some cases involving
relatively small amounts of compensatory damages, pro
portionately greater awards of punitive damages may be
appropriate to effectuate the general purposes of punitive
damages, with the obverse being true in some cases involv
ing relatively large awards of compensatory damages.
[Campbell] , 538 US at 426.
"Ultimately, as a practical matter, the 'ratio' guidepost
serves as a sort of benchmark. Although fact-matching can
be a fool's errand, cases involving roughly analogous cir
cumstances, particularly with respect to the 'reprehensibil
ity' variables, should yield roughly similar ratios of compen
satory and punitive damage awards. In that regard, it is
instructive, although by no means conclusive, that, in
[Campbell] , which also involved a bad faith refusal to settle
a clear liability third-party auto death claim, the Supreme
Court suggested that a 1 : 1 ratio on a $1 ,000,000 compen
satory award would comport with due process. 538 US at
429. Still, we hasten to emphasize that defendant's course
of conduct in this case was considerably more protracted
and, in our view, much more malicious than was the
insurer's conduct in [Campbell] .
"* * * * *
"We return to the application of the Gorel[Campbell]
guideposts in this case. Any such application, albeit 'as a
matter of law,' is necessarily imprecise-even, at least
arguably, impressionistic. Nevertheless, given the guid
ance of [Campbell] , the distinctions of this case from

274 Goddard v. Farmers Ins. Co.
[Campbell] , and the analysis of our post- [Campbell] deci
sions, we conclude that the maximum constitutionally per
missible award of punitive damages in this case is three
times the compensatory damage award.
"Our reasoning is at least implicit from our foregoing
discussion: Although the injury here was purely economic,
without any threat to public health or safety, defendant's
conduct was far more reprehensible-a calculated and
repeated course of cynical and malicious betrayal of its
insured's trust-than the Court found to be the case in
[Campbell]. Nor was this an 'isolated incident .' Although
certain features of defendant's conduct here may have been
'isolated' or unique, there can be no question, viewing the
evidence most favorably to plaintiff, that the 'stonewalling,'
the 'low-balling,' the pressured manipulation of claims eval
uations and the like, are all typical of how defendant did
business: Defendant's interests came first. On balance, the
egregiously unethical character of defendant's conduct jus
tifies a proportionately, greater award of punitive damages
than the 1 : 1 ratio suggested by the Court in [Campbell] .
Conversely, the lack of serious physical injury or disregard
for the health and safety of the consuming public dictates a
proportionally lower award of punitive damages than in
Waddill [u. Anchor Hocking, Inc. 190 Or App 172, 78 P3d
570 (2003) (involving personal injuries resulting from sale
of dangerous product)] . Accordingly, a 3: 1 ratio of punitive
damages to compensatory damages in this case comports
with due process."
Goddard, 202 Or App at 1 19-22.
As is apparent, the Court of Appeals reached its
determination by employing the Gore guideposts. We already
have performed much of that same analysis. What remains is
to synthesize what seem to us to be the relevant conclusions.
With respect to the reprehensibility guidepost, we,
like the Court of Appeals, have concluded that, because
defendant's conduct only caused economic harm and did not
reflect indifference to the physical health or safety of others,
it would not justify an award at or approaching the Gore
(nine-to-one) ratio limit that we have discussed. Still, we
acknowledge that, under certain of the relevant aggravating

Cite as 344 Or 232 (2008) 275
factors, defendant's conduct was very reprehensible. Specifi
cally, the jury could infer that the person injured by defen
dant's conduct (Munson) was financially vulnerable and
defendant knew it, that defendant's tortious conduct was not
an isolated incident but, instead, was a deliberate pattern
and practice, and that defendant acted deceitfully and with
malice.
With respect to the third guidepost, which looks at
civil sanctions for comparable conduct, we concluded that, in
the universe of civil penalties, the $ 10,000 civil penalties that
applied to conduct like that at issue here all were relatively
severe . Moreover, defendant's acts were repeated, and the
civil penalties could have been imposed for each separate ille
gal act. Those facts suggest that due process would permit a
relatively high punitive damages award. In that regard, too,
our view agrees with that of the Court of Appeals.
But, as we already have noted above, 344 Or at 258-
59, it is only the second Gore guidepost that offers any hard
numerical guidance. Campbell suggests that, except in
extraordinary circumstances, a punitive damages award that
is more than nine times the amount awarded in compensa
tory damages violates due process, no matter what the tort.
538 US at 425. Gore, in our view, added another line of
demarcation-that, when the conduct has solely economic
effects and does not cause or risk physical harm to another,
the ratio between the punitive damages award and compen
satory damages normally cannot exceed four to one. Because,
in this case, there is no basis for concluding that defendant
caused or created a risk of physical harm to Munson, that
four-to-one ratio is the relevant constitutional limit on puni
tive damages awards.
In the end, we are persuaded that those factors dem
onstrate that requiring a one-to-one ratio, like that com
mended in Campbell, would exceed our constitutional role.
On the other hand, we believe that approving an award at the
outside limits (four to one, under Gore) would be permissible.
Several reasons influence our choice, but the primary one is
the degree of defendant's betrayal of its obligation to protect
Munson. The drumbeat march of defendant's disregard for
Munson's interests began with Munson's initial claim and

276 Goddard v. Farmers Ins. Co.
persisted, despite the most obvious reasons that it should
end, through the calamitous verdict against him. There may
be possible courses of behavior in the area of economic wrong
that would be even worse, but none leaps to mind. This case
fully justifies the highest permissible award, viz. , an award
that is four times the amount of plaintiff's actual and poten
tial harm (which, as we have discussed, is $690,619.20 plus
prejudgment interest).11 We therefore modify the Court of
Appeals opinion to that effect. On remand, the trial court
should finally calculate the amount of prejudgment inter
est-and, thus, precisely calculate the maximum permissible
punitive damages award-and present that amount to plain
tiff as the maximum punitive damages award that, on this
record, the Due Process Clause will bear. Then, the court
should grant defendant's motion for a new trial, unless plain
tiff agrees to entry of an amended j udgment that reduces the
punitive damages award to that amount.
The decision of the C ourt of Appeals is affirmed as
modified by this opinion. The judgment of the circuit court is
vacated and remanded with instructions to grant defendant's
motion for new trial, limited to punitive damages, unless
plaintiff agrees to remittitur of punitive damages to four
times compensatory damages award.
11 Some uncertainty exists about the precise amount of Munson's actual harm
in this case, because the prejudgment interest has not yet been specifically calcu
lated. As noted, the Court of Appeals merely estimated prejudgment interest at
$589,000, leaving it to the trial court on remand to precisely calculate the amount.
Goddard, 202 Or App at 1 10. For purposes of our review, we also leave such calcu
l ations to the trial court on remand.

2 printed pages contain little extracted OCR body text; searchable legal-body completeness has not been established for those pages.

OCR transcription for search; preserved printed pages are authoritative

Argued and submitted January 4, 2007, decision of Court of Appeals affirmed as
modified by this opinion; judgment of circuit court vacated and remanded with
instructions to grant defendant's motion for new trial, limited to punitive damages,
unless plaintiff agrees to remittitur of punitive damages to four times compensa-
tory damages award March 6, reconsideration denied May 29, 2008

Margie A. GODDARD,
as Personal Representative for the Estate of
Marc E. Goddard, Deceased,
Petitioner on Review,
v.
FARMERS INSURANCE COMPANY OF OREGON,
an Oregon corporation,
Respondent on Review.
(CC 9005-03204; CA A118750; SC S053405)
179 P3d 645

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CJS, Constitutional Law § 1399.

# En Banc

On review from the Court of Appeals .*

Jeffrey M. Batchelor, Markowitz, Herbold, Glade
& Mehlhaf PC, Portland, argued the cause and filed the
briefs for petitioner on review. With him on the briefs were
William A. Barton and Kevin K. Strever, of Barton & Strever,
PC, Newport, and David W. Melville, Portland.

James N. Westwood, Stoel Rives LLP, Portland, argued
the cause and filed the brief for respondent on review. With
him on the brief was Thomas H. Tongue, Dunn Carney
Higgins Allen & Tongue LLP, Portland.

William F. Gary and Sharon A. Rudnick, Harrang Long
Gary Rudnick PC, Eugene, filed a brief on behalf of amicus
curiae Associated Oregon Industries.

GILLETTE, J.

The decision of the Court of Appeals is affirmed as modi-
fied by this opinion. The judgment of the circuit court is
vacated and remanded with instructions to grant defendant's

\* Appeal from Multnomah County Circuit Court, Douglas G. Beckman, Judge.
202 Or App 79, 120 P3d 1260 (2005), modified and adh'd to as modified on recons,
203 Or App 744, 126 P3d 682 (2006).

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motion for new trial, limited to punitive damages, unless
plaintiff agrees to remittitur of punitive damages to four
times compensatory damages award.

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## GILLETTE, J.

This case involves a constitutional challenge to a
punitive damages award that a jury imposed on a liability
insurance company, based on the company's bad faith failure
to settle a third-party's claim against one of its insureds
within policy limits.

The underlying case is a wrongful death proceeding.
The insured, John Munson, caused an automobile accident in
1987 while driving under the influence of alcohol. The acci-
dent killed Marc Goddard. Goddard's mother (plaintiff)
brought a wrongful death action against Munson. Munson's
insurer, Farmers Insurance Company of Oregon (defendant),
undertook Munson's defense, but failed to settle plaintiff's
wrongful death action within policy limits, after which a jury
returned a verdict that resulted in a judgment against
Munson for $863,274. Munson, who asserted that defen-
dant's failure to settle was an act of bad faith, assigned his
bad faith claim against defendant to plaintiff, who prose-
cuted the action. A jury awarded plaintiff $863,274 in com-
pensatory damages and $20,718,576 in punitive damages.
Defendant moved to reduce both awards. The trial court
reduced the compensatory damages award in certain
respects, but left the punitive damages award in place. Both
sides appealed. The Court of Appeals reinstated two amounts
that the trial court had deducted from the compensatory
damages award, but also significantly reduced the punitive
damages award. Goddard v. Farmers Ins. Co., 202 Or App 79,
120 P3d 1260 (2005), modified and adh'd to as modified on
recons, 203 Or App 744, 126 P3d 682 (2006). Plaintiff sought
review, which we allowed. For the reasons that follow, we
affirm the decision of the Court of Appeals.

### I. FACTS

Plaintiff's "failure to settle" action against defendant
is based on defendant's conduct in the wrongful death action
against Munson, so we begin there. For the most part, the
parties do not contest the facts as set out in the Court of
Appeals opinion,1 from which we quote liberally.

1 Defendant asks this court simply to adopt the Court of Appeals' statement of
the facts. Plaintiff agrees that the Court of Appeals opinion is accurate as far as it

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#### A. Wrongful Death Action

The accident at issue was a collision between a truck
(which Munson was driving) and a car driven by the
deceased. The accident potentially was covered by two sepa-
rate insurance policies issued by defendant. First, Munson
himself had a $100,000 automobile insurance policy with
defendant. Second, the truck that Munson was driving was
owned by Helen Foley, who also had a $100,000 automobile
insurance policy with defendant. Separate litigation would
eventually determine that the accident was covered only by
Foley's policy.

"The fatal accident occurred on October 29, 1987. Munson,
who had consumed a large quantity of alcohol, made a left
turn into a tavern parking lot and collided with Marc
Goddard's oncoming vehicle, killing Goddard. Shortly after
the collision, Foley, who was to meet Munson at the tavern,
arrived on the scene. Both Munson and Foley told a police
officer that Munson had been driving Foley's truck with
Foley's permission. Although Munson believed that he was
not impaired by alcohol at the time of the collision, his blood
alcohol level taken at the hospital was more than twice the
legal limit for operating a motor vehicle."

Goddard, 202 Or App at 86.

On November 2, 1987, Foley and Munson both told
the defendant's claim representative, Sellers, that Munson
had been driving the truck with Foley's permission. Id.
Munson also admitted to Sellers that he had had "eight to ten
beers" before the accident. Id. Despite strong evidence that
Munson was at fault in the collision, defendant's employees
resisted plaintiff's attempts to resolve liability:

"On November 5, 1987, [attorney] Carl Amala wrote to
Sellers, stating that he had been retained by Marc
Goddard's estate and seeking to discuss liability, property

goes, but she argues that the Court of Appeals does not go far enough in describing
defendant's reprehensible conduct: Much of her brief to this court is devoted to
highlighting evidence that, according to plaintiff, "depict a [defendant] more
treacherous than the malicious and deceitful [defendant] seen in the Court of
Appeals opinion." We do not feel compelled to include plaintiff's detailed additions
in our explication of the facts. Her suggested additions confirm the malicious and
deceitful nature of defendant's conduct, but do not alter our overall assessment of
the level of reprehensibility involved.

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damage, and medical and burial expenses. Sellers spoke
with Amala by telephone, indicating that Sellers did not
believe Munson was at fault in the collision. By early
December, Sellers had verified through the police that
Goddard had his headlights on at the time of the collision.

"On December 10, 1987, Amala again wrote to Sellers,
stating that the physical evidence demonstrated that the
collision occurred in Goddard's lane of travel, that
Goddard's headlights were on, and that criminal charges
against Munson were contemplated. Amala asked for any
information that called into question Munson's liability. He
also asked for information about what Farmers policies
were involved and what their limits were. By December 10,
1987, Sellers had concluded that Munson's liability for the
collision was clear. However, neither Sellers nor any other
employee of defendant responded to Amala's letter.

"On December 16, 1987, Sellers wrote an investigation
report for his supervisor, Doug Heatherington, indicating
that both Foley's and Munson's policies were potentially
involved, that Munson admitted to having consumed nine
beers prior to the accident, and that the case 'has policy lim-
its potential.' The following day, Sellers wrote a claim
status report, stating that the Goddard estate 'will want
policy limits' and that '[w]e have two policies involved with
$200,000 exposure. I feel we should let things "ripen" a bit
before making any settlement talk.'

"On January 5, 1988, Heatherington wrote to Don
McClure, the regional claims manager in Portland, noting
that both Foley's and Munson's policies were potentially
involved but also noting that Munson's policy might not
apply if Munson used Foley's vehicle regularly. That letter
further stated that Munson admitted having eight to ten
beers before the collision; that Marc Goddard had been 19
years old and was single with no children; and that
Goddard was believed to have been recently released from
jail. The letter concluded that, although ordinarily liability
would be clear for making a left turn in front of an oncoming
vehicle, Munson had suggested that Goddard might not
have had his headlights on. Heatherington requested that a
reserve, or settlement value, of $30,000 be established for
the case and suggested that police reports, blood alcohol
tests, and information on Goddard's headlights be obtained.

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"On January 12, 1988, Amala again wrote to Sellers,
indicating that he had not received a response to his earlier
correspondence and seeking a response. Again, defendant
provided no response."

Id. at 87-88.

Meanwhile, internal memoranda show that defen-
dant's employees had little doubt about Munson's liability for
Goddard's death.

"Sellers provided a status report to [Randy] Voth[, who had
replaced Heatherington in the Salem office,] on January 22,
1988, indicating that Goddard's vehicle had its lights on
and that Munson had simply made a left turn in front of
Goddard's vehicle after consuming nine beers. Sellers
stated, 'I think we should get some offer out on this if pos-
sible soon, or perhaps we should answer a lawsuit and find
out facts on [Marc Goddard] through discovery process.'

"Munson was charged with second-degree manslaugh-
ter. On March 3, 1988, Amala wrote again to Sellers, noting
that he had received no response to his three earlier letters,
that the police reports indicated that Munson was at fault
in the collision, and that Munson had been charged with
manslaughter. He again sought information about the pol-
icies involved and asked that defendant respond in writing
concerning the settlement of the property damage portion
of the case. In late March, Amala spoke on the phone with
Sellers, and Sellers confirmed that Foley and Munson each
had $100,000 of coverage. Sellers also represented to
Munson's [criminal] attorney, Feitelson, that both Foley's
and Munson's policies would apply."

Id. at 88.

At that point, the noncooperative nature of the rela-
tionship between plaintiff and defendant became more
formal.

"On March 28, 1988, Amala sent a demand letter to
Sellers, indicating that he would recommend to his client
that she accept $200,000 to settle all claims against
Munson, giving a three-week response time. On March 31,
1988, Sellers wrote a claim status report noting the
$200,000 demand and requesting authority to settle for up

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to $50,000. The report stated that Sellers was awaiting an
accident reconstruction report and that Munson's [crimi-
nal] attorney, Feitelson, was trying to obtain information
on Marc Goddard's criminal history."

Id. at 88-89.

In April 1988, Sellers received an accident recon-
struction report and information about Goddard's criminal
history. Id. at 89. The accident reconstruction report con-
firmed that Munson had turned in front of Goddard and that
Goddard had been traveling at approximately the speed
limit, but the report could not specify whether Goddard had
been using his headlights. Id. The criminal history investi-
gation by Feitelson indicated that, at the time of the collision,
Goddard had been on probation and that his probation was in
jeopardy. Id.

"On April 25, 1988, Voth, Sellers's supervisor in the
Salem office, wrote to McClure, in the Portland regional
office, indicating that the police were unable to determine
whether Goddard's headlights had been on and further
indicating that [the accident reconstruction firm] would
attempt to determine whether the headlights had been on.
On May 3, 1988, Sellers submitted a status report to Voth,
explaining that a state police report concluded that
Goddard's headlights had been on and that the present
demand was for $200,000. Sellers concluded, 'I think the
case has a value of $50,000-and feel we should make the
offer now.' On May 12, 1988, Sellers called Amala, the
attorney for Goddard's estate, indicating that he should
have an answer within a few days on settlement but that he
knew that defendant was 'not going to offer policy limits.'
Amala responded that the Goddard estate intended to file
suit shortly.

"On May 26, 1988, Voth wrote to McClure, stating that
information showed that Munson had not used a turn sig-
nal before turning left and that Goddard's headlights were
on. Voth further indicated that he believed that Goddard
had recently been released from jail and that he had an
alcohol problem. Voth stated, 'I feel it is time that we make
an offer to plaintiff's attorney' and asked for authority in
the amount of $50,000. McClure responded to Voth that he
'did not feel we have enough information to evaluate our

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insured's exposure' and instructed Voth to seek out nega-
tive information about Goddard."

Id.

Munson was convicted of criminally negligent homi-
cide in early June 1988. Around the same time, plaintiff filed
her wrongful death action against Munson. Plaintiff's attor-
neys notified defendant that plaintiff's offer to settle the case
for $200,000 would continue in effect for 30 days. In a letter to
Sellers, one of plaintiff's attorneys stressed that, "because
Munson had been convicted of criminally negligent homicide,
defendant was in the position of 'having to admit liability in a
case that has aggravated liability justifying punitive dam-
ages.'" Id. at 90. In spite of that advice, however, defendant
never responded to plaintiff's $200,000 settlement offer. Id.
at 91.

Defendant hired the law firm of Parks & Bauer to
defend Munson in the wrongful death action. Id. at 90.

"Voth's letter retaining that firm described Munson's con-
sumption of alcohol and the fact that Goddard's headlights
had been on, but also stated that there was information
that Goddard had a criminal record. Voth further noted
that plaintiff's demand was for $200,000 under both poli-
cies. Voth then wrote to Munson[,] stating that defendant
had retained Parks & Bauer 'who will enter a defense and
protect your interests' in the wrongful death case. That let-
ter acknowledged that '[i]t is possible that a judgment could
be secured in excess of the limits of your insurance policy.'"

Id. (second brackets in original).

Munson's attorneys in the criminal action were sur-
prised by defendant's apparent willingness to take the civil
wrongful death action to trial. One of those attorneys,
McGehee, wrote to defendant that, in light of Munson's
"manifest criminal liability" and the strong potential for a
verdict in excess of $200,000, he was reluctant to recommend
that Munson go to trial on the wrongful death case. McGehee
warned defendant that, if the jury returned a verdict in
excess of $200,000, Munson would "be looking directly to you
for payment of the overage on the basis of bad faith settle-
ment efforts." Id.

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As noted, defendant already had recognized that
Munson's policy might not apply if Munson used Foley's vehi-
cle regularly, because the policy contained a "regular use"
exception. Id. at 87. Defendant now began to work on that
angle.

"On July 25, 1988, Amala spoke with Keith Bauer, the
insurance defense attorney whom defendant had retained
to defend Munson in the wrongful death action. Bauer told
Amala that he believed that only one policy of $100,000 was
available and that the criminal sentencing would reduce
any punitive damages. Shortly thereafter, Bauer, who had
not yet conferred with Munson, filed an answer in the
wrongful death action denying that Munson had been
under the influence of intoxicants and that he had caused
the collision, but did not assert as a defense that Goddard
was negligent in any way in causing the collision.

"On July 27, 1988, [Munson's criminal lawyer,]
Feitelson, wrote to defendant, stating that neither he nor
[Munson's other criminal lawyer,] McGehee[,] had heard
back from defendant but that he understood that defendant
was taking the position that only one $100,000 policy was
involved. Feitelson requested a copy of any coverage opin-
ion to that effect.

"On July 29, 1988, defendant retained attorney Lynn
Ashcroft to provide a coverage opinion. The letter retaining
Ashcroft stated that defendant suspected that Munson had
had frequent use of Foley's truck and asked whether, under
those circumstances, defendant was exposed to the full
$200,000 limits of both policies."2

Id. at 91.

In the fall of 1988, a second coverage issue, pertain-
ing to whether, at the time of the accident, Munson was a per-
missive user of Foley's truck, presented itself:

"In early August, Billy Sime, [one of the attorneys
retained to defend Munson], attended Munson's deposition
in the wrongful death action. During the deposition,
Munson stated for the first time that Foley had told him not

2 As noted earlier, a subsequent declaratory judgment action would vindicate
defendant on this point, determining that the accident was covered under Foley's
policy but not Munson's. Id. at 82 and n 3.

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to drive her pickup when he had been drinking and that
Foley had picked him up at taverns a number of times when
he was too drunk to drive home. Sime then spoke privately
with Foley, who told him that Munson 'could not even have
one drink of alcohol and drive her truck' and that she had
taken the truck away from Munson on previous occasions
when he had been drinking. Sime subsequently wrote to
defendant, stating that, although Munson's and Foley's
statements were consistent in that they agreed that
Munson was not supposed to drive the truck when he had
been drinking, their interests were potentially adverse
because Foley was a potential defendant in the wrongful
death action on the theory that she had negligently
entrusted the truck to Munson despite her knowledge of his
drinking problem.

"Shortly thereafter, defendant sent claims representa-
tive Mary Kay Hendrickson to interview Foley. Foley told
Hendrickson that Munson had used her truck probably 100
times while working for her and that, on several occasions,
he had also borrowed her truck when he was getting his car
fixed. Foley also stated that she told everybody 'no drinking
when you're driving my pickup.' Foley told Hendrickson
that she had never had any reason to believe that Munson
had been driving the pickup and drinking. Foley acknowl-
edged, however, that she had planned to meet Munson at
the tavern on the evening of the collision and that she knew
he would be driving her truck.

"In September 1988, because of the potential conflict
between Munson and Foley, defendant retained attorney
Sandra Haynes to represent Foley in the wrongful death
action. In the letter retaining Haynes, Voth noted that the
Goddard estate was planning to add Foley as a defendant
on the theory that she negligently entrusted her vehicle to
Munson. Haynes spoke with Foley, who denied any knowl-
edge of Munson's drinking problem and any knowledge that
he had driven her truck while intoxicated. Because Foley's
statements were at odds with Munson's deposition testi-
mony that Foley would pick him up at taverns after he had
had too much to drink, Haynes believed that one of the
two-probably Foley-was lying. Shortly thereafter, an
amended complaint was filed in the wrongful death action,
naming Foley as a defendant."

Id. at 91-92.

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With Munson's and Foley's claim that Foley's per-
mission was conditional, defendant saw an opportunity to
escape liability on both policies.

"[O]n October 17, Voth sent Munson a reservation of rights
letter, stating that defendant was investigating whether
there was coverage under either policy. In particular, Voth
indicated that there were two potential coverage disputes:
(1) whether, under Foley's policy, Munson was a covered
'permissive user' of Foley's vehicle; and (2) whether Foley's
vehicle was covered under Munson's policy because it was
not a vehicle that was being temporarily used and, thus, fell
within that policy's 'regular use' exclusion. Shortly there-
after, defendant obtained a coverage opinion from attorney
William Hallmark, who concluded that a driver who drove
after consuming alcohol contrary to the owner's express
instructions was not a 'permissive user' of the vehicle as
defined in the policy."

Id. at 92-93 (footnotes and citation omitted).

Plaintiff, meanwhile, continued to seek a settlement:

"In November 1988, Harris, one of the attorneys for the
Goddard estate, told Foley's attorney, Haynes, that the
Goddard estate would settle with Foley for her policy limits
of $100,000, and Haynes sought from defendant the author-
ity to settle the case for that amount. Haynes believed that
a $100,000 policy limits settlement was reasonable, and she
did not want the case to go to trial because of her concerns
about her client's lack of candor. Haynes also recommended
that defendant adjust the claims against Foley and Munson
separately due to the conflicts of interest."

Id. at 93 (footnote omitted).

Defendant nevertheless moved to either avoid cov-
erage entirely, or to settle the case well under policy limits.

"Heatherington [now in the Portland office] and
McClure then sought authority from defendant's home
office either to file [a] declaratory judgment action [respect-
ing liability] or to settle for $100,000. In December 1988,
Voth received authorization from the home office to file the
declaratory judgment action, but settlement authority was
limited to $30,000. At about the same time, in a letter to
Hallmark, defendant noted that Bauer had estimated the

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value at '$50,000 to $75,000, with a possible range of
$100,000.'

"On December 21, 1988, Ashcroft filed the declaratory
judgment action on defendant's behalf, seeking a declara-
tion that there was no coverage under either policy.
Ashcroft noted in a letter to defendant that the existence of
the declaratory judgment action did not free defendant
from its obligations to act reasonably to negotiate settle-
ment within policy limits, stating that, if the claim could
exceed policy limits, 'even if coverage is in question, [it may
be appropriate] to pay the policy limits into the court to be
held pending the outcome of the declaratory relief action.'"

Id. at 92-93.

Ashcroft echoed Haynes's earlier recommendation
that the Foley and Munson claim files be adjusted separately.
Id. at 94. While defendant did assign the Foley file to adjuster
David Strand, Voth nevertheless continued to have supervi-
sory responsibility over both the Foley and Munson files.

Strand sought and received Voth's approval before
authorizing Haynes to make a settlement offer of $30,000 to
settle all claims against both Munson and Foley. Although
Haynes conveyed the offer, she believed that it was unac-
ceptably low and suspected that defendant was not negoti-
ating in good faith. Plaintiff declined that offer."

Id. (footnote omitted). Defendant never told Munson about
that offer or its rejection. The parties did not make any fur-
ther attempts at settlement until just before trial.

Acting on Munson's behalf, attorney Feitelson con-
tacted attorney Bauer several times in early 1989, asking
that defendant not expose Munson to liability exceeding pol-
icy limits. Feitelson never received a response. Just before
the trial started in 1990, Feitelson again wrote to Bauer, sug-
gesting that defendant was not attempting in good faith to
settle the matter and warning again that Munson would
bring a bad faith claim if the wrongful death judgment
exceeded policy limits. Id. at 94-95.

Trial was scheduled to start in January 1990. Id. at
94. With less than two weeks to go, defendant resumed its
efforts to settle the case-but still for small amounts of
money. Moreover, the evidence suggests that defendant

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attempted to protect itself against any subsequent action for
failure to settle by "padding the file" with lower estimates of
potential liability.

"On January 4, 1990, Voth requested that Bauer submit an
evaluation of the case so that Voth could request settlement
authority * * *.

"On January 11, 1990, Bauer's firm wrote and had
hand-delivered to defendant an evaluation that concluded
that 'the case has a reasonable jury value between $75,000
and $150,000 for non-economic damages plus punitive
damages.' Later that day, however, Bauer had his staff
retrieve that letter from defendant's office and replace it
with a letter, also dated January 11, that deleted the
amounts $75,000 and $150,000 and substituted a much
lower range of exposure-$35,000 to $60,000-for noneco-
nomic damages. Because of Goddard's criminal record,
Bauer did not believe that a jury would award economic
damages.

"The wrongful death case was tried from January 16
through January 24, 1990. On the first day of trial, Bauer
offered $30,000 to settle the case, and the offer was rejected.
At the end of the first day of trial, Bauer increased the offer
to $50,000, with the option to arbitrate any additional dam-
ages up to the policy limits established in the declaratory
judgment action. [Plaintiff] countered that it would accept
$100,000 with an additional $100,000 to be paid only if the
declaratory judgment action established that both policies
applied. Bauer responded that defendant would not agree
to such a settlement. At that point, Voth was of the opinion
that Munson's exposure was between $60,000 and $150,000
'and maybe more.'

"On the third day of trial, Bauer offered $100,000, with
the understanding that, if the declaratory judgment action
determined that both policies applied, arbitration would
need to occur to establish the amount between $100,000
and $200,000 that defendant would pay. That is, in contrast
to the estate's counteroffer under which the estate would
automatically recover the additional $100,000 if the arbi-
trator determined that both policies applied, under defen-
dant's final offer any payment in excess of $100,000 would
be further conditioned upon the arbitrator's determining
that the estate was, in fact, entitled to recover wrongful

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death-related damages in that amount. [Plaintiff] rejected
that final offer.

"On January 23, 1990, the case was submitted to the
jury. Bauer's trial notes indicate that, on that day, the trial
court's judicial assistant * * * told Bauer that he should set-
tle the case because the jury was 'talking big dollars.' Bauer
relayed that information to Voth, who relayed it to
Heatherington and McClure. McClure decided not to
increase the settlement offer. * * *

"On January 24, 1990, the jury returned a verdict
against Munson for $188,274 in economic damages,
$425,000 in noneconomic damages, and $250,000 in puni-
tive damages-a total of $863,274."

Id. at 95-96 (footnote omitted).

Defendant appealed the ensuing judgment, but the
Court of Appeals affirmed. As mentioned earlier, defendant
then brought a separate declaratory judgment action seeking
declarations that the accident that killed Goddard was not
covered under either Munson's or Foley's insurance policies.
After a number of decisions, appeals, and remands in that
action, the Court of Appeals determined that the accident
was covered by Foley's policy, but not Munson's. Defendant
chose not to appeal that decision and finally, in 1998, paid
plaintiff $175,960, representing the $100,000 limit in Foley's
policy, plus interest. See id. at 84 (noting payment).

#### B. Action Against Defendant for Failure to Settle within Policy Limits

After the trial court entered judgment against him
in the wrongful death action, Munson assigned to plaintiff all
of his potential claims against defendant. Id. at 83. In May
1990, plaintiff brought the present action against defendant
under the assignment, contending that defendant breached
its duty to Munson to make reasonable efforts to settle the
wrongful death action. Id. at 83, 85. Plaintiff sought, as com-
pensatory damages, the $863,274 awarded in the wrongful
death action, plus $450 million in punitive damages. Id. at
83.

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In addition to the evidence summarized above,
plaintiff presented expert testimony regarding defendant's
conduct in handling the wrongful death case:

"James Nelson, an attorney with extensive experience in
insurance cases, testified that insurance companies some-
times engage in the practice of 'stonewalling,' which
involves refusing to negotiate settlement because claim-
ants often have very limited resources and mounting medi-
cal and legal bills; 'stonewalling' puts psychological and
financial pressure on such claimants to accept settlements
that are less than reasonable. Nelson further testified that
another negotiation strategy, 'low-balling,'involves making
minimal settlement offers to signal that the insurance com-
pany is willing to fight the claim and to lower the claimant's
expectations. In Nelson's opinion, defendant had used both
strategies in handling the Goddard claim. According to
Nelson, the $30,000 offer was a 'low-ball' offer because the
Goddard claim should, reasonably, have been valued at
over $200,000.

"Plaintiff also presented expert testimony from John
Partlow, who rendered an opinion as to whether the claim
against Munson was handled properly. Partlow had worked
as a claims auditor for a large insurance company. In that
position, he examined claims files to determine if the claims
had been handled properly, and he subsequently performed
similar functions as a consultant. Partlow testified that cov-
erage limits should be communicated promptly and that
mistakes about coverage limits should be disclosed
promptly. He further testified that defendant's failure to
respond to the time-limited settlement demand violated the
company's own policies and did not comport with industry
standards. Partlow concluded that defendant had failed to
make a timely and sufficient investigation of the collision
and had failed to negotiate fairly throughout its handling of
the Goddard claim-and, indeed, that, in his 15 years of
evaluating claims, the handling of the Goddard claim was
among the worst he had ever seen.

"Plaintiff also presented expert testimony from Jeffrey
Jacobs, an attorney who had significant experience working
as in-house counsel in Oregon for an insurance company.
Jacobs testified that defendant's conduct in failing to
respond to communications from the attorneys for the
Goddard estate for many months after the collision fell

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below the industry standard of care. He further testified
that a decision to let the claim 'ripen' rather than respond to
an attorney under these circumstances very seriously jeop-
ardizes the protection of the person who has paid the insur-
ance premiums. In Jacobs's view, liability and the value of
the case as in excess of policy limits was clear by June 1988,
when defendant failed to respond to the time-limited
demand that was made by the Goddard estate, and failing
to respond was not in keeping with industry standards.
According to Jacobs, the case should have been valued in
the range of $500,000 to $750,000.

"Plaintiff also presented evidence of defendant's use of
'low-balling' tactics in another case involving a collision
where an injury resulted from the conduct of a drunk driver
insured by defendant. In that case, in which Bauer also rep-
resented the insured, the injured party accepted an offer of
less than policy limits due to financial pressures, even
though his attorney believed the case to be worth more than
policy limits. That attorney testified that Bauer had told
him, 'Voth doesn't pay policy limits.'"

Id. at 96-98 (footnote omitted).

The jury returned a special verdict for the plaintiff.
The jury concluded that defendant was 80 percent at fault for
entry of the $863,274 wrongful death judgment against
Munson. The jury also concluded that Munson's actions after
the accident made him 20 percent responsible for the wrong-
ful death judgment. The jury determined that, because of its
wrongdoing in failing to settle the wrongful death case,
defendant should pay plaintiff $20,718,576 in punitive
damages.

In its judgment, the trial court reduced the compen-
satory damages award in several ways. Starting with the
$863,274 awarded against Munson in the wrongful death
judgment, the trial court subtracted 20 percent for Munson's
comparative fault, as determined by the jury. The court also
subtracted defendant's 1998 payment of $175,960, i.e., the
$100,000 policy limit plus interest. In doing so, the court
credited $100,000 of that payment against principal, rather
than interest. Finally, the trial court subtracted $325,000, an
amount that had been paid to plaintiff on an underinsured
motorist policy that she held through another insurer. On the

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other hand, and although defendant contended that it was
unconstitutionally large, the trial court refused to reduce the
punitive damages award. In sum, the trial court entered
judgment against defendant for "$265,619.20 economic dam-
ages, plus prejudgment interest thereon in the amount of
$343,573.62; and $20,718,576 in punitive damages plus
interest thereon." Id. at 83-84.

Plaintiff and defendant both appealed to the Court of
Appeals. Defendant contended that the trial court erred in
admitting evidence of a "pooling agreement" between defen-
dant and other related insurance companies. Defendant also
argued that the punitive damages award was unconstitution-
ally large. Plaintiff contended that the trial court erred in cal-
culating the amount of compensatory damages. Id. at 84.

The Court of Appeals rejected defendant's eviden-
tiary argument. Id. at 100-03. Respecting the issue relating
to the calculation of compensatory damages, the court agreed
with plaintiff. The court concluded that defendant was not
entitled to a $325,000 credit for the amounts paid by the
other insurance company. Id. at 103-07. The court also held
that defendant's entire $175,960 payment to plaintiff should
have been applied to interest. Id. at 107-10. While leaving the
final calculation of interest to be made by the trial court on
remand, the court estimated "total economic damages" at
approximately $1,280,000, representing $690,619.20 in prin-
cipal (80 percent of the $863,274 awarded in the wrongful
death judgment), plus approximately $589,000 in pre-
judgment interest. Id. at 110. The Court of Appeals also
agreed with defendant that the punitive damages award was
grossly excessive and therefore unconstitutional under the
Due Process Clause of the Fourteenth Amendment to the
United States Constitution. Id. at 111-22. Finally, the court
concluded that the highest permissible punitive damages
award that the jury could have made was three times the
compensatory damages award (as correctly calculated). Id. at
121-22.

Defendant petitioned the Court of Appeals to recon-
sider, arguing (among other things) that the court had erred
in the way in which it had dealt with the roughly $589,000
in prejudgment interest on the $690,619.20 of principal.

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Goddard v. Farmers Ins. Co., 203 Or App 744, 746, 126 P3d
682 (2006). Defendant noted that the trial court's judgment
identified the prejudgment interest separately from plain-
tiff's "economic damages" and that the court had refused a
proposed form of judgment that would have lumped prejudg-
ment interest and principal together. Defendant contended
that punitive damages had to be calculated using only the
$690,619.20 in principal identified as "economic damages" in
the judgment. Doing otherwise, defendant claimed, gave
plaintiff relief on a matter that she did not assign as error on
cross-appeal.

The Court of Appeals agreed that it should not have
referred to the entire $1,280,000 as "economic damages." The
court altered its earlier opinion to refer to that amount as
"compensatory loss." But the court otherwise rejected defen-
dant's argument, concluding that the prejudgment interest
should be included in the amount used to evaluate the consti-
tutionality of the punitive damages award. Id. at 747-49.

Plaintiff sought review, challenging the Court of
Appeals' determination that the punitive damages award
was unconstitutional, and we allowed review.

### II. DISCUSSION

As a preliminary matter, we note that, although
defendant has not cross-petitioned this court for review of the
Court of Appeals decision, it has renewed, in its arguments to
this court, certain of the claims of error that it raised on
appeal (and that the Court of Appeals rejected). Although our
rules permit us to consider claims of error raised in that man-
ner, ORAP 9.20(2), we decline to do so in this case: We
allowed plaintiff's petition for review to consider a particular
set of issues pertaining to punitive damages, and we choose
to focus only on those issues. We thus affirm the Court of
Appeals decisions with respect to claims of error that are
unrelated to the punitive damages award (specifically, defen-
dant's claims that the trial court erred in admitting evidence
of a "pooling agreement" and in declining to reduce plaintiff's
damages by the amount that she received from her own
underinsured motorist insurance policy), without expressing
any opinion concerning the Court of Appeals' analysis of
those claims.

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#### A. Determining When a Punitive Damages Award Violates the Due Process Clause

We turn, then, to the question that prompted our
decision to allow review-whether the Court of Appeals erred
in determining that the jury's punitive damages award was
grossly excessive and that the maximum constitutionally
permissible punitive damages award was three times the
amount that the jury awarded in compensatory damages.
Plaintiff contends that the Court of Appeals did err and that,
if all of the relevant circumstances are taken into account, it
is clear that the jury's award was within the permissible
range. Defendant responds that the punitive damages award
was excessive and that, if anything, the maximum constitu-
tionally permissible punitive damages award is even smaller
than the Court of Appeals determined.

Punitive damages awards that are "grossly exces-
sive" violate the Due Process Clause of the Fourteenth
Amendment to the United States Constitution, because
excessive punitive damages serve no legitimate purpose and
constitute arbitrary deprivations of property. BMW of North
America, Inc. v. Gore, 517 US 559, 568, 116 S Ct 1589, 134
L Ed 2d 809 (1996). Excessive punitive damages also impli-
cate the requirement of fair notice that is enshrined in the
Due Process Clause: Due process dictates 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." Id. at 574.

The United States Supreme Court has identified
three "guideposts" that should be considered by appellate
courts charged with determining whether a jury's punitive
damages award comports with the Due Process Clause. They
are:

"(1) the degree of reprehensibility of the defendant's mis-
conduct; (2) the disparity between the actual or potential
harm suffered by the plaintiff and the punitive damages
award; and (3) the difference between the punitive damages
awarded by the jury and the civil penalties authorized or
imposed in comparable cases."

State Farm Mut. Ins. Co. v. Campbell, 538 US 408, 418, 123
S Ct 1513, 155 L Ed 2d 585 (2003). See also Williams v. Philip

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Morris Inc., 340 Or 35, 55, 127 P3d 1165 (2006), vac'd on
other grounds, 549 US 346, 127 S Ct 1057, 166 L Ed 2d 940
(2007), on remand, 344 Or 45, 176 P3d 1255 (2008) (setting
out those guideposts and using them to analyze Oregon puni-
tive damages award for excessiveness). Two of the Court's
recent cases-Gore and Campbell-elaborate on those fac-
tors and illustrate how they are to be applied in determining
whether, and to what extent, a jury's punitive damages
award violates a tortfeasor's due process rights.

In Gore, the Court considered an Alabama jury's ver-
dict awarding punitive damages in an amount that was 1,000
times the amount of the plaintiff's compensatory damages.
The case arose out of a lawsuit by a car owner, who sued the
manufacturer of his new BMW automobile because the man-
ufacturer had failed to disclose to him that the vehicle had
been repainted prior to sale (the original paint job had been
marred en route to the United States). 517 US at 563. The
jury awarded the car owner $4,000 in compensatory damages
and $4 million in punitive damages, id. at 565, but the
Alabama Supreme Court reduced the punitive damages
award to $2 million, largely because it concluded that the
jury had unlawfully based much of its award on BMW's out-
of-state conduct, when it was unclear whether that conduct
was unlawful where it occurred. Id. at 567.

On review, the United States Supreme Court agreed
with the Alabama Supreme Court that the punitive damages
award could not be used to punish BMW for, or to deter, con-
duct that was lawful in the state where it occurred. Id. at 571-
74. But the Court also concluded that, even with the Alabama
Supreme Court's adjustment to the jury's award, the punitive
damages award was grossly excessive. Although the court
warned that there was no "'mathematical bright line
between the constitutionally acceptable and the constitution-
ally unacceptable that would fit every case,' " id. at 583 (quot-
ing Pacific Mut. Life Ins. Co. v. Haslip, 499 US 1, 18, 111 S Ct
1032, 113 L Ed 2d 1 (1991)), it nevertheless set out a frame-
work for determining when punitive damages awards are
grossly excessive-specifically, the three "guideposts" men-
tioned above.

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As to the first guidepost, reprehensibility, the Court
described a number of "aggravating factors associated with
particularly reprehensible conduct." Gore, 517 US at 576.
Those aggravating factors (as the Court later summarized
them in Campbell) include whether

"the harm caused was physical as opposed to economic; the
tortious conduct evinced an indifference to or a reckless dis-
regard of the health or safety of others; the target of the con-
duct had financial vulnerability; the conduct involved
repeated actions or was an isolated incident; and the harm
was the result of intentional malice, trickery, or deceit, or
mere accident. The existence of any one of these factors
weighing in favor of a plaintiff may not be sufficient to sus-
tain a punitive damages award; and the absence of all of
them renders any award suspect."

Campbell, 538 US at 419 (citation omitted). Applying those
aggravating factors to the facts, the court concluded that
BMW's conduct had not been particularly reprehensible: No
physical harm or threat to safety or health had been involved,
the plaintiff was not financially vulnerable, and there was no
clear evidence of intentional recidivism or a malicious
motive. Gore, 517 US at 575-80.

With respect to the second guidepost, the Court
noted that even the reduced $2 million punitive damages
award was 500 times the amount of actual harm, id. at 582-
a ratio that the Court described as "breathtaking," and which
"must surely raise a suspicious judicial eyebrow." Id. at 583
(internal quotation marks and citation omitted). Finally,
with respect to the third guidepost, the Court observed that
there was an enormous difference between the $2 million
punitive damages award and the civil penalty that could be
imposed in the only comparable class of cases-a $2,000 fine.
Id. at 584.

Based on its analysis, the Court concluded that the
jury's $4 million punitive damages award, and even the
Alabama Supreme Court's $2 million remitted award, were
unconstitutionally large. Id. at 585-86. However, the court
did not determine what size award would be constitutional.
Rather, it left that question to the state court to decide in the
first instance. Id. at 586.

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Several years later, in Campbell, the Court again
applied the three guideposts to decide whether a punitive
damages award comported with due process. The basic fact
pattern in Campbell, a Utah case, was similar to the present
case: After an insurer failed to settle a liability lawsuit
against its insured within policy limits, the case went to trial
and the jury returned a verdict that was significantly in
excess of the policy limits. 538 US at 412-13. The insured
sued the insurer for bad faith, fraud, and intentional inflic-
tion of emotional distress. Id. at 414. A jury awarded the
insured $2.6 million in compensatory damages and $145 mil-
lion in punitive damages. The trial court reduced those
awards to, respectively, $1 million and $25 million. The Utah
Supreme Court reinstated the $145 million punitive dam-
ages award. Id. at 415.

The United States Supreme Court's analysis in
Campbell essentially tracked its reasoning in Gore. The
Court began with the first Gore guidepost, reprehensibility.
In examining that factor, the court excluded from considera-
tion much of the conduct that the state court had relied on in
its analysis-specifically, the defendant's out-of-state con-
duct and conduct that was not similar to the underlying tort,
which the plaintiff had argued was evidence of a nationwide
policy of capping payouts on claims of all kinds. 538 US at
420-24. The Court noted, as it had in Gore, that a state may
not legitimately "punish a defendant for unlawful acts com-
mitted outside of the State's jurisdiction." Id. at 421. Further-
more, the Court concluded, the punitive damages award
should have been based only on similar conduct: "A defen-
dant should be punished for conduct that harmed the plain-
tiff, not for being an unsavory individual or business." Id. at
423. Given those parameters, the Court concluded, "the con-
duct that harmed [plaintiffs was] the only conduct relevant to
the reprehensibility analysis." Id. at 424. With regard to that
conduct, the Court suggested that a more "modest" punitive
damages award "could have satisfied the state's legitimate
objectives, and the [state] courts should have gone no fur-
ther." Id. at 419-20.

Regarding the second guidepost, the ratio between
punitive damages and actual or potential harm, the Court

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declined to "impose a bright-line ratio which a punitive dam-
ages award cannot exceed." Id. at 425. Still, it observed that,

"in practice, few awards exceeding a single-digit ratio
between punitive and compensatory damages, to a signifi-
cant degree, will satisfy due process. In [Pacific Mutual Life
v.] Haslip, [499 US 1, 111 S Ct 1032, 113 L Ed 2d 1 (1991)]
in upholding a punitive damages award, we concluded that
an award of more than four times the amount of compen-
satory damages might be close to the line of constitutional
impropriety. We cited that 4-to-1 ratio again in Gore. The
Court further referenced a long legislative history, dating
back over 700 years and going forward to today, providing
for sanctions of double, treble, or quadruple damages to
deter and punish. While these ratios are not binding, they
are instructive."

Id. (citations omitted). Having said that, the Court concluded
that there was a strong presumption against a punitive dam-
ages award involving a 145-to-1 ratio, like the one before it.
Id. at 426.

With respect to the third guidepost-the relation-
ship between the punitive damages award and civil or crimi-
nal penalties for comparable conduct-the Court began by
discounting the value of criminal penalties to the analysis:
"Great care must be taken to avoid use of the civil process to
assess criminal penalties that can be imposed only after the
heightened protections of a criminal trial have been
observed, including, of course, its higher standards of proof."
Id. at 428. In the case at issue, the Court concluded, the only
relevant civil sanction was a $10,000 fine applicable to cer-
tain acts of fraud, which the Court characterized as "an
amount dwarfed by the $145 million punitive damages
award." Id.

Taking all three of the guideposts into account, the
Court concluded that the $145 million award was an irra-
tional and arbitrary deprivation of property and, as such, a
violation of due process. In addition, for the first time, the
Court suggested what the constitutionally permissible maxi-
mum award might be. "An application of the Gore guideposts
to the facts of this case * * * likely would justify a punitive
damages award at or near the amount of compensatory dam-
ages." Id. at 429. Still, the Court did not intend that estimate

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to be binding. It held that "the proper calculation of punitive
damages under the principles we have discussed should be
resolved, in the first instance, by the Utah courts." Id.

#### B. Determining the Maximum Constitutionally Permissible Punitive Damages Award

In Gore and Campbell, the Supreme Court has pro-
vided some guidance for determining when a jury's punitive
damages award is so grossly excessive as to violate the Due
Process Clause. But, thus far, the Court has avoided the more
difficult question that due process challenges often present,
viz., how to determine the maximum constitutionally permis-
sible punitive damages award that may be allowed in a par-
ticular set of circumstances. In Gore and Campbell-the only
two cases in which the Court struck down punitive damages
awards as grossly excessive-the Court left it to the state
courts to determine on remand what amount of punitive
damages would be constitutional. See Campbell, 538 US at
429 ("the proper calculation of punitive damages under the
principles we have discussed should be resolved, in the first
instance, by the Utah courts"); Gore, 517 US at 586
("[w]hether the appropriate remedy requires a new trial or
merely an independent determination by the Alabama
Supreme Court of the award necessary to vindicate the eco-
nomic interests of Alabama consumers is a matter that
should be addressed by the state court in the first instance").
Thus, for purposes of civil actions arising in the courts of this
state, it falls to this court to answer that question-that is, to
refine the Court's guideposts in a way that "yield[s] * * * real
answers in * * * real cases." Gore, 517 US at 606 (Scalia, J.,
dissenting). Of course, in doing so, we remain mindful of the
fact that we are dealing with a federal challenge and must
rely entirely on federal due process considerations. As we
previously have observed, "[t]here is * * * no 'state law
excessiveness challenge' under the Oregon Constitution."
Parrott v. Carr Chevrolet, Inc., 331 Or 537, 551, 17 P3d 473
(2001) (footnote, quotation marks, and citations omitted).

It is clear that that analysis must begin, at least,
with the aforementioned guideposts from Gore and
Campbell. It is less clear how those guideposts can yield a

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specific numerical figure that represents the maximum con-
stitutionally permissible award. In that regard, we note that
the first guidepost, reprehensibility, does not generate
numerical answers at all, because the guidepost itself, and
the "subfactors" that go into it, are all qualitative, not quan-
titative. Still, we may compare the level of reprehensibility
exhibited in various cases, and that comparison may lead us
to a conclusion that the constitutionally permissible limit in a
particular case is "high" or "low," relative to the limit in
another case.

The third guidepost, which examines comparable
sanctions, also fails to provide a quantitative measuring
stick. In Williams, this court discussed how Campbell had
applied the third guidepost:

"There, the most relevant civil sanction was $10,000; the
Court found that civil sanction was 'dwarfed' by the $145
million punitive damage award. Yet the Court approved a
punitive damage award 'at or near the amount of compen-
satory damages,' i.e., an award somewhere around $1 mil-
lion. And a $1 million punitive damage award was still 100
times the comparable sanction."

340 Or at 58 (citations omitted). Ultimately, we concluded
that the Court must have intended that a pertinent civil
sanction be used as a basis for comparing one punitive dam-
ages award to another, and not as a direct predictor of the
constitutional limits of an individual punitive damages
award:

"The guidepost may militate against a significant punitive
damage award if the state's comparable sanctions are mild,
trivial, or nonexistent. However, the guidepost will support
a more significant punitive damage award when the state's
comparable sanctions are severe."

Id. at 58.

We conclude that the second guidepost, i.e., the ratio
between punitive damages and actual or potential harm to
the plaintiff, comes closest to providing numerical limits.
Although the Court has professed its reluctance to "identify
concrete constitutional limits on the ratio between harm, or
potential harm, to the plaintiff and the punitive damages
award," Campbell, 538 US at 424, it has also, at various

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times, alluded to specific numerical ratios. In Haslip, 499 US
at 23-24, for example, the Court stated that a punitive dam-
ages award that is more than four times the compensatory
damages award "may be close to the [constitutional] line." In
Gore, 517 US at 581, the court interpreted a prior decision,
TXO Production Corp. v. Alliance Resources Corp., 509 US
443, 113 S Ct 2711, 125 L Ed 2d 366 (1993), as suggesting
that the ratio could not exceed ten to one. In Campbell, 538
US at 425, the Court suggested that, although a higher ratio
may be justified when compensatory damages are small,
"[w]hen compensatory damages are substantial, * * * a * * *
ratio [that is] perhaps only equal to compensatory damages
\* \* can reach the outermost limit of the due process guar-
antee." And, in the same opinion, the Court indicated that
due process may be violated by "exceeding a single-digit ratio
between punitive and compensatory damages, to a signifi-
cant degree." Id. at 425.

But the Court also has conceded that the single-digit
ratio may be exceeded in certain circumstances. It has indi-
cated, for example, that higher ratios may be appropriate if
"a particularly egregious act has resulted in only a small
amount of economic damages," and in "cases in which the
injury is hard to detect or the monetary value of noneconomic
harm might have been difficult to determine." Gore, 517 US
at 582. This court has identified one other circumstance in
which an award that exceeds a single-digit ratio between
punitive and compensatory damages might satisfy due proc-
ess. In Williams, we held that "extraordinarily reprehensi-
ble" conduct on the part of the defendant may provide a basis
for overriding concerns that may arise from an award that
exceeds a single-digit ratio.3 340 Or at 63.

3 We concluded, in fact, that a $79.5 million punitive damages award-an
award more than 29 times the jury's compensatory damages award-did not vio-
late due process when the defendant, Philip Morris Inc., had

"engaged in a massive, continuous, near-half-century scheme to defraud the
plaintiff and many others, even when Philip Morris always had reason to sus-
pect-and for two or more decades absolutely knew-that the scheme was
damaging the health of a very large group of Oregonians-the smoking
public-and was killing a number of that group."

Williams, 340 Or at 63. In cases like Williams, where a party has engaged in a pro-
longed pattern of egregious and deceitful conduct that poses an extreme threat to
the health and safety of a significant segment of the population of the state, the

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In sum, the second guidepost, although far from per-
fect, does provide at least a rough numerical baseline for cal-
culating a maximum constitutionally permissible punitive
damages award in a given case. Specifically, it suggests that
due process normally will not permit a punitive damages
award in excess of a single-digit ratio to the compensatory
damages award.

Once that rough numerical reference point is estab-
lished, the other guideposts come into play. As we have sug-
gested, the first (reprehensibility) guidepost primarily is a
comparative tool: If the level of reprehensibility exhibited in
a case is high relative to other cases, then so will be the con-
stitutionally permissible punitive damages award. The third
guidepost also is comparative: If the comparable civil sanc-
tions for certain conduct is high relative to other civil sanc-
tions, then that fact may justify an upward adjustment in the
constitutionally permissible amount of punitive damages.

Such comparisons can be made to fit, albeit only
approximately, into the numerical baseline that the second
guidepost has established (which is based on the ratio
between compensatory and punitive damages). Thus, puni-
tive damages at what normally is the highest constitutionally
permissible level (i.e., a nine-to-one ratio between punitive
and compensatory damages) are justified only when the con-
duct at issue is highly reprehensible (based on the subfactors
that make up the reprehensibility analysis) and, if relevant,
when that conduct subjects the actor to civil sanctions that
are high relative to other civil sanctions that the state may
impose.

Of course, the foregoing framework is still amor-
phous. We offer one refinement in the hope of making it less
so.4 By long tradition, and reinforced by existing legal stan-
dards at all levels of government, conduct that causes or cre-
ates a risk of physical harm to persons is punished more

state's interest in punishing and/or deterring such conduct is heightened, and a
punitive damages award that exceeds the single-digit ratio may be justified.

" As previously noted , the Supreme Court in both Gore and Campbell declined
to determine what level of punitive damages would be constitutionally permissible
for the conduct at issue in those cases, and expressly left it to the states to make
that determination "in the first instance." We take that charge seriously. We can-
not reasonably expect trial courts to review punitive damages awards for gross
excessiveness without providing some concrete limits or, at least, general rules of

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harshly than conduct that causes or potentially causes eco-
nomic harm. The Supreme Court has recognized that distinc-
tion in two of the "subfactors" that contribute to the analysis
of reprehensibility (the first of the three Gore guideposts). As
we already have observed, reprehensibility depends, to a
large degree, on whether "the harm caused was physical as
opposed to economic" and on whether "the tortious conduct
evidenced an indifference to or a reckless disregard of the
health or safety of others." Campbell, 538 US at 419.

We would expect that distinction to be strongly
reflected in the punitive damages awards that attach to the
two kinds of harms/risks, as well as in assessments by appel-
late courts of the level at which such awards become exces-
sive. In fact, we think that, if a nine-to-one ratio between
punitive and compensatory damages is at the limit of what
the Due Process Clause normally will allow a court to impose
on any tortious conduct, then the limit must be significantly
lower for conduct that causes or risks only economic injury.

But what is that limit? With respect to cases (like
this one) involving injury to economic interests, our best esti-
mate points to the four-to-one ratio between punitive and
compensatory damages that the Supreme Court sometimes
has identified as bordering on excessiveness. See Haslip, 499
US at 22-23 (stating that four-to-one ratio between punitive
and compensatory damages was close to, but did not cross,
the line of constitutional impropriety). See also Gore, 517 US
at 581 (referring to four-to-one ratio discussed in Haslip). As
the Court has observed, that ratio is consistent with the
double, triple, and quadruple damages that English and
American statutes have imposed for various analogous civil
violations. Gore, 517 US at 581. We conclude that, as a very
general rule of thumb, the federal constitution prohibits any
punitive damages award that significantly exceeds four
times the amount of the injured party's compensatory dam-
ages, as long as the injuries caused by the defendant were
economic, not physical.

Of course, as with the single-digit ratio discussed
above, 344 Or at 258-59, a higher ratio might be appropriate

thumb, beyond the single-digit ratio that the Court mentions in passing. This is our
first effort in that regard.

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in unusual circumstances, such as when the economic dam-
ages are relatively small in relation to the theoretical injury,
where the injury is difficult to detect, where the conduct
causes noneconomic harm that is hard to value, or where the
conduct is "extraordinarily" reprehensible.

#### C. Standard of Post-Verdict Judicial Review

Having established the foregoing general standards
for assessing punitive damages awards and the maximum
award that due process will allow in given circumstances, we
turn to still another preliminary question: What is the proper
standard for post-verdict judicial review of a punitive dam-
ages award?

On balance, and based on our review of the cases, we
conclude that the proper methodology for performing a
review for gross excessiveness is the one used by the Court of
Appeals in its opinion in this case. See Goddard, 202 Or App
at 112 (describing that process). First, to determine whether
there is a factual predicate for a punitive damages award, the
court reviews the evidence in the record that is relevant to
such an award in the light most favorable to the party who
won the award.5 Second, the court applies the constitution-
ally prescribed guideposts to those predicate facts to deter-
mine if, as a matter of law, the award is grossly excessive. If

5 The trial court in this case instructed the jury that, to award punitive dam-
ages, it must find that defendant "was guilty of wanton misconduct that caused the
judgment to be entered against * * * Munson." The court also instructed the jury
that, in fixing the amount of punitive damages, it could properly consider

"(A) The likelihood that serious harm would arise from the defendant's
misconduct,

"(B) The degree of the defendant's awareness of that likelihood,

"(C) The profitability or potential profitability of defendant's misconduct,

"(D) The defendant's motive,

"(E) The duration of the misconduct and any concealment of it,

"(F) The attitude and character of the defendant's conduct upon discovery of
the misconduct,

"(G) The number and position of employees involved in causing or covering up
the misconduct,

"(H) The sum of money that would be required to discourage the defendant
and others similarly situated from engaging in such conduct in the future,

"(I) The income, assets and financial condition of the defendant."

No one argues that those instructions are not a correct statement of the law
relating to punitive damages in ordinary tort actions. They appear to be drawn

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the court determines that the award is grossly excessive, it
then uses the same guideposts to determine the highest law-
ful amount of punitive damages that a rational juror could
award, consistent with the Due Process Clause, i.e., it
reviews for "gross excessiveness." Of course, in applying that
standard, the reviewing court must in some sense reexamine
the evidence in the record-not to redecide the historical
facts as decided by the jury, but to decide where, for purposes
of the Gore guideposts, the conduct at issue falls on the scale
of conduct that does or might warrant imposition of punitive
damages.

D. Was the Jury's Punitive Damages Award Grossly
Excessive in this Case?

Having described the methodology and standard of
review that courts are to apply in reviewing a punitive dam-
ages award for gross excessiveness, we turn to the task of
applying them in the present case. We begin by describing
the historical facts that a rational juror could find,6 based on
the evidence in the record. In so doing, we agree with and
adopt the excellent summary in the opinion of the Court of
Appeals:

"Given the evidence, a rational juror could find the follow-
ing facts: (1) Defendant, in calculated fashion, engaged in a
protracted course of conduct-from its initial 'stonewalling'
and 'low-balling' tactics through its fraudulent manipula-
tion of the claims evaluation process and its refusal to settle
even at trial-that exposed its insured to the virtual cer-
tainty of a devastating excess verdict in a 'no defense' case.
(2) Defendant willfully engaged in such conduct, heedless of
its insured's interests and in cynical violation of its obliga-
tions to its insured, for its own selfish purposes of building
and maintaining a reputation for 'toughness' in claims
adjustment and settlement. (3) Defendant's conduct
towards Munson was intentional, deceitful, and malicious.
(4) Defendant's hardball tactics in this case were typical,
not merely an isolated instance * * *. "

Goddard, 202 Or App at 112-13.

from the Restatement (Second) of Torts § 908 (1979) and from this court's opinion in
State ex rel Young v. Crookham, 290 Or 61, 72, 618 P2d 1268 (1980),

6 See note 5, describing the standard that the jury was instructed to apply in
making its punitive damages decision.

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Next, we employ the applicable legal criteria (includ-
ing the three Gore guideposts) to determine if, as a matter of
law, the jury's punitive damages award is grossly excessive.
The parties have framed their arguments entirely in terms of
the three Gore factors. We turn to those factors and the par-
ties' arguments respecting them.

For its part, defendant begins its discussion with an
argument that, defendant asserts, applies generally to the
Gore factors: Defendant notes that one of the due process con-
cerns that the Gore analysis is designed to address is the idea
of "fair notice."7 Defendant suggests that due process
requires that defendants have fair notice that the law consid-
ers their conduct to be tortious and, as such, subject to puni-
tive damages, before such damages may be imposed. In the
alternative, defendant suggests that lack of fair notice of the
possibility of punitive damages should at least "mitigate" the
reprehensibility of the conduct under consideration. Defen-
dant then argues that, when the conduct at issue here
occurred, it had no reason to know that such conduct might
be a proper subject of punitive damages. Defendant contends
that, at that time, an insurer's bad faith failure to settle an
insurance claim was considered to be simply a breach of con-
tract and did not carry the kind of moral and legal stigma
that is associated with torts and that justifies the practice of
awarding punitive damages.

Defendant's argument rests heavily on this court's
opinion in Farris v. U.S. Fid. and Guar. Co., 284 Or 453, 587
P2d 1015 (1978)-a case that, according to defendant, was
this court's final word on punitive damages in breach of
insurance contract cases until this court offered an entirely
contrary view in Georgetown Realty v. The Home Ins. Co., 313
Or 97, 831 P2d 7 (1992)-two years after defendant failed in
its duty to plaintiff in this case.8 In Farris, the court consid-
ered whether an insured's action against his insurer for dam-
ages resulting from the insurer's denial of liability insurance

7 When introducing the three guideposts in Gore, the Supreme Court began by
noting that "[e]lementary notions of fairness enshrined in our constitutional juris-
prudence 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." 517 US at 574.

8 In Georgetown Realty, this court held that, when a liability insurer under-
takes to defend its insured against a claim by a third party, it may be liable in tort

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coverage sounded in tort, so that the insured could recover for
emotional distress caused by that denial. The court con-
cluded that such denials of coverage are a breach of contract
only and support only normal contract damages.

However, the Farris court distinguished between an
insurer's bad faith failure to defend and a bad faith failure to
settle:

"Assuming, but not deciding, that a cause of action for fail-
ure to settle within the policy limits is one in tort, it is our
opinion that the rationale of such an action has no applica-
tion to the present situation and that the present action is
not one in tort. In an action for failure to settle within the
policy limits, the insurance company is charged with acting
in a fiduciary capacity as an attorney in fact representing
the insured's interest in litigation. The company's interest
comes into conflict with that of the insured's while repre-
senting him; and, arguably, acting in its own interests to
the detriment of the insured's interest while acting in such
a fiduciary capacity is a tort. In the present case defendant
did not undertake in this fiduciary duty to represent the
insured's interest in the litigation-it refused it. It did not,
in the course of representing plaintiffs, violate its fiduciary
duty arising out of the sole control of the settlement. It
never undertook any fiduciary duty by purporting to act in
the interests of the insured."

Id. at 459-60 (footnote omitted). Thus, although Farris did
hold that a liability insurer's refusal to defend its insured at
all was purely a breach of contract, it did not apply that same
holding to insurers who, like defendant, failed to settle claims
against their insureds within policy limits. In fact, it
expressly left that question open, and even suggested a
rationale for treating a failure to settle within policy limits as
a tort. It follows that, contrary to defendant's assertion,
defendant was on notice, at the relevant time, that its refusal
to settle plaintiff's action against Munson within policy limits
may well not have been immune from punitive damages.

to the insured if, without justification, it fails to settle a claim against its insured
within policy limits. The Georgetown Realty court did not announce that holding as
a change in the common law. Instead, the court appeared to believe that the hold-
ing was consistent with a long line of cases that distinguish between (1) claims that
are based solely on a breach of provision in a contract, which itself spells out the
party's obligations, and (2) claims that one party to a contract caused damage to the
other by negligently or tortiously performing its obligations under the contract. 313
Orat 102-11.

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We do not rest our holding respecting fair notice
solely on distinctions between Farris and Georgetown Realty,
however. The legislature also has spoken in a relevant way
on this issue. Specifically, long before defendant engaged in
the conduct at issue, the legislature had enacted the Oregon
Insurance Code, which includes a provision that forbids an
insurer to use the kind oftactics that this defendant used. See
ORS 746.230 (providing that no insurer "shall commit or per-
form" an "unfair claim settlement practic[e]," including "[n]ot
attempting, in good faith, to promptly and equitably settle
claims in which liability has become reasonably clear").
Defendant was (and is) an insurance company, permitted to
do business as such in Oregon. Thus, it was subject at all rel-
evant times to the Code, the provisions of which it is pre-
sumed to be aware, and it therefore cannot claim that it was
unaware that its actions in handling Munson's claim were
illegal. Defendant's suggestion that there is a fair notice issue
at play here that should diminish or altogether eliminate
punitive damages that otherwise might be permissible under
the three Gore factors is not well taken.

We turn, then, to the first Gore factor-reprehensi-
bility. As we already have observed, "reprehensibility" under
Gore is a function of at least five separate aggravating fac-
tors: whether the resulting harm was physical as opposed to
economic; whether the conduct evinced indifference to or a
reckless disregard of the health or safety of others; whether
the target of the conduct was financially vulnerable; whether
the conduct involved repeated actions; and whether the harm
resulted from intentional malice, trickery, or deceit. The par-
ties disagree, to one extent or another, about the applicability
of each of those factors.

At the outset, defendant contends that its conduct
did not cause physical harm to either plaintiff or Munson and
did not involve a reckless disregard for the health or safety of
others. Plaintiff argues, to the contrary, that when an insurer
refuses to cover an insured's loss, the insured is denied the
peace of mind that the insurer promised and almost certainly
suffers emotional and even physical trauma as a result. We
think, however, that it is a sufficient answer to plaintiff's
argument in this case to note that plaintiff's complaint did
not seek, and the trial court's instructions to the jury and the
special verdict form submitted with those instructions did

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not authorize, the jury to award damages for physical harm
or emotional distress to Munson, plaintiff, or anyone else.
The first two aggravating factors from Gore are not a part of
this case. We turn to the remaining three.

Plaintiff contends that Munson was financially vul-
nerable and that defendant's conduct left him with a large
excess liability verdict that would have been financially dev-
astating if he had been required to pay it. Defendant
acknowledges that Munson had no appreciable assets at the
time of the accident, but it contends that the "financial vul-
nerability" factor is not implicated because there is no evi-
dence that defendant targeted Munson because of the condi-
tion of his finances. We agree that there is no evidence that
defendant specifically targeted Munson for that reason, but
there is plenty of evidence to permit the inference that defen-
dant knew that Munson was vulnerable, and engaged in its
stonewalling tactics despite Munson's vulnerability. In any
event, we do not read the cases to require that the defendant
solely or even specifically targeted the victim because of his or
her financial vulnerability. It was enough, we think, that
defendant knew of Munson's vulnerability, and therefore
fairly may be deemed to have been indifferent to the harm
that its actions would cause him. Munson met this criterion.

The parties also dispute whether defendant's con-
duct involved "repeated actions" within the meaning of Gore.
Plaintiff contends that that aggravating factor applies
because defendant engaged in a "course" of conduct that was
injurious to Munson over a number of years. Defendant con-
tends that a course of conduct against a single individual
does not qualify as "repeated actions." It argues that the
"repeated actions" factor is directed at the problem of recidi-
vism and applies only if the actor has engaged in identical
transgressions against different individuals in the past and
has been punished for or otherwise notified of the wrongful-
ness of that conduct.

The federal cases provide little support for the theo-
retical foundation of defendant's argument. As the United
States Supreme Court stated in Gore:

"[E]vidence that a defendant has repeatedly engaged in
prohibited conduct while knowing or suspecting that it was

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unlawful would provide relevant support for an argument
that strong medicine is required to cure the defendant's dis-
respect for the law."

517 US at 576-77 (emphasis added). Many circumstances
may supply the necessary warning. For example, as we have
explained, defendant had adequate notice that its miscon-
duct was unlawful in this state under ORS 746.230(1)(f)
before it engaged in the conduct at issue here.

We agree with plaintiff that, even treating Munson's
case in isolation, a modest level of "repeated action" is pres-
ent here. Munson was not stonewalled once; he was stone-
walled many times, over a period of years. Such actions by
defendant seem "repeated" to us. Moreover, Munson's case
was not an isolated incident. A rational jury could have
inferred from the evidence that, as one lawyer had said,
"Voth doesn't pay policy limits"-i.e., that "low-balling"
insureds' claims was a common practice of defendant.

That leaves us to consider the last of the five repre-
hensibility factors-whether the harm the defendant's con-
duct caused resulted from "intentional malice, trickery, or
deceit." Defendant essentially concedes that, under the facts
as the jury was entitled to find them, it acted with malice, i.e.,
intentionally, without just cause or excuse, in its dealings
with Munson. Plaintiff argues that defendant's conduct and
state of mind was far worse than that. Plaintiff insists, in
fact, that the Court of Appeals did not sufficiently capture
defendant's malevolence when it recognized that defendant
had engaged in a "calculated course of conduct betraying its
obligation to its insureds," that it acted in "cynical violation of
its obligations to its insured and for its own selfish purposes,"
and that its conduct was "intentional, deceitful and mali-
cious." We believe, however, that the Court of Appeals'
assessment sufficiently conveys the deplorable nature of the
thought processes of defendant's minions and correctly places
them on the scale of reprehensibility.

In summary, we conclude that defendant's actions
were directed at a financially vulnerable victim, were not
confined to this victim alone, and involved intentional malice
and deceit. On the other hand, defendant's actions caused
economic harm only and did not evince a reckless disregard

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for the health or safety of others, although defendant is enti-
tled to little credit for either factor-cases of economic harm
like the present one seldom provide malefactors with an
opportunity to meet either of those criteria. Taken together,
our analysis of the five reprehensibility factors set out in
Gore, considered in light of the economic nature of defen-
dant's wrongdoing, leads us to conclude that defendant's
actions were very reprehensible.

Turning to the second Gore guidepost, we consider
the ratio between the punitive damages award and the
"actual and potential harm suffered by the plaintiff."
Campbell, 538 US at 418. To do so, we first must identify the
amount of actual or potential harm, because that figure is a
basis for calculating the constitutionally permissible punitive
damages award. The Court of Appeals concluded that the cor-
rect amount was $1,280,000-the part of the total economic
damages award that the jury attributed to defendant
($690,619.20) plus interest. Both parties argue that we
should use a different figure.

Plaintiff argues that we should use the full economic
damage verdict ($863,274) without subtracting the 20 per-
cent comparative fault that the jury attributed to Munson.
The full amount of the wrongful death judgment, plaintiff
contends, is the measure of Munson's (and hence plaintiff's)
potential harm. We disagree. The jury determined that
Munson was 20 percent responsible for the large judgment in
the wrongful death case. Defendant is not responsible for
paying that part of the compensatory damages that resulted
from Munson's misconduct; neither should defendant be
made to pay extra punitive damages in proportion to
Munson's own misconduct.

Plaintiff argues in the alternative that the potential
harm includes the amount of compensatory damages that
plaintiff sought in the wrongful death case ($318,000 more
than the $863,274 that the jury awarded), on the theory that
the jury in the wrongful death action might have awarded
that higher amount. Plaintiff misconceives what the Court
meant when it wrote of "potential" harm: That concept has
nothing to do with the amount that a jury could conceivably
have awarded to plaintiff. Rather, the actual and potential

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harm suffered by a plaintiff is a fact to be decided by the
jury-in this case, 80 percent of $863,274.

Plaintiff next argues that, for purposes of identifying
the range of permissible ratios, defendant should not be cred-
ited with its 1998 payment (a total of $175,960.08) that pur-
ported to satisfy the $100,000 policy limits plus interest.
Plaintiff contends that that payment did not reduce the
potential harm that Munson suffered when the trial court
entered judgment in the wrongful death action for $863,274.
We disagree. Defendant's responsibility to pay the $100,000
policy limits was contractual, and defendant eventually paid
it. The Court of Appeals did not err in crediting defendant for
the $100,000 payment.9

Defendant renews the argument that it made on
reconsideration in the Court of Appeals, i.e., that the prejudg-
ment interest, which the Court of Appeals estimated at
$589,000, may not be counted in establishing the punitive
damages ratio. That argument turns entirely on the phrasing
of the trial court's judgment, which labeled prejudgment
interest as separate from "economic damages." Although
defendant does not dispute that it must pay plaintiff that pre-
judgment interest, it argues that, "unless the jury itself
awards prejudgment interest, it does not and cannot become
‘damages.'"

We reject defendant's argument. Under United
States Supreme Court precedent, the punitive damages
award should be proportional to the "actual or potential harm
suffered by the plaintiff." Campbell, 538 US at 418; see also
BMW, 517 US at 575 ("harm or potential harm"). By permit-
ting a punitive damages award to be a multiple of "potential
harm," the Court demonstrated that the punitive damages
award is not limited to some multiple of the compensatory
damages actually awarded by the trial court. And we have no
problem concluding that the prejudgment interest here, how-
ever labeled by the trial court, is part of Munson's "actual

9 In determining the amount of compensatory damages, the Court of Appeals
concluded that all of the payment should be applied to interest, not to principal.
Goddard, 202 Or App at 107-10. The parties do not challenge that ruling on review;
the only issue here is whether that amount counts for purposes of calculating the
constitutional limit on punitive damages.

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harm." The wrongful death judgment against Munson
included accrued interest that Munson is legally obligated to
pay. Defendant's 80 percent liability for the wrongful death
judgment necessarily makes it responsible for the interest
that accrued on that portion of that judgment.

We conclude, then, that the constitutionally permis-
sible punitive damages award in this case will be some mul-
tiple of the correctly calculated actual harm to Munson-
$690,619.20 in compensatory damages, plus interest (which
the Court of Appeals estimated at $589,000).

Comparing that figure (approximately $1.28 mil-
lion) to the jury's punitive damages award of $20,718,576, it
immediately becomes clear that the ratio of punitive dam-
ages that the jury awarded to the "actual and potential harm
suffered by the plaintiff" is somewhere around sixteen-to-
one. That ratio significantly exceeds the four-to-one ratio
that the Court described, in Haslip, 499 US at 22-23, as being
close to the constitutional line, at least when only economic
injury is involved. Indeed, the ratio even exceeds the single-
digit ratio that the Court mentioned in Campbell, 538 US at
425 ("few awards exceeding a single-digit ratio between puni-
tive and compensatory damages, to a significant degree, will
satisfy due process"), as the putative limit for punitive dam-
ages in any kind of case.

It may be true that, as we already have observed, a
punitive damages award that exceeds the single-digit ratio
may be acceptable in a few narrow circumstances: (1) when a
particularly egregious act causes only a small amount of eco-
nomic injury; (2) when the injury is hard to detect; (3) when it
is difficult to place a monetary value on noneconomic harms;
and (4) when "extraordinarily reprehensible" conduct-
roughly comparable to the defendant's conduct in Williams-
is involved. None of those circumstances is present here: The
jury awarded plaintiff substantial compensatory damages;
the injury that defendant caused was evident; no claim of
noneconomic harm was involved; and defendant's conduct is
in no way comparable to, for example, Philip Morris's 50-year
campaign to delude a large part of the population of Oregon
about the potentially devastating physical effects of smoking
its products, which this court described in Williams. Also,

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plaintiff has not pointed to any other factor that we believe
takes the case out of the normal realm of punitive damages
cases that involve economic injury alone. Although there is
no question that this is a case in which punitive damages at
some level properly may be awarded, the case is not extra-
ordinary in any way that would justify a punitive damages
award that is more than four times, much less more than
nine times, the amount that the jury found was the "actual
and potential harm suffered by the plaintiff."

We proceed to the third Gore factor-consideration
of comparable criminal or civil sanctions. In Williams, this
court concluded that analysis of the comparable sanctions
guidepost proceeds in three steps:

"First, courts must identify comparable civil or criminal
sanctions. Second, courts must consider how serious the
comparable sanctions are, relative to the universe of sanc-
tions that the legislature authorizes to punish inappropri-
ate conduct. Third, courts must then evaluate the punitive
damage award in light of the relative severity of the com-
parable sanctions. The guidepost may militate against a
significant punitive damage award if the state's compara-
ble sanctions are mild, trivial, or nonexistent. However, the
guidepost will support a more significant punitive damage
award when the state's comparable sanctions are severe."

340 Or at 58. In the context of the calculation method
described here, severe comparable sanctions-if they exist-
could justify a higher ratio between actual or potential harm
and the amount of punitive damages.

Plaintiff argues-and we have recognized-that
defendant's misconduct implicates civil sanctions. At the
time of the accident in this case-and today-defendant's
misconduct violated several provisions of ORS 746.230. Each
such violation was (and is) subject to a civil penalty of up to
$10,000. ORS 731.988(1).10 Furthermore, the violator may
also be required to disgorge the profits that resulted from the

10 ORS 731.988(1) provides, in part:

"Any person who violates any provision of the Insurance Code * * * shall forfeit
and pay to the General Fund of the State Treasury a civil penalty in an amount
determined by the director of not more than $10,000 for each offense * * *.
Each violation shall be deemed a separate offense."

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violation. See also ORS 731.988(2) (additional civil penalty
"not to exceed the amount by which such person profited in
any transaction which violates any such provision [of the
Insurance Code]"). Those sanctions are equivalent to an
amount that the legislature has authorized to be imposed
only for felony crimes (all lesser offenses are subject to fines
less than $10,000). See, e.g., ORS 161.635(1)(a) (1987) (maxi-
mum fine of $2,500 for Class A misdemeanor); ORS
161.655(1)(b) (1987) (maximum fine of $5,000 for certain
Class A misdemeanors committed by a corporation). In other
words, $10,000 is an amount that the legislature thought
appropriate to levy only in the case of felonies. See ORS
161.625(1) (1987) (for all classes of felonies, fine not to exceed
$100,000); ORS 161.655(1)(a) (1987) (for felony by corpora-
tion, fine not to exceed $50,000). Measured by those criteria,
a relatively severe punitive damages award would not violate
due process.

Even so, we have little difficulty in concluding that
the $20 million punitive damages award that the jury
awarded in this case is "grossly excessive," as that term is
used by the Supreme Court. Although our analysis of the first
and third Gore factors suggests that a relatively high punitive
damages award would be appropriate, it is the second Gore
factor-the ratio of the punitive damages award to the actual
and potential harm to the plaintiff-that tells us, in more or
less absolute numerical terms, how high the punitive dam-
ages award may be. Our consideration of that factor fore-
closes a conclusion that the jury's $20 million dollar award is
consistent with the federal Due Process Clause: The sixteen-
to-one ratio between the punitive damages award and plain-
tiff's actual and potential damages far exceeds the nine-to-
one ratio that (with certain specified exceptions) marks the
limits of due process. We affirm the Court of Appeals' holding
to that effect.

#### E. What is the Maximum Constitutionally Permissible Award in this Case?

That leaves us to decide the remaining issue: What is
the highest amount of punitive damages that may be
awarded in this case, without violating defendant's rights
under the Due Process Clause?

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The Court of Appeals, after following much of the
same tortuous path that we have reviewed here, reached the
following conclusions respecting the appropriate ratio
between the actual or potential damages suffered by Munson
and the punitive damages award:

"Beyond [Campbell's] admonition that a ratio exceeding
single digits is constitutionally permissible only in extra-
ordinary cases and Gore's earlier caution that a ratio of 4:1
might approach constitutional limits, there is a certain cir-
cularity to [the guidance offered by the Supreme Court's
cases] * * *. Presumably, the constitutionality of any award
of punitive damages within the presumptive single-digit
ratio range will depend on the application of the first (rep-
rehensibility) and third (comparable civil penalties) guide-
posts. Beyond that, the only ratio-specific variable appears
to be [Campbell's] instruction that, in some cases involving
relatively small amounts of compensatory damages, pro-
portionately greater awards of punitive damages may be
appropriate to effectuate the general purposes of punitive
damages, with the obverse being true in some cases involv-
ing relatively large awards of compensatory damages.
[Campbell], 538 US at 426.

"Ultimately, as a practical matter, the 'ratio' guidepost
serves as a sort of benchmark. Although fact-matching can
be a fool's errand, cases involving roughly analogous cir-
cumstances, particularly with respect to the 'reprehensibil-
ity' variables, should yield roughly similar ratios of compen-
satory and punitive damage awards. In that regard, it is
instructive, although by no means conclusive, that, in
[Campbell], which also involved a bad faith refusal to settle
a clear liability third-party auto death claim, the Supreme
Court suggested that a 1:1 ratio on a $1,000,000 compen-
satory award would comport with due process. 538 US at
429. Still, we hasten to emphasize that defendant's course
of conduct in this case was considerably more protracted
and, in our view, much more malicious than was the
insurer's conduct in [Campbell].

"We return to the application of the Gore/[Campbell]
guideposts in this case. Any such application, albeit 'as a
matter of law,' is necessarily imprecise-even, at least
arguably, impressionistic. Nevertheless, given the guid-
ance of [Campbell], the distinctions of this case from

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[Campbell], and the analysis of our post-[Campbell] deci-
sions, we conclude that the maximum constitutionally per-
missible award of punitive damages in this case is three
times the compensatory damage award.

"Our reasoning is at least implicit from our foregoing
discussion: Although the injury here was purely economic,
without any threat to public health or safety, defendant's
conduct was far more reprehensible-a calculated and
repeated course of cynical and malicious betrayal of its
insured's trust-than the Court found to be the case in
[Campbell]. Nor was this an 'isolated incident.' Although
certain features of defendant's conduct here may have been
'isolated' or unique, there can be no question, viewing the
evidence most favorably to plaintiff, that the 'stonewalling,'
the 'low-balling,' the pressured manipulation of claims eval-
uations and the like, are all typical of how defendant did
business: Defendant's interests came first. On balance, the
egregiously unethical character of defendant's conduct jus-
tifies a proportionately, greater award of punitive damages
than the 1:1 ratio suggested by the Court in [Campbell].
Conversely, the lack of serious physical injury or disregard
for the health and safety of the consuming public dictates a
proportionally lower award of punitive damages than in
Waddill [v. Anchor Hocking, Inc. 190 Or App 172, 78 P3d
570 (2003) (involving personal injuries resulting from sale
of dangerous product)]. Accordingly, a 3:1 ratio of punitive
damages to compensatory damages in this case comports
with due process."

Goddard, 202 Or App at 119-22.

As is apparent, the Court of Appeals reached its
determination by employing the Gore guideposts. We already
have performed much of that same analysis. What remains is
to synthesize what seem to us to be the relevant conclusions.

With respect to the reprehensibility guidepost, we,
like the Court of Appeals, have concluded that, because
defendant's conduct only caused economic harm and did not
reflect indifference to the physical health or safety of others,
it would not justify an award at or approaching the Gore
(nine-to-one) ratio limit that we have discussed. Still, we
acknowledge that, under certain of the relevant aggravating

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factors, defendant's conduct was very reprehensible. Specifi-
cally, the jury could infer that the person injured by defen-
dant's conduct (Munson) was financially vulnerable and
defendant knew it, that defendant's tortious conduct was not
an isolated incident but, instead, was a deliberate pattern
and practice, and that defendant acted deceitfully and with
malice.

With respect to the third guidepost, which looks at
civil sanctions for comparable conduct, we concluded that, in
the universe of civil penalties, the $10,000 civil penalties that
applied to conduct like that at issue here all were relatively
severe. Moreover, defendant's acts were repeated, and the
civil penalties could have been imposed for each separate ille-
gal act. Those facts suggest that due process would permit a
relatively high punitive damages award. In that regard, too,
our view agrees with that of the Court of Appeals.

But, as we already have noted above, 344 Or at 258-
59, it is only the second Gore guidepost that offers any hard
numerical guidance. Campbell suggests that, except in
extraordinary circumstances, a punitive damages award that
is more than nine times the amount awarded in compensa-
tory damages violates due process, no matter what the tort.
538 US at 425. Gore, in our view, added another line of
demarcation-that, when the conduct has solely economic
effects and does not cause or risk physical harm to another,
the ratio between the punitive damages award and compen-
satory damages normally cannot exceed four to one. Because,
in this case, there is no basis for concluding that defendant
caused or created a risk of physical harm to Munson, that
four-to-one ratio is the relevant constitutional limit on puni-
tive damages awards.

In the end, we are persuaded that those factors dem-
onstrate that requiring a one-to-one ratio, like that com-
mended in Campbell, would exceed our constitutional role.
On the other hand, we believe that approving an award at the
outside limits (four to one, under Gore) would be permissible.
Several reasons influence our choice, but the primary one is
the degree of defendant's betrayal of its obligation to protect
Munson. The drumbeat march of defendant's disregard for
Munson's interests began with Munson's initial claim and

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<!-- PageHeader="Goddard v. Farmers Ins. Co." -->

persisted, despite the most obvious reasons that it should
end, through the calamitous verdict against him. There may
be possible courses of behavior in the area of economic wrong
that would be even worse, but none leaps to mind. This case
fully justifies the highest permissible award, viz., an award
that is four times the amount of plaintiff's actual and poten-
tial harm (which, as we have discussed, is $690,619.20 plus
prejudgment interest).11 We therefore modify the Court of
Appeals opinion to that effect. On remand, the trial court
should finally calculate the amount of prejudgment inter-
est-and, thus, precisely calculate the maximum permissible
punitive damages award-and present that amount to plain-
tiff as the maximum punitive damages award that, on this
record, the Due Process Clause will bear. Then, the court
should grant defendant's motion for a new trial, unless plain-
tiff agrees to entry of an amended judgment that reduces the
punitive damages award to that amount.

The decision of the Court of Appeals is affirmed as
modified by this opinion. The judgment of the circuit court is
vacated and remanded with instructions to grant defendant's
motion for new trial, limited to punitive damages, unless
plaintiff agrees to remittitur of punitive damages to four
times compensatory damages award.

11 Some uncertainty exists about the precise amount of Munson's actual harm
in this case, because the prejudgment interest has not yet been specifically calcu-
lated. As noted, the Court of Appeals merely estimated prejudgment interest at
$589,000, leaving it to the trial court on remand to precisely calculate the amount.
Goddard, 202 Or App at 110. For purposes of our review, we also leave such calcu-
lations to the trial court on remand.

S053405, Opinion — Goddard v. Farmers Ins. Co.

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