punitive damages

pl.n.
Damages awarded by a court against a defendant as a deterrent or punishment to redress an egregious wrong perpetrated by the defendant.

Compensation in excess of actual damages that is a form of punishment to the wrongdoer and reparation to the injured. Punitive damages are awarded only in rare instances of malicious and willful misconduct. They are taxable unless the damages arise from physical injury or sickness; such damages are excludable from income taxes.

Punitive damages are awarded in civil actions to punish defendants for, and deter them from engaging in, reprehensible behavior. In an opinion by Justice Sandra Day O'Connor in Browning‐Ferris Industries, Inc. v. Kelco (1989), the United States Supreme Court concluded that, being a civil remedy between private parties, criminal constitutional protections do not apply to punitive damages, especially the Eight Amendment prohibition on excessive fines. Given this constraint and because punitive damages stem from state tort law, such damages were difficult to challenge successfully on federal constitutional grounds in the late 1990s.

Some claim that punitive damage awards are out of control and over‐deter socially useful behavior by repeat defendants such as the creation of new products. Others argue that their indeterminacy prevents defendants from engaging in a cost‐benefit analysis that is morally reprehensible and can create externalities. Nonetheless, many state legislatures have increasingly shaped punitive damages through tort reform legislation and the Supreme Court has increasingly exerted control over them. This is controversial, for it may signal the reintroduction of substantive due process analysis.

Pacific Mutual Life Insurance Co. v. Haslip (1991) first indicated the Court's greater willingness to restrain state punitive damage awards, but under the rubric of procedural due process. There it upheld the punitive damages given, but suggested that procedural due process requires a state to provide adequate control of awards through jury instructions followed by appellate review under articulated guidelines. Justice Antonin Scalia concurred, but argued that federal courts may not interfere in traditional state procedures. Justice O'Connor dissented on the ground that the procedure at issue did not cure unfettered jury discretion.

Despite the concerns of Haslip, it was not until its decision in BMW, Inc. v. Gore (1996), that the Court rejected a punitive damage assessment simply for being too large. Justice John Paul Stevens wrote the opinion for the majority. Among other guidelines, Gore established that punitive damages must be comparable to those awarded in similar cases and to the amount of compensatory damages given. The rationale for these limits was that in their absence, a defendant could not calculate the punitive damages for which it might be liable and so would not have notice of its risk consistent with due process. Though couched in the language of notice, Justices Scalia and Clarence Thomas concluded that the Court had crafted a substantive right in defendants not being liable for punitive damages that are “grossly excessive.”

Gore was not to be the last word. The Court has continued to grant review of state punitive damage awards. In a major onslaught on the jury trial right, in Cooper Industries, Inc. v. Leatherman Tool Group (2001), the Court established that appellate tribunals may review punitive damage awards using a de novo standard because these damages express moral outrage, not the finding of facts; hence traditional deference to the jury does not apply. In State Farm Mutual Insurance v. Campbell (2003) the Court repudiated a punitive damage figure as too large following the standards of Gore, but added an innovation—the statement that awards larger than a single‐digit multiplier of compensatory damages would not likely comport with due process. Some commentators have criticized the Court's current position on punitive damages as a new form of substantive due process that usurps states' rights and the right to jury trial, among other concerns. Many others welcome the change as a necessary curb on an abusive state remedy.

Bibliography

• Peter Diamond, Integrating Punishment and Efficiency Concerns in Punitive Damages for Reckless Disregard of Risks to Others, Journal of Law, Economics, and Organization 18 (2002): 117–135.
• Cass R. Sunstein, Reid Hastie, John W. Payne, David A. Schkade, and W. Kip Viscusi, eds., Punitive Damages: How Juries Decide (2002).
• Catherine M. Sharkey, Punitive Damages as Societal Damages, Yale Law Journal 113 (2003): 347–453.
• Supreme Court, 2002 Term (Punitive Damages), Harvard Law Review 117 (2003): 317–327

— Jo Ellen Lind

This entry contains information applicable to United States law only.

Monetary compensation awarded to an injured party that goes beyond that which is necessary to compensate the individual for losses and that is intended to punish the wrongdoer.

Punitive damages, also known as exemplary damages, may be awarded by the trier of fact (a jury or a judge, if a jury trial was waived) in addition to actual damages, which compensate a plaintiff for the losses suffered due to the harm caused by the defendant. Punitive damages are a way of punishing the defendant in a civil lawsuit and are based on the theory that the interests of society and the individual harmed can be met by imposing additional damages on the defendant. Since the 1970s punitive damages have been criticized by U.S. business and insurance groups which allege that exorbitant punitive damage awards have driven up the cost of doing business.

Punitive damages have been characterized as "quasi-criminal," because they stand halfway between the criminal and civil law. Though they are awarded to a plaintiff in a private civil lawsuit, they are noncompensatory and in the nature of a criminal fine.

Punitive damages were first recognized in England in 1763 and were recognized by the American colonies almost immediately. By 1850 punitive damages had become a well-established part of civil law.

The purposes of punitive damages are to punish the defendant for outrageous misconduct and to deter the defendant and others from similar misbehavior in the future. The nature of the wrongdoing that justifies punitive damages is variable and imprecise. The usual terms that characterize conduct justifying these damages include bad faith, fraud, malice, oppression, outrageous, violent, wanton, wicked, and reckless. These aggravating circumstances typically refer to situations where the defendant acted intentionally, maliciously, or with utter disregard for the rights and interests of the plaintiff.

Unless otherwise required by statute, the award of punitive damages is left to the discretion of the trier of fact. A small number of states refuse to award punitive damages in any action, and the remainder have instituted various ways of determining when and how they are to be awarded. In some states an award of nominal damages, which acknowledges that a legal right has been violated but little harm has been done, is an adequate foundation for the recovery of punitive damages. In other states the plaintiff must be awarded compensatory damages before punitive damages are allowed.

In the absence of statutory authorization, punitive damages usually cannot be recovered in breach-of-contract actions. Punitive damages are sometimes recoverable in tort actions in which breach of contract is tangentially involved.

Punitive damages will not be awarded in tort actions based on the defendant's negligence alone. The conduct must have been willful, wanton, or reckless to constitute an intentional offense. Willfulness implies a plan, purpose, or intent to commit a wrongdoing and cause an injury. For example, if an automobile manufacturer knows that the gas tank in its car will likely explode on impact but does not change the design because it does not wish to incur additional costs, the behavior could be classified as willful. Conduct is considered wanton if the individual performing the act is cognizant that it is likely to cause an injury, even though specific intent to harm someone does not exist, such as when an individual shoots a gun into a crowd. Although the individual does not have the intent to injure anyone in particular, injury is a natural and probable consequence of the act. Recklessness is an act performed with total disregard of its foreseeable harmful consequences. Punitive damages can be awarded on the basis of an injurious act done with ill will, a wrongful or illegal motive, or without any legal justification, but a wrongful act performed in good faith is an inadequate basis for such an award. For example, if a grocery sold canned goods that later turned out to be tainted, and the store did not know of the problem before selling the canned goods, it would be liable for compensatory damages to the victims who ate the food, but would not be liable for punitive damages.

The measurement of punitive damages has been controversial because traditionally the amount to be awarded is, for the most part, within the discretion of the trier of fact. To determine the amount, the jury or court must consider the nature of the wrongdoer's behavior, the extent of the plaintiff's loss or injury, and the degree to which the defendant's conduct is repugnant to a societal sense of justice and decency. In some states the financial worth of the defendant can properly be considered.

Ordinarily, an award of punitive damages by a jury will not be upset as excessive or inadequate. If the trial court believes that the jury award is excessive or unwarranted by the facts, it can remove punitive damages from the final judgment, or it can reduce the amount through a procedural process called remittitur.

Since the 1980s appellate courts have been called on to review punitive damage awards and to assess the procedural fairness involved in awarding such damages. State legislatures and the courts have attempted to craft ways of ensuring reasonable punitive damage awards, but there is no uniform approach.

The U.S. Supreme Court, in Pacific Mutual Life Insurance v. Haslip, 499 U.S. 1, 111 S. Ct. 1032, 113 L. Ed. 2d 1 (1991), upheld a large punitive damage award on the grounds that the Alabama jury had received adequate jury instructions and the Alabama Supreme Court had applied a seven-factor test to assess the reasonableness of the award.

Two years later the U.S. Supreme Court shifted its stance on how it would assess whether a punitive damage award was excessive. In TXO Productions Corp. v. Alliance Resources Corp., 509 U.S. 443, 113 S. Ct. 2711, 125 L. Ed. 2d 366 (1993), the Court stated that the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution prohibits a state from imposing a "grossly excessive" punishment on a person held liable in tort. Whether a verdict is grossly excessive must be based on an identification of the state interests that a punitive award is designed to serve. If the award is disproportionate to the interests served, it violates due process.

The Court further defined the issues surrounding excessive awards in BMW of North America v. Gore, ___U.S.___ , 116 S. Ct. 1589, 134 L. Ed. 2d 809 (1996). In this case the plaintiff, Ira Gore, was sold a purportedly new automobile. In fact, the car had been repainted because of damage during shipping. When Gore found out, he sued BMW. During the litigation he discovered that for many years BMW had routinely repainted cars and sold them as new. The jury awarded Gore $4,000 in compensatory damages and punitive damages of $4 million. The Alabama Supreme Court reduced the punitive damages to $2 million but upheld the reduced award.

On appeal, the U.S. Supreme Court overturned the punitive damage award. First, the Court identified the "degree of reprehensibility of defendant's conduct" as the most important indication of reasonableness in measuring a punitive damage award under the Due Process Clause. In the Court's view, the damages imposed should reflect the enormity of the defendant's offense and may not be grossly out of proportion to the severity of the offense. In Gore's case the award was excessive because BMW's conduct did not demonstrate indifference or reckless disregard for the health and safety of others. The minor repairs it made to the cars did not affect their performance, safety features, or appearance.

Second, the Court applied the most commonly used indicator of excessiveness, the ratio between the plaintiff's compensatory damages and the amount of the punitive damages. Even though the state court reduced the punitive damages by half, the Court found the ratio of five hundred to one to be outside the acceptable range.

Finally, the Court examined the difference between the punitive damage award and the civil or criminal sanctions that Alabama could impose for comparable misconduct. The fact that the $2 million verdict was substantially greater than Alabama's $2,000 civil fine for deceptive trade practices was another ground for finding the punitive damages excessive, according to the Court.

See: Due Process of Law; Product Liability; Tort Law.

Damages awarded by the court, in addition to damages awarded as compensation for loss, as a punishment to the guilty party and an assuagement to the suffering party.