Punitive damages are what we call monetary damages, usually paid by a Defendant to the Plaintiff. “Punitive damages go beyond compensating the aggrieved party. They are specifically designed to punish defendants whose conduct is considered grossly negligent or intentional. Punitive damages are also referred to as exemplary damages as they are intended to set an example to deter others from committing similar acts.”[1] The whole idea behind punitive damages is that – they are an additional payment done on top of the already compensatory damages provided – in case the compensatory damage is deemed insufficient. Let us learn more about the concept with the help of this article.
What are compensatory damages? “Compensatory damages are paid to compensate the claimant for loss, injury, or harm suffered by the claimant as a result of another’s breach of duty that caused the loss.”[2] In the United States of America, the law in regard to punitive damages varies from state to state. They are very subjective in nature. As such there are very rare cases of punitive damages and almost only 6% of civil cases result in monetary awards.[3] In the case of Ammerman v. Ford Motor Company, the court “found that Defendant Ford had conducted several conclusive tests regarding the instability of the product, knew of the defect, was under investigation by regulators, but continued production as the status quo despite internal protest. The trial court awarded punitive damage of 13.8 million dollars.”[4] In another case involving a design defect in a 1979 Chevy Malibu, the jury decided on $4.8 billion punitive damages based on General Motors’s advertising budget.[5]
In the case of BMW Vs. Gore, “The Court found the punitive award excessive and reduced it to $2 million. The Court found that BMW’s action was not highly reprehensible, emphasizing that the Gore was a successful medical doctor who was not financially vulnerable and had suffered meager economic damages. The Alabama Supreme Court concluded that the BMW could not have reasonably anticipated that its actions could incur such a large punitive damages award and that its due process rights were violated.”[6]
CONTROVERSIES
There have been various controversies surrounding punitive damages. Many decades ago, something as monetary damages was rarely ever provided. However, in the current preceding times, especially in mass tort cases – monetary awards have not only been increased in numbers but also in size.[7] Between 1996 and 2001, the annual number of punitive damages awards in excess of 100 million dollars doubled in the United States of America.[8] In the case of Pennzoil Company Vs. Texaco, Inc., “On November 19, 1985, a jury returned a verdict in favour of Pennzoil, finding actual damages of $7.53 billion and punitive damages of $3 billion. The parties anticipated that the judgment, including prejudgment interest, would exceed $11 billion.”[9]
In the Loewen Group, Inc., and Raymond L Loewen v. United States of America, “an arbitral panel is to decide whether Mississippi court proceedings that resulted in awards of 100 million dollars in compensatory damages and $400 million in punitive damage s violated Chapter 11 of the North American Free Trade Agreement.”[10] Large punitive damages awards have generated much debate in the United States and in the international community.[11] “despite the controversy over the appropriateness of punitive damages, they are widely available in these countries. There are however, little to no consensus on the factors that are used to determine the amount of punitive damages that should be awarded. Some jurisdictions too provide little too no guidance to the judge or jury who set the award, others provide a detailed list of factors, and one jurisdiction even provides damage brackets to guide the decision maker in fixing the amount of punitive damages.”[12]
In the United States, punitive damages typically serve two purposes: (1) to punish a party from engaging in wrongful, malicious, or outrageous conduct, and (2) to deter that party and others from engaging in the prohibited behavior in the future.[13] A few states allow what they call exemplary relief only to compensate the claimant when damages are difficult to ascertain, and not to punish the defendant.[14] As stated earlier each states have their own laws in regards to punitive damages. For instance, Nebraska and Washington do not allow punitive damages.[15] In addition to this, there are states that set a limit to how much punitive damages can be claimed by someone. For example, Alabama and Georgia place a cap on awards of punitive damages at $250,000.[16]
“Unlike Australia and New Zealand, the majority of American states allow punitive damages where the defendant has already been subject to criminal proceedings for the same conduct giving rise to the claim for damages or where the defendant’s wrongful conduct would expose him or her to criminal sanctions.”[17]
Criteria: “A court, however, may choose to ignore this clause if the liquidated are actually punitive damages. There is a 2-part test that courts will typically use to determine whether to apply a liquidated damages clause. Firstly, the agreed damages must be a reasonable forecast of just compensation for the harm that is caused by the breach. Second that the harm must be incapable of accurate estimation. In addition to this, if the clause meets both elements, then the court will typically apply the clause, finding no evidence of punitive damages.”[18]
As such there are no specific tests or criteria laid down by the Apex Court on the matter. However, “Recently, courts have begun to evaluate the appropriateness of assigning punitive damages in comparison to the number of compensatory damages assigned. While the Supreme Court has not assigned a particular test to use when courts consider punitive damages, in State Farm v. Campbell (2003), the Court wrote that lower courts should focus on reprehensibility and acceptable punitive-to-compensatory damage ratios.”[19]
Impact on Litigation Outcome
The whole idea behind punitive damages is that they are a form of punishment and negative reinforcement of sorts. Punitive damages are not awarded on simple claims or during a breach of contract. “In the case of tort liability, courts may choose to apply punitive damages. However, they will typically only do so if the plaintiff can prove that the defendant engaged in an intentional tort and/or engaged in wanton and willful misconduct.”[20] In the case of National By-Products Inc. v. Searcy House Moving Co., the Arkansas Supreme Court found that awarding punitive damages requires evidence that the defendant proceeded intentionally with an unlawful action after knowing that the act was likely to cause injury.[21]
[1] What Are Punitive Damages? Purpose, Cap, Calculation, and Example (investopedia.com) [2] Damages - Wikipedia [3] Conklin, Michael, Factors Affecting Punitive Damage Awards (2020). Michael Conklin, Factors Affecting Punitive Damage Awards, 21 FLA. COASTAL L. REV. 1 (2021)., Available at SSRN: https://ssrn.com/abstract=3615013. [4] Ford Motor Company v. Ammerman, 705 N.E.2d 539 | Casetext Search + Citator [5] Supra 3. [6] BMW of N. Am. v. Gore | Case Brief for Law School | LexisNexis [7] See Stephen Daniels & Joanne Martin, Myth and Realty in Punitive Damages, 75 MINN. L. REV. 1 (1990); see also Thompson Vs. Commission of Police of the Metropolis, [1998] Q.B. 498 (C.A.); John v. MGN Ltd., (1997) Q.B. 586 (C.A). [8] See RICHARD L BLATT, ET. AL., PUNITIVE DAMAGES: A STATE-BY-STATE-GUIDE TO LAW AND PRACTICE 12, 17 (2003). [9] Pennzoil Co. v. Texaco, Inc. :: 481 U.S. 1 (1987) :: Justia US Supreme Court Center [10] John Y Gotanda, Punitive Damages: A Comparative Analysis, Working Paper Series, Year 2003. Chapter 1, page 3of 55. Retrieved from: Punitive Damages: A Comparative Analysis (villanova.edu) [11] See Symposium: Private Law, Punishment and Disgorgement, 78 CHI-KENT L. REV. 3 (2003). Source, Ibid. [12] John Y Gotanda, Ibid 10. [13] See Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 432 (2001); see also Cass R. Sunstein et al., Assessing Punitive Damages (with Notes on Cognition and Valuation in Law), 197 YALE L.J. 2071, 2074 (1998). But see Anthony J. Sebok, What Did Punitive Damages Do? Why Misunderstanding the History of Punitive Damages Matters Today, 78 CHI.-KENT L. REV. 163 (2003). [14] See Peisner v. Detroit Free Press, 242 N.W.2d. 775 (Mich. App. 1976), aff’d as modified, 364 N.W.2d 600 (Mich. 1984); see also Wright Titus, Inc. v. Swafford, 133 S.W.2d 287 (Tex. Civ. App. 1939). [15] See Miller v. Kingsley, 230 N.W.2d 472 (Neb. 1975); Maki v. Aluminum Bldg. Prod., 436 P.2d 186 (Wash.1968). [16] See ALA CODE § 6-11-21 (1975); GA. CODE ANN. § 51-12-5.1(g) (1997). [17] Supra 10. [18] punitive damages | Wex | US Law | LII / Legal Information Institute (cornell.edu) [19] Ibid. [20] punitive damages | Wex | US Law | LII / Legal Information Institute (cornell.edu) [21] Ibid.
