What are punitive damages?
What is the legal definition of punitive damage?
What qualifies for punitive damages and what must be proven in court?
In this article, we will break down the notion of punitive damages so you can understand all there is to know about it.
We will define punitive damages, go over some examples, look at what is required to be proven in court, how punitive damages are calculated and even some high-profile cases with millions of punitive damages awarded.
We are sure you will learn things about punitive damages that you did not know before.
Are you ready?
Let’s get started!
What are punitive damages?
As the name suggests, punitive damage is a punishment.
Punitive damages or exemplary damages represent an amount awarded to punish a party’s outrageous conduct or deter the party or others from repeating the harmful act.
The punitive damage award is established based on the court’s discretion.
What’s notable is that punitive damages are awarded to the plaintiff in addition to the actual damages suffered.
The purpose of a punitive damages award is not to compensate the plaintiff but rather to punish the defendant or others who may likely adopt the same reprehensible behaviour.
Nonetheless, the sum paid by the defendant will go in full or in part to the plaintiff.
Punitive damages definition
According to Investopedia, punitive damages is defined as:
“legal recompense that a defendant found guilty of committing a wrong or offense is ordered to pay on top of compensatory damages. They are awarded by a court of law when compensatory damages are deemed to be insufficient.”
For example, a party may have suffered actual damages for a sum of $50,000.
The court may condemn the defendant in a civil lawsuit to pay the plaintiff $50,000 to compensate his or her actual loss but also an additional sum of $25,000 as punitive damages.
Statutory legal basis
In many jurisdictions, punitive damages can be awarded to the extent the law permits it.
In the United States, the right to invoke punitive damages in the state of California and Texas is based on statute.
Common law legal basis
Outside of California and Texas, the U.S. courts have the ability to impose punitive damages on a defendant based on case law.
As such, punitive damage awards will be legally based on common law or case law.
What is an example of punitive damages?
Let’s look at an example of punitive damages.
Imagine that a product manufacturer sells appliances to consumers for household use.
Imagine further that the manufacturer was aware that it was selling defective refrigerators exposing consumers to fire hazards.
The manufacturer had already received many complaints about the refrigerator was catching on fire and they did not take any corrective measures to deal with the defect in a meaningful way.
According to their cost-benefit analysis, it was better to continue selling the refrigerator than to recall those in the market and change their production methods.
Mike purchases the fridge and installs it in his home.
A week later, it catches on fire and burns down Mike’s entire house, causes bodily injuries to Mike and his family.
Mike files a civil lawsuit against the product manufacturer for compensatory damages and punitive damages.
This is an example where the courts can seriously consider imposing punitive damages on the product manufacturer due to their failure in providing a safe product to consumers.
Mike can sue the manufacturer for compensatory damages such as loss of this house, medical bills, loss of salary, pain and suffering.
He can also sue for punitive damages to punish the manufacturer for its reckless behaviour in failing to address the defect in its product and recall those in the stores and in the market.
What qualifies for punitive damages?
Punitive damages are often awarded in tort liability cases.
Medical malpractice is a great example.
Product liability is another example where we see punitive damage awards.
It’s worth noting that punitive damages are very rare in breach of contract cases.
The objective of punitive damage is to punish outrageous conduct, reform or deter the defendant and others from behaving in a similar way.
So what act or behaviour qualifies for punitive damages?
In tort liability cases, for example, the following acts can qualify for punitive damages:
- Malicious acts
- Grossly negligent behaviour
- Intentful misconduct
- Acts of wanton
- Willful misconduct
- Intentional tort
- Intentional acts of bad faith
- Oppressive actions
- Reprehensible misconduct
- Deceitful actions
Essentially, the act of a person behaving in a grossly negligent way leading to injuries and damages to another while the person was aware that such actions could lead to such damages can qualify for punitive damages.
When are punitive damages awarded?
In what circumstances are punitive damages awarded to plaintiffs in civil lawsuits?
Punitive damages in tort law
In the United States, when dealing with tort liability, the U.S. courts have the ability to impose punitive damages on defendants.
This will be the case when it is demonstrated that the defendant intentionally caused damages to the plaintiff, acted recklessly and with willful misconduct.
For example, if the defendant intentionally behaved in such a way as to cause damages to the plaintiff very well knowing that such behaviour can cause damages, the court may favour the award of punitive damages to punish the defendant for such conduct.
Punitive damages in contract law
Punitive damages are generally not awarded in contract law when dealing with a breach of contract.
The court has the discretion to impose punitive damages in a contractual relationship but the actions of the defendant must be highly prejudicial, intentional and based on an independent tort.
We must also nuance punitive damages and liquidated damages in a contract.
Liquidated damages represent an amount mutually agreed by the parties to a contract to compensate one for possible actual damages.
If a party to a contract exaggerates the quantum of liquidated damages leading the court to believe the amount is more a punishment than reasonable compensation for actual damages, the courts will not enforce the liquidated damages clause.
In some cases, poor contract drafting can lead to conflict between the liquidated damages, punitive damages and consequential damages.
Punitive damage requirements
It is not easy to have a person condemned to pay punitive damages.
The reason is that the plaintiff must prove that the defendant’s actions were so outrageous, out of the norm and intentionally causing harm and injuries to the plaintiff.
Conditions to prove
What do you need to prove to have a court exercise its discretion to issue a punitive damage award?
The first element the court will consider is to determine whether or not the defendant’s actions were malicious, reckless, grossly negligent and performed intentionally.
The second element the court will consider is to determine whether punitive damages have been awarded in other similar cases.
The third element is how much should the defendant be ordered to pay to adequately punish his or her behaviour.
How to calculate punitive damages?
Punitive damages are subjective in nature.
The actual amount is left to the jury or judge to determine based on objective and subjective factors.
A punitive damage award should represent an amount high enough to deter the defendant from repeating the same reprehensible act but not so high as to lead to severe injustice or cause long-lasting and irreparable harm to the defendant.
The court will determine an amount by looking at the following factors:
- The reprehensibility of the defendant’s misconduct
- What amount is sufficient to deter the defendant based on the defendant’s means
- What was the nature of the injury suffered by the plaintiff
What has been observed is that the wealthier the defendant, the higher the punitive damage awards.
In an attempt to limit out of proportion punitive damages that a jury may award, the Supreme Court of the United States has ruled in several cases that punitive damage to compensatory damage ratio of 4 to 1 should be high enough to achieve the purpose of punishment.
This means that if a defendant caused $20,000 in damages, the court can order an additional $80,000 in punitive damages resulting in a total award of $100,000.
In some states, punitive damages are limited by law or “capped”.
For example, in the state of Flordia, there is a cap on how much a court may award punitive damages.
Under the law in Florida, punitive damages cannot exceed the higher of three times the value of the compensatory award or $500,000.
Criticism of excessive punitive damages
Punitive damages have been criticized in the United States.
In some cases, punitive damage awards have been seen as highly excessive and unjustified to many.
In fact, the Supreme Court of the United States has issued several decisions over the years to limit punitive damage awards seeing how some of the amounts awarded were unreasonably high.
The court has ruled in several cases that punitive damage to compensatory damage ratio of 4 to 1 is high enough to lead to constitutional impropriety.
If the ratio is greater than 10 to 1, according to the court, the amounts can be challenged on the basis of its unconstitutionality.
Punitive damages vs compensatory damages
Let’s look at compensatory vs punitive damages to better understand their nuances.
Typically, a person will sue another person for damages suffered.
The court awards damages to compensate a plaintiff for the damages caused or injuries suffered resulting from the defendant’s actions.
Damages can be direct damages, loss of income, pain, suffering, expenses incurred, medical bills, stress and so on.
When the court awards damages, the objective is to compensate for what the plaintiff lost or the plaintiff’s suffering.
The purpose is the give justice to a person wronged by another.
You can have special damages.
These are damages that are easy to establish as they represent actual losses or damages such as medical expenses, bills, lost income and so on.
You also have general damages.
General damages are more subjective as they are more personal in nature.
For example, what is the long-term impact of the damages suffered?
What is fair compensation for pain and suffering for a specific person?
These amounts are more subjective but are compensatory in nature nonetheless.
Punitive damages or “exemplary damages” on the other hand are intended to punish the defendant for its malicious conduct or grossly negligent behaviour.
Unlike compensatory damages, punitive damages are not meant to make the plaintiff whole again but rather serve as a punishment to the defendant.
Another objective of punitive damages is to serve as an example so others do not commit the same reprehensible act or hurt others the same way.
Punitive damages are awarded on top of compensatory damages.
Punitive damage cases
Punitive damages are rare and the amounts awarded by the court are not generally very high.
Statistics show that in the United States, only 6% of civil lawsuits end up with a punitive damage award and the median award ranges between $38,000 to $50,000.
However, there have been highly mediatized cases where the courts have awarded disproportionate amounts in punitive damages.
Let’s look at a few.
Philip Morris case
On October 4, 2002, a Los Angeles jury awarded the sum of $28 billion in punitive damages against Philip Morris.
This case represents an important case in history as it was the largest tobacco damages award given to an individual and part of a class-action lawsuit.
In this case, the compensatory damages amounted to $850,000 and the punitive damages $28 billion, representing punitive damage to compensatory damage ratio of 33,000 to 1.
McDonald restaurants case
Another famous case is when McDonald’s was ordered to pay a 79-year old woman punitive damages for serving coffee so hot that it resulted in second and third-degree burns when it spilled on her lap.
The compensatory damages amounted to $20,000 and the jury awarded punitive damages of $2.7 million.
Later on, the courts reduced the punitive damages to $480,000.
The punitive damage to compensatory damage ratio initially amounted to 135 to 1 but later reduced to 24 to 1.
TXO Productions case
In the case TXO Productions Corp. v Alliance Resources Corp., the court issued punitive damages for the sum of $10 million.
The compensatory damages amounted to $19,000 and punitive damages to a whopping $10 million.
The punitive damage to compensatory damage ratio amounted to 526 to 1.
Punitive damage statistics in the United States
The Bureau of Justice Statistics conducted a study relating to civil trials in 2005 to understand:
- In how many cases litigants were seeking punitive damages
- In how many cases punitive damages were awarded
- What was the median value of the punitive damage award
- What was the punitive damage to compensatory damage ratio
Here are some interesting punitive damage statistics they’ve found:
“Litigants sought punitive damages in 12% of the estimated 25,000 civil trials concluded in 2005.
Punitive damages were sought in 10% of all tort trials; however, for certain case types including slander or libel, conversion, and intentional tort cases, punitive damages were requested in approximately 30% of trials.
Punitive damages were awarded in 700 (5%) of the 14,359 trials where plaintiffs prevailed.
Plaintiffs received punitive damages in 30% of the 1,761 civil trials in which these damages were requested and the plaintiff prevailed.
The median punitive damage award was $64,000, and 13% of cases with punitive awards had damages of $1 million or more.
In 76% of the 632 civil trials with both punitive and compensatory damages, the ratio of punitive to compensatory damages was 3 to 1 or less.
Differences in punitive damages between bench and jury trials were greater in contract cases than in tort cases.
Litigants filed motions for post-trial relief in nearly half of civil trials with punitive damages and appeals in about a third of civil trials with punitive damages.”
You can access the full report on Punitive Damage Awards in State Courts, 2005.
Frequently asked questions
How punitive damages work?
Punitive damages represent a sum of money awarded by a trier of fact, judge or jury over and above actual damages or compensatory damages with the objective to punish the defendant for his or her wrongdoing.
The court hopes that using punitive damages as a means of punishment, the perpetrator will no longer repeat the same reckless behaviour or conduct himself or herself the same way.
In how many cases are punitive damages awarded?
Punitive damages are rare.
In fact, they are awarded in approximately 6% of civil cases resulting in monetary awards in the United States.
Based on the statistical studies of the U.S. Department of Justice and law professors, they have found that the median award of punitive damages is between $38,000 to $50,000.
Are there limits to punitive damages?
There is no maximum dollar value of how much a court may condemn a defendant to pay in punitive damages.
The Supreme Court of the United States has found that punitive damages should not exceed four times the amount of actual damages.
According to the Supreme Court, punitive damages exceeding four times actual damages can violate the Due Process Clause of the Fourteenth Amendment.
Nonetheless, when evaluating punitive damages, the wealth and means of the defendant will be evaluated as a factor in establishing how much he or she must pay to be adequately punished.
Wealthy individuals can face higher punitive damages.
Wealth corporations can also face higher amounts of punitive damages.