Punitive Damages

Punitive damages are a controversial issue in TORT and PRODUCT LIABILITY LAW. Injured plaintiffs and their attorneys often seek punitive damages from companies that have made allegedly defective or unsafe products and have known about the defects or safety problems. Plaintiffs view punitive damages as a way of sending a message to the manufacturer and to business, in general, that it is financially unwise to cut corners or ignore safety concerns. On the other hand, defendants in these actions contend that punitive damages are unfair, unpredictable, and often excessive. In their view, the plaintiff receives a financial windfall unrelated to the actual damages in the lawsuit.

Proponents of punitive damages believe that this type of award serves a number of important societal functions, including retribution, deterrence, compensation, and law enforcement.

Supporters of punitive damages contend that one function for such an award is to provide retribution to the victim of the defendant's reckless or wanton conduct. When a person is injured by the wanton misconduct of another, the plaintiff has the right to express her outrage by extracting a judicial fine from the wrongdoer. Seeking retribution allows the plaintiff to punish an intentional lawbreaker in much the same way as the criminal justice system punishes him.

Proponents believe that the most important function that punitive damages serve is that of deterrence. As in CRIMINAL LAW, the predominant purpose of punitive damages is to prevent similar misconduct in the future. Because the law does not catch and punish all persons who wantonly violate the rights of others, supporters argue that punitive damages help deter misconduct by publicizing, and at times sensationalizing, the punishment of those persons found guilty of egregious misconduct. Punitive damages tell manufacturers and other businesses that financial penalties will follow if companies sell products known to be defective.

Advocates of punitive damage awards also contend that these awards serve a compensation function. Although a plaintiff may receive actual damages for the injuries suffered, many of the plaintiff's actual losses, including those involving intangible harm, are not compensable under the rules of compensatory damage liability. Punitive damages help the plaintiff to be made whole again.

Another function of punitive damages articulated by supporters is law enforcement. Without the prospect of a large punitive damage windfall, many persons would not be willing to make their claims. Punitive damages act as a law enforcement vehicle, energizing prospective plaintiffs and motivating them to enforce the RULES OF LAW and to promote the functions of retribution, deterrence, and compensation.

Critics of punitive damages believe that large monetary awards are unfair, unreasonable, and not productive for society. One of their central criticisms goes to the idea of punitive damages as "quasi-criminal" punishments. Noting that proponents talk of retribution and deterrence, these critics argue that it is unfair to impose these "criminal" fines on defendants who do not have the usual safeguards of CRIMINAL PROCEDURE. They note that a plaintiff should satisfy a higher BURDEN OF PROOF than a mere "preponderance of the evidence," the usual standard in a civil trial. Some states have agreed, mandating that "clear and convincing evidence," a higher burden of proof, be used by the jury in determining whether to award punitive damages.

Critics also charge that the vagueness of standards for determining the defendant's liability for punitive damages and for calculating the award itself causes juries to make decisions based on passion, bias, and prejudice rather than on the law. The vagueness in such terms as reckless, willful, or wanton leads critics to conclude that juries have no meaningful, objective way to make an informed decision. Many states have recognized this criticism and developed a variety of procedures to instruct the jury fully and precisely and to require the trial court to assess the sufficiency of the evidence before awarding punitive damages and to issue written reasons why the award was or was not deserved in light of the legal standards.

The U.S. Supreme Court, in BMW of North America v. Gore, 517 U.S. 519, 116 S. Ct. 1589, 134 L. Ed. 2d 809 (1996), also developed guidelines for assessing punitive damages. The Court held that the "degree of reprehensibility of defendant's conduct" is the most important indication of reasonableness in measuring punitive damages. The Court also measured the possible excessiveness of a punitive damage award by applying a ratio between the plaintiff's COMPENSATORY DAMAGES and the amount of the punitive damages.

Critics also note that the deterrence rationale is undercut when defendants are insured against punitive damage awards. In addition, when a government employee is found liable for misconduct and punitive damages are awarded, the taxpayers must pay for the award. Taxpayers are innocent parties, making it unreasonable for them to bear the punishment for the actions of a government employee.

Critics argue that because punitive damages are noncompensatory, they provide the plaintiff with an undeserved financial windfall. The public gains no benefit when an individual receives a multimillion dollar punitive damage verdict. Some states have responded to this criticism by requiring that part of a punitive damage award be paid to the state for some type of public good.

Finally, in mass disaster cases, involving products like asbestos, a manufacturer may have to pay multiple punitive damage awards. Critics contend that allowing punitive damages to early plaintiffs may bankrupt defendants, thereby depriving later plaintiffs of compensatory damages.

For these and other reasons, the critics see punitive damages as counterproductive to the public good. Large awards result in increased costs of products and services and even discourage companies from producing products or providing services out of fear of litigation.

The controversy over punitive damages is likely to continue because it involves fundamental issues of justice, fairness, and the public good.