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Have you ever heard the word- punitive damages? It doesn’t mean mere reparation. When considering punitive damages, the scales of justice shift from just compensating to punishing and deterring. In this in-depth review, we define punitive damages, explore their nature, examine how they affect wrongdoers, and discuss the arguments for and against their use.
What is punitive damages?
Punitive damages is a form of financial awards granted to a plaintiff in addition to the compensatory damages.
What is exemplary damages? Punitive damages are also referred as exemplary damages as they serve as an example to dissuade people including the defendant from behaving the same way in the future.
While comparing punitive damages vs compensatory damages, they are awarded with two entirely different purposes. The compensatory damages are given to cover the medical expenses of the plaintiff arising from the subject incident. Whereas, the punitive damages are designed to punish the defendant.
The Fairness in Punitive Damage Awards Act (1998) limits punitive damage awards in civil lawsuits brought in federal or state court that affect interstate commerce or involve rights or interests that Congress may protect under the 14th Amendment, where such damages are sought under any theory of harm.
However, this Fairness Act becomes inapplicable, if the following misconducts of the defendants, against which the punitive damages are awarded.
1) If they caused death, serious and permanent physical scarring or disfigurement, loss of a limb or organ, or serious and permanent physical impairment of an important bodily function;
(2) If the incident occurred while the defendant was under the influence of intoxicating alcohol or any drug that may not legally be sold without a prescription, or was taken by the defendant other than in compliance with the terms of a legitimate prescription, and if the defendant’s being under the influence caused the harm for which the civil action was brought;
(3) If they constituted a crime of violence, an act of terrorism, a crime of hatred, or a felony sexual offense, for which the civil action was brought.
Punitive Damages in Tort Claims
Punishing the malicious or reckless conduct of the wrong doer is the prime goal of the punitive damages. This monetary penalty is imposed on the at-fault as a warning that such misconduct will not be tolerated by the court.
The amount imposed as punitive damages is proportionate to the defendant’s wealth. Richer defendants have to pay more to make them learn the lesson of their lives.
When does a jury award punitive damages?
Do you know, when punitive damages are awarded? Punitive damages are awarded in claims where a person commits egregious or reckless action, which has harmed the plaintiff. It is provided in such cases where the plaintiff’s compensatory damages could not compensate all their losses. And moreover, the defendant needed further punishment to make him realize that his conduct was unlawful and needed to be deterred.
Jurors will pronounce punitive damages in only around 5% of civil verdicts. They will evaluate the appropriateness of deciding the exemplary damages in proportion to the compensatory damages assigned for the plaintiffs.
The punitive damages are awarded when the at-fault was proven to be engaged in one of the following actions.
- Wanton conduct
- Intentional neglect
- Fraudulent behavior
- Malicious or repressive conduct
- Willful conduct
- Reckless conduct
Punitive damages cannot be claimed separately. They are awarded in connection with other damages like general damages and compensatory damages. The plaintiff’s lawyer has to prove that the defendant’s malicious intent has directly harmed the plaintiff.
There is no written formula for deciding the amount of punitive damages assigned in a case. The courts take into consideration various factors like the defendant’s egregious conduct, the extent of harm sustained by the plaintiff, the defendant’s financial status and in some states, the state statutory limits.
Can you get punitive damages for breach of contract?
The conventional rule is that punitive damages cannot be granted for breach of contract.
The ground for this is, in a contract, both the parties agree to the terms after being completely aware of the risk they are going to encounter before signing it.
However, punitive damages can be awarded for some limited tort committed in a contractual framework in rare situations like the ones below.
- Violations of insurance bad faith: When the insurance firm acts against the policy holder, it is considered a bad faith as the insurance firm has entered into a contract with the policy holder and is responsible to act in good faith but instead violated that. Therefore, they have to face the legal repercussions for violating the good faith.
- Issues about tort and contract overlap: When one of the parties in the contract negligently commits a tort, which leads to the harm of the plaintiff, the at-fault will be punished with punitive damages.
- Certain allegations of fraud: When the contract itself is purposefully fraudulent, the defendant is liable to pay punitive damages.
In contract breach claims, punitive damages are awarded rarely and it would be difficult for the plaintiff to prove that the contract breach resulted from the misconduct of the defendant.
Controversies Over Awarding Punitive Damages
The issue of punitive damages is still being debated, as it is widely assumed that punitive damages are awarded excessively as seen in many high-outcome verdicts, which were publicized.
Some people feel that these excessive awards are disproportionate to the injuries or damages caused. Others argue that only in criminal lawsuits, punitive damages should be awarded as its intent is to punish the defendant and not to compensate the plaintiff for the loss.
Is there any cap on punitive damages?
There is no common fixed cap on punitive damages. Punitive damages are primarily governed by state law (in some cases, they can also be awarded under federal maritime law), therefore the procedure varies from state to state.
Many state jurisdictions have imposed a cap on punitive damages. Whereas some states have declined these statutory caps as unconstitutional. Some states like Nebraska and Washington, never use the punitive damages under any situations.
Have a short glimpse on the various punitive damages by state.
The punitive caps limit the amount that is to be awarded based on the certain multiple times of the compensatory damages or a fixed dollar amount. These caps are intended to create a balance between discouraging and punishing misbehavior while avoiding large awards that could financially ruin defendants.
Famous Punitive Damages Cases
The largest punitive damage awarded in the U.S. history was in the case led by Stanley and Susan Rosenblatt in 1994. It was a class action lawsuit filed by this lawyer duo on behalf of around 700000 Florida smokers against the tobacco giants.
Around $145 billion was awarded as punitive damage by a Miami court against five tobacco companies after two years of vigorous trial.
Sixty-one year old Frank Amodeo, who developed throat cancer, was being fed by gastronomy for more than 13 years. His testimony “No amount of money in the world can change the way I eat—15 cents or 15 million dollars,” “This wasn’t about money. This was about sending a message,” moved the hearts of the jurors.
In the famous McDonald’s hot coffee litigation, pursued by Stella Liebeck, the court awarded her $3 million as compensation including a $2.7 million in punitive damages for McDonald’s “callous” act. Later the trial judge lowered the punitive damages to $480,000. McDonald reached a post-verdict settlement in the case.
The 79-year-old Liebeck spilt the hot coffee over her lap when she was holding the coffee between her knees in an attempt to open the lid.
McDonald’s coffee was served at temperatures 180 to 190 degrees Farenheit and the spill caused the plaintiff third degree burns over 16% of her body.
Ms. Liebeck needed to undergo wound debridement, skin grafting and encountered scarring and disability for around two years.
The grounds on which the punitive damage was awarded were listed as follows:
- McDonald’s coffee was hotter than any other restaurants. This more than 180 degree hot coffee can cause third degree burns just in 2 to 7 seconds.
- McDonald knew that its hot coffee could cause detrimental burns from more than 700 prior scalding incidents reported and other similar claims.
- Even the McDonald employees had negligently spilt coffee over men, women, children and infants.
- McDonald admitted that the customers were unaware of this burn risk and they too failed to warn them.
- Third degree burns necessitate skin grafting and expensive debridement and other treatments.
- The victims had to encounter scalding, permanent scarring, pain and suffering for months or years.
- McDonald admitted that they did not have any plan to reduce the temperature of the coffee.
However after this famous verdict by Judge Robert Scott, McDonald had turned down the temperature to 158 degrees Farenheit, which is also hot enough to cause 3rd degree burns in 60 seconds.
According to the product liability litigation of Gore vs. BMW of North America, Dr. Ira Gore, the plaintiff, discovered that his BMW had been repainted before he purchased it.
Defendant, BMW of North America admitted that it was their general policy to sell damaged cars as new after doing the repairs (if the damage could be repaired for less than 3% of the car’s worth).
An Alabama jury awarded $4,000 in compensatory damages (the car’s lost worth) and $4 million in punitive legal damages to Dr. Ira. However, the Alabama Supreme Court eventually lowered the award to $2 million.
The jury penalized BMW not only for causing Dr. Gore’s damages, but also for BMW’s outrageous activity. The jury found BMW fraudulent in repairing the damaged cars and selling it as new for a longer period of time.
In the products liability claim suit of Oberg vs. Honda Motor Co., Honda was found liable for injuries sustained by the plaintiff in an ATV accident. Honda was liable for a $5 million punitive damage award, and both the state appeal court and the Oregon Supreme Court declined to examine the judgment for excessiveness based on a constitutional amendment.
FAQs on Punitive Damages
What is the burden of proof in the case of punitive damages?
The plaintiff bears the burden of demonstrating that these damages should be awarded and, if so, the amount of any such damages by a majority of the evidence or clear and compelling proof.
Let’s have a peek at the burden of proof followed in various states.
Can an exorbitant punitive damages award be reversed?
In some case, when the defendants appeal for a revision of the punitive damages with valid evidence, the jurors can decide on whether the punitive legal damages awarded is reasonable or unconstitutional. As we have seen in the McDonald hot coffee case, the amount can be reduced.
Are punitive damages available in wrongful death claims?
Not in all wrongful death cases, one can claim these damages. But in certain circumstances, based on the evidence that the defendant’s reckless action has directly caused the death of the victim, punitive damages can be awarded.
Is it possible to sue the government for punitive damages?
No, as per the Federal Tort Claim Act (FTCA), one cannot claim these damages against the government entity.
Do insurance companies pay punitive damages?
In general, if the insurance firms pay punitive damages, it won’t serve the intended purpose of punishing the wrongdoer. Therefore some states prohibit insurance coverage for punitive damages.
Are punitive damages taxable?
Yes, as it was not given to compensate the legal damages of the plaintiff, punitive damages are taxable, except in wrongful death claims.
How often are punitive damages awarded?
As we have seen earlier, only in five percent of claims, punitive damages are awarded. Though punitive cap vary state by state, on the whole it won’t exceed 4 times the amount of compensatory damages.
What do the courts consider when awarding punitive damages?
The court considers the following factors while assigning the punitive damage award.
(1) The nefariousness of the defendant’s actions. (2) The defendant’s financial situation, and (3) the connection to real losses.
To wrap up,
Punitive damages play a pivotal role in the legal system by punishing the wrongdoers and preventing them from repeating the same misbehavior. Though it has faced a lot of controversies, it is still a significant tool in ensuring that justice is served.
Hope this blog has demystified what are punitive actions and the complexities.
Know the gist of what’s punitive damage from our pin.