Common Misconceptions about Punitive Damages

Pass me more puni’s please.

We’ve all heard of punitive damages.  You know: those damages that are designed to punish people for their crimes and deter them from committing them again.

They seem to be pretty popular these days.  It’s as if nobody’s interested in victims getting compensated for their actual losses because everyone’s hung up on punishing the bad guy.

Some of these punitive damage awards can be quite hefty in terms of dollar amounts.  For example, a recent discrimination case involving a company named Novartis Corp. resulted in a $250 million punitive damages award.  That’s about $44,000 for each member of the class action suit.  Or how about the General Motors lawsuit that resulted in $1.2 billion in puni’s?  And they started off at a record $4.9 billion before a judge had them reduced to the “measly” $1.2 billion figure.

These massive damages awards are part of the reason why punitive damages are the focal point of the currently hyped-up tort reform debate.  I believe that there are many misconceptions floating around regarding punitive damages, so here are a few clarifications on these bad boys:

Misconception #1:  Punitive damages are available in all cases

Not true.  Punitive damages are only available in cases where the defendant has acted in a way that is more than negligent or accidental.  They must have acted in a way that is purposeful or malicious, because punitive damages are intended to punish someone for an intentional wrongdoing.  This rules out the majority of standard contracts cases and many negligence claims.  You can’t really punish someone for or deter them from an unintentional act.

Misconception #2: Punitive damages allow you to recover as much money as you want

Wrong again.  Supreme Court cases such as BMW vs. Gore have held that “grossly excessive” punitive damages awards are unconstitutional.  Most states follow the guidelines from the BMW case, which limit punitive damages to a max of four times the amount of actual compensatory damages.  The ratio of 4:1 is pretty standard, and courts have ruled that ratios such as 10:1 are definitely unconstitutional.  Sorry, buddy, your wallet does have bottom to it.

It is worth noting that new laws have limited punitive damages in federal maritime cases to a ratio of 1:1.  That is, punitive damages cannot exceed compensatory damages for cases dealing with oceans.  This came from the Exxon-Valdez oil spill ruling.  It will likely have major consequences for the recent Gulf Oil Spill lawsuits.

Misconception #3: You can recover just punitive damages by themselves

No, you must have your icing with at least some amount of cake.  Plaintiffs are awarded punitive damages only if they have been awarded compensatory damages first.  This means that they must have suffered some amount of economic loss before they can file for punitive damages.  This particular rule is obviously aimed at preventing people from going after the deep pockets for frivolous reasons.  Like the Beastie Boys, courts say, “I like my sugar with coffee and cream”- in a ratio of 4:1, please.

Misconception #4:  Punitive damages awards are frequent and excessive

The truth is that they are in fact pretty rare and often involve spreading the award amongst a large group in a class action suit.  Statistics from the Center for Justice and Democracy show that puni’s are only awarded in 3% of all civil claims that make it to trial, with the median award being $64,000 per plaintiff.  So maybe all the focus on the exceptional cases has muddled the public perception of how these types of damages are actually awarded.

I have to say that in certain cases like the ones mentioned above, punitive damages can admittedly be too high.  But in a society that places a high value on figures and cost-benefit analyses, I think that punitive damages are actually quite effective in getting the attention of wrongdoers.

Although money simply can’t undo certain types of wrongs, we do live in a society that measures culpability in terms of dollar amounts.  We also tend to use a lot of hyperbole when it comes to damages and prison parole sentences– for example, who can possibly serve 200 years in prison?  And in this regard punitive damage awards can be useful if you think of them as a mechanism for signaling that something has gone awry.