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When are Punitive Damages Considered Excessive?

It seems like our culture is no longer satisfied with things that are “normal”.  Everything has to be the wildest, the greatest, and the farthest beyond our stretch of imagination.  Take planking, for instance (already outdated, I know)- the more outlandish, off-the-top the stunt, the better.

Our obsession with the excessive can also be found in the legal world.  Specifically, we’ve almost gotten used to all the exorbitant punitive damages awards being granted- $8 billion for a random oil spill here, $3 million for a spilled cup of fast food coffee there- not to mention the billions of dollars being awarded in big tobacco lawsuits.

Scales of justice, where law outweighing moneyI’ve blogged about punitive damages before, but I wanted to delve a little bit more into the mystique surrounding these types of legal awards.  Just what are the standards that are used to calculate punitive damages?  And when are punitive damages considered excessive?

Regarding limits on excessive punitive damage awards, courts do apply a general standard.  Most Supreme Court cases agree that punitive damages should be applied in a ratio of 4:1, or four times the amount of compensatory damages.  For example, if a plaintiff suffered $50,000 in actual losses, an acceptable punitive damages award would be four times that amount, or $200,000.  Some jurisdictions allow a ratio as great as 9:1.

But why are we still seeing punitive damage awards in the amounts of millions and even billions?  A recent California Supreme Court case involving the tobacco company Philip Morris (yes, again) approved a 16:1 ratio for punitive damages!!  This came out to $13.8 million!   What’s going on here?  Isn’t this punitive damages award considered excessive?

Like many other lawsuits involving colossal punitive damage awards, the court in this California case applied the logic from the famous case, BMW vs. Gore.  In Gore, the court laid some factors for judges and juries to consider when calculating a punitive damages award.  These factors include:

  • The “degree of reprehensibility” of the person’s conduct;
  • The ratio of punitive damages to the compensatory damages (again, anywhere from 4:1 to 9:1 is considered Constitutional); and
  • The comparison of the punitive damages award with criminal or civil penalties for comparable conduct

Now, the main source of contention in most punitive damages awards are the first two factors- the nature of the defendant’s conduct, and the ratio of punitive vs. compensatory damages.  Naturally, the more “reprehensible” the defendant’s conduct is, the greater the chances will be that they will be slapped with a higher punitive damages award ratio.  In many other cases, courts use the word “egregious” when describing conduct that would result in a punitive damages award.

In the recent California Philip Morris case, the court found the company’s concealment of the dangers of tobacco products to be considerably reprehensible and egregious, which made them fair game for a punitive damages award.  Okay, I see that, but what about the mammoth 16:1 ratio?  Isn’t that punitive damages award too high?

Interestingly, the Gore opinion also stated that the factors mentioned above may be overridden if it is deemed “necessary to deter future conduct”.  And that’s exactly what happened in this recent Philip Morris case.  The court found the defendant’s conduct to be particularly non-triumphant, and, applying the logic in Gore, tossed the Gore framework out the window, as suggested by the Gore opinion itself.  The result?  A punitive damages award whopping enough to rival even the highest lottery winnings.

Wow, I just love it.  It’s like the Gore court said, “Here are some guidelines to work with to help you figure out if the case is bad enough for punitive damages.  But if you decide it’s really bad, feel free to disregard these guidelines…”

To make matters more confusing, different areas of law have different standards for punitive damages.  For example, in the area of employment, an employee sometimes does not have to prove “egregious” conduct to receive a punitive damages award from their employer.  The focus here is more on the employee’s mind state and awareness of discrimination laws rather than their actual conduct.  While we don’t normally see huge punitive damage awards in employment cases, this does make it much easier to require an employer to pay punitive damages.

As I mentioned before, I agree that punitive damages are effective, especially when it comes to protecting the general public from massive harm that might be done by large organizations.  On the other hand, I do think that there’s something very flimsy and wishy-washy about the current standards for punitive damages.

Now, I’ve heard many interesting words to describe questionable laws, such as “toothless”, “impotent”, or even “amorphous”.  But the body of laws surrounding punitive damages continues to evade description for me.  The closest thing I can think of is “disposable”, or something along those lines.

So what does this mean?  When are punitive damages considered excessive?  Well, if the conduct is “egregious” enough, it seems like…almost never!  And I thought this was a fad that was dying down.  I guess not.  So while planking is already doomed, it seems like the era of super-sized puni’s is going to be around for some time.

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  • Mahesh

    I think punitive damages are essential in building a just, honest society. A society whose members clerly understand ‘Wrong’ from ‘Right’, where the consequences of doing deliberate harm is known to every member. Big corporations, especially, should not be allowed to escape merely by compensating the harm done but sanctioned in such way that they never commit the wrong again ever as long as they are in the business.

    Just look at a judicial system ,like the Indian justice system, which does not award punitive damages. As a result businesses openly and without impunity commit harms to the consumer because they know that even if they get prosecuted only compensation would be liable. In India corporations cheat the common man and commit mass harm like genocide (bhopal gas tragedy for example) and get away as punitive damages are not awarded. Real estate companies and builders rob the working middle class with confidence. An entire parallel economy in india thrives on cheating and robbing the working class purely because of an impotent toothless justice system. You may read my blog if you want to know the ordeal i am going through.

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