Punitive damges also known as exemplary damages are commonly awarded in product liability or civil suit cases were the defendant is ordered to pay to the plaintiffs a sum of money for their acts of reckless and or willful conduct. The ideas of punitive damages was imposed as a deterrent from reckless,willful conduct. However, the amount of punitive damages awarded have been the topic of my debates leaving some to criticize, that plaintiffs are overly compensated specifically voicing opinions or concerns that a limit should be imposed on punitive damages.

Circumstances justifying the recognition of punitive damages based upon the defendant acting intentionally, maliciously, or without regard to the rights of the plaintiff and interests of the claimant. Punitive damages first established in England in 1763. Civil law in the United States recognized punitive damages in 1850. (5) "According to the U.S. Supreme Court, three factors guide a decision to award enhanced damages (punitive damages)": The action of the defendant was willful or deliberate, "whether the infringer had a good faith belief that the patent was invalid", and litigants conduct during the litigation. (4) A jury verdict to impose an amount of punitive damages may be over-turned by the trial judge, if the award is considered to be excessive or inadequate. (6) "A fundamental goal of a punitive damage award is to punish but not bankrupt the wrongdoer." (9) Five States do not recognize or award punitive damages in any civil action and some States have passed legislation limiting punitive damage awards. (11)

Most personal injury cases, the plaintiff is seeking both compensatory and punitive damages. (1)

Certain circumstances or incident may not validate a punitive damage award. In 2007, Supreme Court ruled not to appeal a lower court ruling, did not award compensatory or punitive damages to Muslim immigrant from Afghanistan, subjected to offensive and hostile work environment. The Supreme Court acknowledged the plaintiff did not suffer any 'compensable harm' despite the jury finding the plaintiff suffered religious, racial or ethnic harassment at his former employer (Violation of the Civil Rights Act of 1964). (8) Another example: "... if a grocery sold canned goods that later turned out to be tainted, and the store did not know of the problem before selling the canned goods, it would be liable for compensatory damages to the victims who ate the food but would not be liable for punitive damages." Since, the grocery store did not intentionally intend to sell tainted goods. (5)

Compensatory damage award for personal physical injury or sickness is not taxable, other award payment is taxable. (7)

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by David Goodwyne

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Created on: October 04, 2010
Damages are a type of remedy awarded to a successful litigant in a civil suit. There are various types and classes of damages which differ from one another so it is important to understand the various classes of damages at the outset. For example, "general damages" are damages for an unliquidated sum (ie a sum that the Claimant or Plaintiff cannot determine yet at the start of the claim - eg: for loss of reputation, pain and suffering etc). "Nominal" damages are where a breach or liability[pic] can be proven, but the claimant hasn't really suffered any real damages. The topic of this article is "punitive damages", sometimes referred to as exemplary damages.

Punitive damages are usually awarded with the intention to punish, deter and/or reform the Defendant in a civil suit. It is called punitive damages because the figure awarded will usually be high - much higher than the actual damage suffered by the claimant. In order to discuss how punitive damages are determined in a civil law suit, the most fundamental principle is that punitive damages are not aimed at "rewarding" the claimant or plaintiff - in fact, the main focus[pic] is on the Defendant and his conduct.
There are three common grounds for the Court to award punitivedamages[pic]:-

(1) arbitrary or oppressive conduct

(2) conduct of the Defendant was obviously done to profit himself

(3) it is expressly authorised by statute

As you can tell from the above, the "conduct" of the Defendant takes center stage. However, it is difficult to define what exactly amounts to "arbitrary or oppressive conduct" or "conduct calculated to make profit" - this are things that will be determined on a case by case basis depending on the facts of the case. Some are quite obvious - for example, government servants denying parties their right to due process[pic]. This would fall under the definition of arbitrary and oppressive conduct. There are other types of conduct that can be deemed arbitrary, or calculated to make profit - eg: overtly malicious and morally reprehensible conduct.
At the end of the day, determining punitive damages is at the discretion of the Court (in adversarial, common law[pic] jurisdictions such as the UK, for example) and there is no fixed formula or multiplier to be applied. This discretion must be exercised judiciously of course - to ensure that the Defendant is not unfairly punished.
Punitive damages are a settled principle of common law in the United States.[16] They are generally a matter of state law (although they can also be awarded under Federal maritime law), and thus differ in application from state to state. In many states, including California and Texas, punitive damages are determined based on statute; elsewhere, they may be determined solely based on case law. Many state statutes are the result of insurance industry lobbying to impose "caps" on punitive damages; however, several state courts have struck down these statutory caps as unconstitutional.[17]

The general rule is that punitive damages cannot be awarded for breach of contract. But if an independent tort is committed in a contractual setting, punitive damages can be awarded for the tort.[18] Punitive damages are usually reserved for when the defendant has displayed actual intent to cause harm (such as purposefully rear-ending someone else's car), rather than in cases of mere negligence.[19]

Punitive damages are a focal point of the tort reform debate in the United States, where numerous highly publicized multi-million dollar verdicts have led to a fairly common perception that punitive damage awards tend to be excessive. However, statistical studies by law professors and the Department of Justice have found that punitive damages are only awarded in two percent of civil cases which go to trial, and that the median punitive damage award is between $38,000 and $50,000.[17]

There is no maximum dollar amount of punitive damages that a defendant can be ordered to pay. In response to judges and juries which award high punitive damages verdicts, the Supreme Court of the United States has made several decisions which limit awards of punitive damages through the due process of law clauses of the Fifth and Fourteenth Amendments to the United States Constitution. In a number of cases, the Court has indicated that a 4:1 ratio between punitive and compensatory damages is high enough to lead to a finding of constitutional impropriety, and that any ratio of 10:1 or higher is almost certainly unconstitutional. However, the Supreme Court carved out a notable exception to this rule of proportionality in the case of TXO Production Corp. v. Alliance Resources Corp., where it affirmed an award of $10 million in punitive damages, despite the compensatory damages being only $19,000, a punitive-to-compensatory ratio of more than 526 to 1. In this case, the Supreme Court affirmed that disproportionate punitive damages were allowed for especially egregious conduct (the trial court in the same case purportedly said "What could be more egregious than the vice president of a company saying, well, testifying and saying that he knew all along that this property belonged to Tug Fork?")[20]

In the case of Liebeck v. McDonald's Restaurants (1994), 79 year old Stella Liebeck spilled McDonald's coffee in her lap which resulted in second and third degree burns on her thighs, buttocks, groin and genitals. The burns were severe enough to require skin grafts. Liebeck attempted to have McDonald's pay her $20,000 medical bills as indemnity for the incident. McDonald's refused, and Liebeck sued. During the case's discovery process, internal documents from McDonald's revealed the company had received hundreds of similar complaints from customers claiming McDonald's coffee caused severe burns. At trial, this led the jury to find McDonald's knew their product was dangerous and injuring their customers, and that the company had done nothing to correct the problem. The jury decided on $200,000 in compensatory damages, but attributed 20 percent of the fault to Liebeck, reducing her compensation to $160,000. The jury also awarded Liebeck $2.7 million in punitive damages, which was at the time two days of McDonald's coffee sales revenue. The judge later reduced the punitive damages to $480,000. The case is often criticized for the very high amount of damages the jury awarded.

In BMW of North America, Inc. v. Gore (1996), the Court ruled that an excessive punitive award can amount to an arbitrary deprivation of property in violation of due process. The Court held that punitive damages must be reasonable, as determined by the degree of reprehensibility of the conduct that caused the plaintiff's injury, the ratio of punitive damages to compensatory damages, and any comparable criminal or civil penalties applicable to the conduct. In State Farm Auto. Ins. v. Campbell (2003), the Court held that punitive damages may only be based on the acts of the defendants which harmed the plaintiffs. The Court also elaborated on the factors courts must apply when reviewing a punitive award under due process principles.

Most recently, in Philip Morris USA v. Williams (2007), the Court ruled that punitive damage awards cannot be imposed for the direct harm that the misconduct caused others, but may consider harm to others as a function of determining how reprehensible it was. More reprehensible misconduct justifies a larger punitive damage award, just as a repeat offender in criminal law may be punished with a tougher sentence. Dissenting in the Williams case, Justice John Paul Stevens found that the "nuance eludes me," suggesting that the majority had resolved the case on a distinction that makes no difference.