Clearing The Air On Punitive Damages

Clearing The Air On Punitive Damages

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We find that both plaintiffs and defendants have an emotional topic on their minds when they speak with us: punitive damages. Most of their questions are based on incomplete information and sensationalized news reports. Because the matter comes up so often, we offer some basic information:

Punitive damages should not be confused with what we lawyers call, “general damages,” which are roughly equivalent to the common phrase, “pain and suffering.” “General damages,” in turn, are a subset of what are called, “compensatory damages,” which are intended to compensate a victim who was wronged. In a typical car accident, for instance, the victim is entitled to general damages for the injury, but not punitive damages to punish the driver at fault for the accident because punitive damages are intended to punish wrongful conduct.

For that reason, insurance generally will not indemnify such an award except under very unusual circumstances (at least in California, but this is likely to be true elsewhere). Defendants generally fear punitive damages for that reason — the money paid comes directly from their pockets, and cannot be paid by any other source, particularly insurance.

Until recently, the amount of punitive damages awarded were based on the defendant’s monetary status. For that reason, punitive damage awards have on occasion represented very large amounts of money. Many defendants have argued that large awards violate Constitutional provisions guaranteeing due process of law.

In 2003, the U.S. Supreme Court largely agreed with those arguments. The Court held that in the future, punitive damages are to be awarded as multipliers of compensatory damage awards. The multiplier can in most cases be no larger than four times the compensatory award, and the highest award that we have noted since the High Court’s ruling that has been affirmed so far has been six times compensatory damages. In other words, the wealth of a defendant is no longer a significant issue in determining the amount of a punitive damages award.

In most cases, a plaintiff must prove that the defendant acted with “malice, oppression, or fraud.” “Malicious” conduct is intended to cause harm. “Oppressive” conduct is done in knowing and intentional violation of someone’s rights. “Fraudulent” conduct involves an affirmative act of deception.

Vengeance is a common motive for this kind of conduct. Many things that greatly upset people are not properly subject to punitive damage claims. Auto accidents or simple breaches of contract will almost never yield punitive damages. While these kinds of events can be very emotional for the people involved, third parties (that is, judges and juries) have proven to be very skeptical when asked to decide on claims for punitive damages.

The burden of proof for punitive damages is higher than what is needed to prove basic liability. Just because someone has done something wrong does not automatically mean that they are subject to punitive damages. To get punitive damages, the plaintiff must show that “malice, oppression, or fraud” exist by “clear and convincing evidence.” In other words, if you want to get punitive damages, you need very strong evidence of truly reprehensible conduct.

In practice, punitive damages are rarely awarded even in cases for which they are available. Potential plaintiffs hoping for gigantic verdicts will be disappointed to learn that, according to a 1999 study by the U.S. Department of Justice, less than six percent of all cases that resulted in a plaintiff’s verdict after trial (and most cases settle before they go to trial) result in punitive damage awards; of those cases, the median award of punitive damages was less than $50,000. In our own experience, Kurt Schlichter, one of our founding partners, represented a plaintiff through trial and obtained a nearly $3 million verdict for his client. He also obtained punitive damages of $250,000. While a quarter of a million dollars is hardly an inconsequential sum of money, and the award was more than five times the national average, it was still less than one-tenth of the general and compensatory damages award in the case.

Politicians and lawyers have rightfully devoted much energy to addressing the issue of punitive damage reform in recent years, and the courts have wrestled with competing arguments about them for even longer. For better or worse, punitive damages are still an important facet of business litigation.

Punitive damages, like all aspects of the civil justice system, should be kept in perspective when making legal decisions. Although the danger of punitive damages may not be as great as feared, it is still a danger, and being hit with an award of punitive damages can still cause severe financial distress to a business. Our experience and expertise can help you or your business through any troubles you may have, or in many cases prevent problems in the first place. Feel free to call us with any questions about your legal rights.

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