The United States Supreme Court has expressed serious concern in recent years that punitive damages awards in this country have “run wild,” jeopardizing fundamental constitutional rights. The Court has provided some general controls, holding that the Due Process Clause of the Fourteenth Amendment imposes both substantive limits on the size of punitive damages awards and procedural limits on when and how punitive damages may be awarded. Yet, excessive punitive damages awards continue to be a major problem in many states.
Punitive damages are not normal civil or tort law damages. They are not awarded to compensate for a harm; that purpose is accomplished by compensatory damages, which provide compensation for both economic losses (e.g., lost wages, medical expenses, substitute domestic services) and noneconomic losses (e.g., “pain and suffering”). Punitive damages represent quasi-criminal punishment. Like other forms of punishment, they can have potentially devastating ramifications on a civil defendant’s character, reputation, business, and good will.
Reform is urgently needed to restore balance, fairness, and predictability to punitive damages law. The civil justice system should not be a “litigation lottery” characterized by excessiveness and arbitrariness. ATRA recommends four reforms:
Punitive, or exemplary, damages first received explicit recognition by the English common law in 1763 in two companion cases, Huckle v. Money and Wilkes v. Wood. Huckle and Wilkes were followed by cases approving punitive damages awards in a narrow category of torts involving conscious and intentional harm inflicted by one person on another. These intentional torts included assault and battery, malicious prosecution, false imprisonment, and trespass. Punitive damages were allowed in these cases as an auxiliary, or “helper,” to the criminal law system, which in eighteenth century England “punished more severely for infractions involving property damage than for invasions of personal rights."
As in England, punitive damages in colonial America (and through the nineteenth and well into the twentieth centuries) were available only in a comparatively small class of torts - the traditional intentional torts. In general, punitive damages merited scant attention, because they were rarely assessed and likely to be small in amount. Typically, punitive damages awards only slightly exceeded compensatory damages awards, if at all.
Beginning in the late 1960’s, American courts began to depart radically from the historical intentional tort moorings of punitive damages. The advent of mass tort litigation resulted in an increase of punitive damages claims against manufacturers, including the possibility of repeated imposition of punitive damages for an alleged risk in a single product line or a single decision.
“Reckless disregard” became a popular standard for punitive damages liability. A number of states utilize a triple “trigger” - punitive damages can be awarded if the defendant engaged in willful, wanton, or gross misconduct. The triple trigger approach gives plaintiffs three separate paths to obtain punitive damages. In some states, “gross negligence” can support a punitive damages award.
Changes in punitive damages law and practice also impacted both the frequency and size of punitive damages awards. For example, until 1976, there were only three reported appellate court decisions upholding awards of punitive damages in product liability cases, and the punitive damages award in each case was modest in proportion to the compensatory damages awarded. Then, in the late 1970’s and 1980’s, the size of punitive damages awards “increased dramatically" and “unprecedented numbers of punitive awards in product liability and other mass tort situations began to surface." “Today,” as one respected commentator in the field has noted, “hardly a month goes by without a multi-million dollar punitive damages verdict in a product liability case.”
Despite evidence of punitive damages awards on the rise, opponents of punitive damages reform have argued that changes in the law are not needed, because headlinegrabbing awards are often reduced on appeal. For example, one study funded by plaintiffs’ lawyers has suggested that there were only 355 punitive damages awards in products liability cases from 1965 to 1990. The study, however, overlooked the practical reality that actual punitive awards represent just the tip of the iceberg in regard to their impact. They are dwarfed by the amounts paid out in settlements due to the in terrorem effect of punitive damages.
On average, ninety-six percent of cases are settled out of court or otherwise disposed of without trial. In many of these cases, the threat of punitive damages may be abused as a “wild card” to force higher settlements. As Yale law professor George Priest has observed: “[T]he availability of unlimited punitive damages affects the 95% to 98% of cases that settle out of court prior to trial. It is obvious and indisputable that a punitive damages claim increases the magnitude of the ultimate settlement and, indeed, affects the entire settlement process, increasing the likelihood of litigation.”
Given the quasi-criminal nature of punitive damages awards, the law should contain the basic elements that are part of any criminal punishment: a clear definition of the type of conduct that is punishable, an appropriate burden of proof standard, a requirement that the sentence fit the “offense,” and protection against “double jeopardy” (being punished more than once for the same act). At present, the punitive damages laws in many states fail these requirements, as evidenced by the Supreme Court’s observation that punitive damages awards in this country have “run wild.” The following reform proposals find strong support in both the law and sound public policy.
Punitive damages should only be awarded if the defendant’s conduct exhibited actual malice. This “trigger” reflects the roots of punitive damages law. At the time the Founding Fathers ratified the Constitution and until relatively recent times, punitive damages were reserved for clearly intentional torts such as assault, battery, trespass, and false imprisonment. While the actual malice standard is more conservative than the current law in most states, we believe it is preferable to other standards, such as the “triple trigger” approach, because it would help separate conduct that is particularly reprehensible and worthy of punishment from that which is not.
A claimant should be required to establish proof of punitive damages liability by “clear and convincing evidence.” The “clear and convincing evidence” burden of proof standard reflects the quasi-criminal nature of punitive damages; it takes a middle ground between the burden of proof standard ordinarily used in civil cases (i.e., proof by a “preponderance of the evidence”) and the criminal law standard (i.e., proof “beyond a reasonable doubt”). The standard is now law in twenty-nine states and the District of Columbia, and has been recommended by each of the principal academic groups to analyze the law of punitive damages, including the American Bar Association, the American College of Trial Lawyers, and the National Conference of Commissioners on Uniform State Laws. The United States Supreme Court has specifically endorsed the “clear and convincing evidence” burden of proof standard in punitive damages cases.
Reasonable parameters should be put on punitive damages awards to make the punishment fit the offense. Proportionality has been an important part of the United States Supreme Court’s consideration of the validity of criminal punishment. Even very serious crimes such as larceny, robbery, and arson have sentences defined with a maximum set forth in a statute. As former Supreme Court Justice Lewis Powell wrote: “It is long past time to bring the law of punitive damages into conformity with our notions of just punishment."
A number of states have enacted statutes to address excessiveness in punitive damages awards. A sound approach would be to permit punitive damages awards against larger businesses up to two times the amount awarded to the claimant for economic and noneconomic losses, or $250,000, whichever is greater. This flexible approach would accomplish punishment and deterrence in the unusual situation where there is serious misconduct and relatively minor actual damages. At the same time, the maximum single punishment against a small business could be limited to two times the amount awarded to the claimant for economic and noneconomic losses, or $250,000, whichever is less (i.e., $250,000 would be the maximum). This lower limit would reflect the practical reality that a punitive damages award exceeding $250,000 would bankrupt most small businesses.
Multiple punitive damages awards present significant problems for plaintiffs and defendants. For instance, multiple “windfall” recoveries of punitive damages can deplete a defendant’s limited resources, endangering the ability of future claimants to recover even basic out-of-pocket expenses and damages for their pain and suffering.
Moreover, excessive imposition of awards may drive a company out of business. When this occurs, the devastating “ripple” effect can extend far beyond the defendant company and injured persons who are thereafter unable to recover compensation for their injuries. There are concomitant losses suffered by the company’s employees, who may lose their jobs, as well as by those other businesses that rely on the company or its employees for income. Economic harm to the company also affects shareholders, such as pension funds and ordinary citizens, and other investors who face the loss of their savings.
The detrimental impact of multiple punitive damages exists even in cases which are settled, rather than tried. Multiple imposition of punitive damages also poses a significant obstacle to global settlement negotiations in repetitive litigation and blocks the ability of claimants to recover quickly for their injury or the loss of a loved one.
Federal and state courts have expressed strong concerns that multiple punitive damages awards may violate constitutionally protected due process rights. Commentators in the field have expressed the same concerns.
Lastly, multiple punitive damage awards undermine the integrity of the justice system by transforming it into a lottery where a few people collect arbitrary “wins” at the expense of everyone else - the company, its employees, its shareholders and investors, and other consumers. With the exception of those lawyers who reap windfalls from repetitive punitive damages, nobody can seriously argue that repeatedly punishing anyone for a single act makes sense or benefits society.
“Unquestionably, a national solution is needed” to the problem of multiple punitive damages awards. The individual states are powerless to provide a comprehensive remedy, because one state cannot dictate judicial or legislative policies to another state. Thus, even though a state may act to control the problems of multiple punitive damages awards within its borders, it cannot control the imposition of punitive damage awards in other jurisdictions.
Unfortunately, the United States Supreme Court has proven unwilling to solve the problem of punitive damages “overkill” and appears unlikely to do so at any time soon. Congressional action is needed to “disallow the repeated sanction of punitive damages against the same defendant for one act.” This would “protect the due process rights of corporate defendants as well as the rights of injured plaintiffs to be compensated, rather than see money which is rightfully theirs be distributed as a windfall.”
Punitive damages reforms are needed in this country to rein in punitive damages “run wild,” and to curb the alarming trend of jackpot justice. Reforms reflecting the quasi-criminal nature of punitive damages provide sound and fair solutions. They should be enacted now.
STATES WITH PUNITIVE DAMAGE LIMITS
As of June 30, 2001
Alabama
In non-physical injury cases: the greater of three times compensatory damages or $500,000; for small businesses with a net worth of less than $2 million, limits punitive damages to $50,000 or 10% of net worth up to $200,000, whichever is greater.
In physical injury cases: limits punitive damages to the greater of three times compensatory damages or $1.5 million. Limit to be adjusted by the Consumer Price Index in three-year intervals beginning on January 1, 2003. (1999)
Alaska
Limits punitive damages to $500,000 or three times compensatory damages, whichever is greater, unless the defendant's action is motivated by financial gain in which case punitive damages are limited to $7,000,000, four times compensatory damages, or four times the aggregate amount of financial gain, whichever is greatest. (In unlawful employment practice suits punitive damages are limited on a sliding scale based on the number of employees in the state.) (1997)
Colorado
Punitive award may not exceed compensatory damages. (1986)
Connecticut
Punitive damage awards in product liability actions may not exceed two times compensatory damages. (1979)
Florida
Limits punitive damages to three times compensatory damages or $500,000, whichever is greater; the limit is increased to four times compensatory damages or $2,000,000, whichever is greater, if the defendant’s wrongful conduct was motivated by unreasonable financial gain or the likelihood of injury was known. (1999)
Georgia
$250,000, limit does not apply to product liability cases. (1987)
Indiana
Limits punitive damages to three times compensatory damages or $50,000, whichever is greater. (1995)
Kansas
Limits punitive award at lesser of defendant's annual gross income or $5,000,000. (1988)
Nevada
Limits punitive damages to $300,000 in cases in which compensatory damages are less than $100,000 and to three times compensatory damages in cases of $100,000 or more Note: product liability, insurance bad faith, discrimination, toxic torts, and defamation cases are excluded.) (1989)
New Jersey
Limits punitive damages to five times compensatory damages or $350,000, whichever is greater (Exemptions include: bias crimes, discrimination, AIDS testing disclosure, sex abuse, drunk drivers.) (1995)
North Carolina
Limits punitive damages to three times compensatory damages or $250,000, whichever is greater. (Exception is for harm caused by driving while impaired.) (1995)
North Dakota
Limits punitive damages to the greater of $250,000 or two times compensatory damages. (1993)
Oklahoma
If defendant acted with “reckless disregard for the rights of others,” punitive damages may be awarded up to the greater of $100,000 or the amount of compensatory damages awarded; if the defendant acted “intentionally and with malice toward others,” punitive damages may be awarded up to the greater of $500,000 or twice the amount of compensatory damages awarded or the “increased financial benefit derived by the defendant” as a result of its conduct. (1995)
Texas
Limits punitive damage awards to $200,000 or two times economic damages plus an amount equal to any noneconomic damages up to $750,000. (1995)
Virginia
$350,000 limit on punitive damages. (1987)
PUNITIVE DAMAGES PROHIBITED / SPECIAL CIRCUMSTANCES:
Louisiana | Prohibited by statute;
Massachusetts | Prohibited by common law;
Nebraska | Prohibited by common law;
New Hampshire | Prohibited by statute;
Washington | Prohibited by common law;
Connecticut | Compensate as specifically; provided in individual statutes, not to deter;
Michigan | Compensate for humiliation and/or outrage, not to deter.
"BEYOND A RESONABLE DOUBT" EVIDENCE STANDARD
Colorado (1972)
"CLEAR AND CONVINCING" EVIDENCE STANDARD
Alabama (1987); Alaska (1986); Arizona (1986)*; California (1987); District of Columbia (1995)*; Florida (1999); Georgia (1987); Hawaii (1989)*; Indiana (1984); Iowa (1987); Kansas (1987); Kentucky (1988); Maine (1985)*; Maryland (1992)*; Minnesota (1986); Mississippi (1993); Missouri (1996)*; Montana (1987); Nevada (1989); New Jersey (1995); North Carolina (1995); North Dakota(1987); Ohio (1987); Oklahoma (1995); Oregon (1987); South Carolina (1988); South Dakota (1986) Tennessee (1992)*; Texas (1995); Utah (1989) Wisconsin (1980)* *Adopted by Judicial Decision
PUNITIVE DAMAGES ASSIGNED TO STATE FUNDS
Alaska (1997); Alabama (1995)*; Illinois (1986); Iowa (1986); Missouri (1987); Oregon (1987); Utah (1989) *Alabama Supreme Court directed 50% to an Alabama General Fund.
BIFURCATED TRIALS
Alaska (1997); Alabama (1995)*; California (1987); Georgia (1987); Kansas (1988); Minnesota (1990); Mississippi (1993); Missouri (1987); Montana (1987); North Carolina (1995); Nevada (1989); New Jersey (1987); North Dakota (1993) Texas (1995); Utah (1989) *Alabama case law.
BIFURCATED TRIALS: JUDGE AWARDS PUNITIVE DAMAGES
Connecticut (1979); Kansas (1987)
UNANIMOUS JURY TO AWARD PUNITIVE DAMAGES
Montana (1997)
FINANCIAL CONDITION OF DEFENDANT ADMISSIBLE ONLY AFTER FINDING OF LIABILITY
Georgia (1987); Maryland (1986); Montana (1987) North Dakota (1993); Utah (1989)
FDA GOVERNMENT STANDARD DEFENSE
Arizona (1989); Colorado (1990); New Jersey (1987); Ohio (1987); Oregon (1987); Utah (1989) North Dakota (1995)
RESTRICT MULTIPLE AWARDS FOR SAME CONDUCT
Missouri (1987); Florida (1999)
PUNITIVE CLAIM NOT ALLOWED IN ORIGINAL COMPLAINT*
Idaho (1987); Illinois (1986); Minnesota (1986) and North Dakota (1987)
* Court requires a prima facie showing of liability before the complaint can be amended to include punitive damages claim.
Please note: This chart reflects the statutory reform measures enacted from 1986 to the present.
Yale Law Journal Assessing Punitive Damages (with Notes on Cognition and Valuation Law) 107, (1998): 2071-2152 | |
The Litigation Explosion, What Happened When America Unleashed the Lawsuit New York: Trumar Talley Books, 1991 | |
Punitive Damages in Financial Injury Jury Verdicts Santa Monica: Rand Institute for Civil Justice, 1997 | |
Punitive Damages In Financial Injury Cases -- the Rand Report 105th Congress, 1st session, 24 June, 1997 | |
On Punitive Damages, The Case for Reform Washington: Washington Legal Foundation, 1995 | |
Loyola University of Chicago Law Journal, Judicial Conference Issue Illinois' Landmark Tort Reform: The Sponsor's Policy Explanation 24, no.4, (Summber 1996): 805-817 | |
Current Award Trends in Personal Injury, 1997 Edition Personal Injury Valuation Handbook. Horsham, PA: LRP Publications, 1997 |
© 2007 American Tort Reform Association