Punitive Damages – Torts

Cite this article as:"Punitive Damages – Torts," in The Business Professor, updated January 9, 2015, last accessed July 7, 2020, https://thebusinessprofessor.com/lesson/tort-damages/.

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What are “Punitive Damages”?

Punitive damages are used to punish defendants for committing intentional torts and for negligent behavior considered “gross” or “willful and wanton.” The key consideration in the award of punitive damages is the defendant’s motive. Usually, a defendant’s motive must be malicious, fraudulent, or evil. Punitive damages are also awarded for dangerously negligent or reckless conduct that shows a conscious disregard for the interests of others.

Discussion: How do you feel about the award of punitive damages? If punitive damages are awarded by the jury, is it fair that they go to the defendant? Why or why not?

Practice Question: Happy Motor Co. manufactures cars. The company learns that the braking system in the vehicle is subject to fail in certain weather and road conditions. The company calculates the likelihood of losses from lawsuits from the failed braking system and realizes that it would be far cheaper to pay out awards in those lawsuits than to recall all of the vehicles and replace the braking system. When a plaintiff is severely injured because of the malfunction and sues Happy Motor Co., what type of damages do you think the jury will award and why?

Proposed Answer

  • The jury may consider awarding punitive damages in the case. Punitive damages are legal recompenses that are levied as punishment for a wrong or offense committed by the defendant. They are often required in order to make up for a perceived shortfall in compensatory damages and are merely intended to indemnify the plaintiff. The purpose of punitive damages is to punish the defendant for outrageous conduct and/or to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit. Courts will often award punitive damages if the plaintiff can prove that the defendant engaged in an intentional tort and/or engaged in a wanton and willful misconduct. See the decision in National By-Products Inc. v Searcy House moving Co. https://www.law.cornell.edu/wex/punitive_damages

Academic Research

Huang, Bert I., Surprisingly Punitive Damages (August 1, 2014). Virginia Law Review, Forthcoming; Columbia Law and Economics Working Paper No. 497; Columbia Public Law Research Paper No. 14-422. Available at SSRN: https://ssrn.com/abstract=2495823. Think first of the classic problem of redundant punitive damages: A defendant has caused a mass tort. Plaintiff 1 sues, winning punitive damages based on the overall reprehensibility of that original act. Plaintiff 2 also sues — and also wins punitive damages on the same grounds. So do Plaintiff 3, Plaintiff 4, and so forth. Next, consider a more subtle problem: Many statutes set the minimum award per claim at a super-compensatory level, based on the assumption that private suits may need extra inducement. But when enforcement turns out to be more vigorous than was assumed — most famously, when thousands or millions of claims are brought at once — then the damages in even a single case can stack up to surprisingly punishing effect. These problems share a conceptual feature that I analyze here: The damages in each context can be seen as encompassing two distinct components — a “variable” portion that properly varies with the number of claims, and a “fixed” portion that should be awarded only once. The crucial error that leads to surprisingly punitive damages is repeatedly awarding not only the variable but also the fixed component of damages, in cases with multiple claims. One natural solution for neutralizing such redundancy is to allow courts to run concurrently the fixed component of such repeated awards. This paper explores how a “concurrent damages” approach might be applied to variations of each problem; addresses its pros, cons, and complications; and explores how it relates to other procedural devices, including preclusion and aggregation.

Wood, Robert W., Tax-Free Wrongful Death Punitive Damages? (December 13, 2010). Tax Notes, Vol. 129, No. 11, 2010. Available at SSRN: https://ssrn.com/abstract=1787547. Punitive damages have long been viewed as taxable by the IRS, and that view was enshrined in 1996 with a U.S. Supreme Court case and a statutory change to section 104. Yet there remains a narrow exception from this treatment that exempts limited damages for wrongful death. Wood explores this aspect of the law of punitive damages.

Robbennolt, Jennifer K., Punitive Damage Decision Making: The Decisions of Citizens and Trial Court Judges. Law and Human Behavior. Available at SSRN: https://ssrn.com/abstract=253038. Some states have allocated the authority to determine the amount of punitive damages to judges rather than to juries. The present study explored the determination of damages by jury eligible citizens and trial court judges. The punitive damage awards of both groups were of similar magnitude and variability. The compensatory damages of jurors were marginally lower but, in some conditions, were more variable than the compensatory damage awards of judges. Both groups appropriately utilized information about both the actual and potential severity of the harm to the plaintiff in determining punitive damages and used only the actual severity of the injury in determining compensatory damages. The punitive damage awards of both groups were influenced by the wealth of the defendant, but the compensatory damage awards of judges were marginally more influenced by defendant wealth than those of citizens. The results are discussed in the context of proposals for punitive damages reform.

Lens, Jill Wieber, Justice Holmes’s Bad Man and the Depleted Purposes of Punitive Damages (August 2, 2012). Kentucky Law Journal, Vol. 101, No. 789, 2013. Available at SSRN: https://ssrn.com/abstract=2122687 or http://dx.doi.org/10.2139/ssrn.2122687. Justice Holmes introduced his bad man as a tool to separate law and morality. The bad man is not affected by morality, and sees a tort duty only as an obligation to pay damages. The bad man does not consider any chance of escaping liability, so he sees that obligation as mandatory. Applied hypothetically to punitive damages, the bad man would not appreciate the morality basis for imposing punitive damages or the moral condemnation and stigma that traditionally results from that imposition. Instead, he sees punitive damages as just another check that he will be required to write. In Exxon Shipping Co. v. Baker, the Supreme Court made this hypothetical application a reality. Acting within its common law authority, the Court explained its ideal system for imposing punitive damages, cited Justice Holmes’s bad man, and necessarily depleted the traditional common law punishment and deterrence purposes of punitive damages. No longer is that punishment purpose based in morality, and the deterrence purpose lacks any specific deterrence goal. The Court’s depletion of the damages’ common law purposes of punitive damages undermines the damages from a policy basis. But more importantly, the depletion undermines the damages’ constitutionality as that constitutionality depends on the damages’ traditional common law purposes.

Kotler, Martin A., Imposing Punitive Damages on the Intoxicated Driver (1984). Akron Law Review, Vol. 18, No. 2, 1984. Available at SSRN: https://ssrn.com/abstract=2243719. This Article explores the traditional justification for the imposition of punitive damage liability in the context of drunk driving. Though courts have increasingly found such damages to be available in the appropriate case, neither the deterrence nor punishment rationales can be justified in the absence of widespread public awareness that specific conduct has the potential to result in liability. Criminal sanction, therefore, better serves to accomplish the intended purposes.

Adar, Yehuda, Touring the Punitive Damages Forest: A Proposed Roadmap (2013). 1 Osservatorio Di Diritto Civile E Commerciale [The Civil & Commercial Law Observer] 275-322, 2013. Available at SSRN: https://ssrn.com/abstract=2372390. Punitive damages have for years been one of the most hotly debated legal topics around the common law world. In recent years, however, the interest in this subject seems to be shared increasingly by continental scholars. The scholarly literature on punitive damages is immense. It covers almost every aspect of the punitive damages phenomenon, from almost every angle (doctrinal, conceptual, philosophical, political, economic, historical, empirical, constitutional, and comparative). Surprisingly, however, there has been little academic effort to systematically organize the punitive damages field. What seems to be especially lacking is a roadmap which would be able to encapsulate the various aspects of the problem and to demonstrate the connection – or lack thereof – between these aspects. In this article, the author aims to offer the reader such a roadmap. The starting point is the author’s claim that forming an opinion on whether or not a doctrine of punitive damages may ever be justified and, if so, in which form, requires the posing and answering of a series of interrelated – but distinct – questions. The present article is an endeavor to present these questions and to discuss possible answers to them. It thus offers both continental and common law lawyers a draft roadmap, which might be of assistance to anyone willing to become more acquainted with, and more involved in, the punitive damages debate.

Diamond, Peter A., Integrating Punishment and Efficiency Concerns in Punitive Damages for Reckless Disregard of Risks to Others. Journal of Law, Economics, and Organization, Vol. 18, No. 1, pp. 117-139, 2002. Available at SSRN: https://ssrn.com/abstract=832287. Justifications for the use of punitive damages refer to deterrence and punishment. After formulating a social welfare function that incorporates both economic efficiency and a desire for retribution, optimal punitive damages are considered to balance concerns for economic efficiency and for retribution. This optimal balancing is considered where compensatory damages alone provide the correct level of deterrence, allowing the ideal retribution to vary with the level of wealth and with the level of precaution. The analysis is extended to situations where some accidents do not result in liability.

McAllister, Stephen R., A Pragmatic Approach to the Eighth Amendment and Punitive Damages (April, 22 2012). Kansas Law Review, Vol. 43, No. 761, 1995. Available at SSRN: https://ssrn.com/abstract=2044036. The Supreme Court has “constitutionalized” punitive damage awards under state law by holding that the Due Process Clause of the Fourteenth Amendment constrains such awards. But the Court went that route only after rejecting the argument that the Eighth Amendment’s Excessive Fines Clause limited such awards in Browning-Ferris Indus., Inc. v. Kelco Disposal, Inc., 492 U.S. 257 (1989). This article argues that subsequent decisions of the Court demonstrate that Browning-Ferris was wrongly decided. In particular, the Court’s subsequent decisions holding that the Excessive Fines Clause applies to civil forfeiture actions brought by the United States, and that there is “state action” for constitutional purposes when a judge excuses a juror peremptorily stricken by a private party in a civil case both undermine the rationale that the Excessive Fines Clause does not apply to “punitive” awards in civil suits between private parties.

Robbennolt, Jennifer K., Determining Punitive Damages: Empirical Insights and Implications for Reform. Buffalo Law Review, Vol. 50, p. 103, 2002. Available at SSRN: https://ssrn.com/abstract=344441. Large punitive damage verdicts are the objects of substantial media attention, stir incredible controversy, and have fueled sweeping reforms. However, these reform efforts have been largely uninformed by the now substantial body of empirical literature examining punitive damages decision making. The research suggests that jurors perform some aspects of their decision task quite well (and make decisions that are similar to those of judges in many ways), effecting intuitive notions of retribution and demonstrating sensitivity to several of the key legal factors that underlie punitive damages. Conversely, jurors have difficulty understanding legal instructions, giving effect to optimal deterrence, and translating their outrage into dollars. However, most current reforms fail to take into account the psychology of punitive damages decision making and, thus, may not be the best ways to improve the processes by which punitive damages are determined. In fact, these reforms have been primarily designed to address an illusory problem, have many counterintuitive effects, and fail to address the difficulties that jurors have in determining punitive damages. In contrast, the research suggests several ways in which the jury decision-making task could be altered to specifically address the problematic aspects of the process identified in the literature.

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