Punitive or exemplary damages are a unique element of American civil law. They are rewarded as punishment for a defendant in a legal battle. This is in contrast to compensatory damages, which only aim to reimburse a plaintiff for financial losses after sustaining an injury.
That said, punitive damages are only occasionally awarded in the U.S. When they are, it is usually because of egregious circumstances. For instance, in 2000, a Miami court awarded $145 billion to the plaintiffs in a class action lawsuit against five U.S. tobacco companies.
The trial lasted two years and consisted of 157 witnesses. Some of them testified about their cancer diagnosis and the resulting pain and suffering they experienced. Eventually, the case was won on behalf of around 700,000 smokers in Florida.
In 2021, an in-house attorney received $150 million in punitive damages after he was fired for testifying against his employer in a gender discrimination case. Also, in 2021, Tesla Inc. had to pay a contract worker $137 million in punitive damages after she sued for racial discrimination.
What Are Punitive Damages?
Punitive damages are a payment that a defendant must pay on top of compensatory damage. They are typically awarded when compensatory damages are insufficient to compensate the plaintiff for their losses.
Punitive damages punish grossly negligent or intentional acts and, by default, the person who committed them. They are sometimes called exemplary damages because they are meant to deter others from behaving the same way and hurting innocent people.
This is also why punitive damages often amount to a huge sum of money. Courts that award these damages hope that the financial loss will make a person think twice about committing such misdeeds again.
Still, wins like these are few and far between, mainly for the following reasons.
High Burden of Proof
Securing a punitive damage award from a U.S. court is no small feat. The challenge lies in the burden of proof. Unlike the preponderance of the evidence standard used for compensatory damages, punitive damages require clearly showing misconduct.
This means plaintiffs must prove beyond a doubt that the defendant acted with reckless indifference, malice, or gross negligence.
Malice can refer to legal malice, which means intentional wrongdoing regardless of the legal consequences. It can also refer to general malice, which means someone acts with a disregard for the safety or rights of others.
Gross negligence is also defined as a disregard for the well-being of others. It is knowingly ignoring the safety of other people and thereby creating a substantial and unjustifiable risk of harm.
It is often very challenging for a plaintiff to prove that a defendant acted in malice or with gross negligence. They must provide tangible proof that establishes the harm caused while linking it to the defendant’s behavior or actions.
Moreover, different states have different laws about punitive damages. For instance, California juries must consider the deplorable conduct of the defendant and the suitable amount that would likely deter the defendant from repeating their actions, and the amount of punitive damages must equal the harm suffered by the plaintiff.
Greater Focus on Compensation
In most instances, the legal system prioritizes compensating victims for their losses. Compensatory damages do just that: They recoup some of a defendant's financial losses and give them better financial security.
Courts often view compensation as the main objective in civil cases (personal injury). While punitive damages can punish and deter defendants, the plaintiff's well-being must take priority.
Punitive Damages May Be Unfair to a Defendant
In some cases, awarding excessive punitive damages may be unfair to the defendant. For this reason, the U.S. Supreme Court has imposed strict limits on the amount of damages a jury can award.
For instance, in 1995, a jury awarded a plaintiff (car buyer) $4,000 in compensatory damages. This came after the plaintiff bought what they thought was a new car from BMW, only to discover the car had been repainted.
At that time, BMW’s in-house policy allowed selling repaired and repainted vehicles as new. Because of this deception, the jury also awarded $4 million in punitive damages. This was awarded to deter the car manufacturer from continuing with the policy. The Supreme Court in Alabama reduced the punitive damages to $2 million.
However, the U.S. Supreme Court ruled that the $2 million award was excessive and violated the U.S. Constitution’s Due Process Clause.
It outlined three elements for the jury to consider, namely:
- How reprehensible was BMW’s conduct?
- How does the plaintiff’s damages or losses align with the punitive damages award?
- How does the punitive damages award differ from relevant civil penalties?
Ultimately, the Supreme Court decided that BMW’s conduct did not justify the excessive award and would harm the company.
Appeals Can Overturn a Punitive Damages Award
Even if a jury awards punitive damages, it is not a done deal. The defendant can appeal the decision and succeed in overturning it. An appellate court will review the case to determine whether the evidence supports the jury’s decision. It will also examine the defendant’s conduct and the proportionality of the punitive damage award.
Alternative Punishments May Be More Appropriate
In especially egregious cases, other forms of punishment may be more appropriate than punitive damages. For instance, intentional wrongdoing that affects many people may require criminal prosecution.
Either way, the concept of punitive damages still stirs debate in the U.S. Some lawmakers argue that punitive damages are an essential part of the law. In contrast, others believe the system is too unpredictable and can unfairly burden defendants.
Justice and Fairness
Sometimes, punitive damages are not the solution to balancing justice and fairness. In theory, they could punish horrendous misconduct and deter similar conduct. On the other hand, it could spell the end of a business and hundreds or thousands of jobs simultaneously.
The debate is likely to continue for some time. Ultimately, the burden is on the U.S. legal system to balance the need for justice with fairness without relying too heavily on excessive damages awards.
