Damages Part Two: Punitive Damages
Punitive damages are monetary awards in excess of compensatory damages. Generally, an award for punitive damages is generally only given when the defendantís harmful conduct seriously deviated from lawful conduct and was motivated by an anti-social state of mind like malice. The amount awarded is usually tied to a balance of several factors including the grievousness of the offense and the profitability of the conduct. Punitive damages are controversial and their application can be uneven, so along with reforms for compensatory damages many states have adopted statutes to limit such awards for damages.
The basis for punitive damages is frequently found in the defendantís state of mind and the nature of the act. There is no set formula or elements dictating when punitive damages are appropriate, but as the defendantís conduct gets worse the more likely it is that such damages will be awarded. For instance, a defendant who has acted in malice or with evil intent is much more likely to suffer such sanctions. In some jurisdictions even conduct that is reckless or wonton (the conscious disregard for a serious risk of harm) will be sufficient to warrant punitive damages. In many jurisdictions direct proof of maliciousness is not required and instead can be inferred by the nature of the act. In other words, some acts are so bad that only a person acting in totally selfish disregard would conduct themselves in the manner of the defendant.
The kinds of acts that are punishable by punitive damages are highly varied. Intentional tortfeasors like those who commit battery or fraud may often find themselves subject to such penalties. Repeat or chronic wrongdoers are also frequently assessed punitive damages. Businesses that knowingly sell harmful products and hope that the profits exceed liability have also been subject to punitive damages. Abuses of power can also lead to punitive damages, like attorneys who fleece their clients or employers who mistreat their employees. Again, there is no specific category or categories of conduct that define when punitive damages are appropriate, but the threat of their imposition increases in relation to the heinousness of the defendantís conduct.
The amount of any given punitive damages award is almost wholly speculative. The speculation stems from punitive damages being based on the nature of the wrong and the state of mind of the wrongdoer. This is as opposed to compensatory damages where the amount of the damages is based on the actual harm done. Despite their almost wholly subjective nature, courts have attempted to establish several factors that weight in the balance of an appropriate punitive damages award. The balancing factors include the heinousness of the defendantís conduct, the relative wealth of the defendant, the profitability of the tortious act, the costs of bringing suit, the actual damages resulting from the defendantís conduct, and the ratio between the harms actually caused by the tortious act and the plaintiffís losses. The last factor essentially asks whether the defendantís conduct has potentially caused greater harm than is indicated by the plaintiffís losses. In any case, the actual amount of the award is potentially astronomical.
Even though punitive damages can be astronomical there are limits. Courts typically restrain punitive damages to be in reasonable proportion to either the actual harm to the plaintiff or the potential harms of the defendantís conduct. The measure of potential harms is essentially a valuation of the possible impact on society if conduct like the defendantís is tolerated to any appreciable degree. In other words, it asks how much of a financial penalty will deter the defendant and the public from acting in such a manner. Punitive damages are also often keyed to the defendantís ability to pay, so the limits on an award will be somewhat in relation to its deterrent affect. A wealthy defendant is likely to only be deterred by larger fines, and less wealthy defendants will likely be deterred by smaller fines.
Important limits have also been set by the U.S. Supreme Court. The court has held that some damage awards can be so grossly excessive that they constitute a violation of the defendantís due process rights. At what point an award becomes grossly excessive is still somewhat unclear, but it depends in part on the defendantís conduct and whether they were generally aware of the possibility of such a high penalty. The effect of the decision has been a general reduction in punitive damage awards, but their calculation has remained problematic and somewhat unpredictable.
Lastly, states have taken legislative action to reduce both compensatory and punitive damage awards. Many states have passed so-called tort reform statutes that place caps on awardable damages in various categories of torts. Some categories include caps on medical malpractice damages, caps on non-economic damages like pain and suffering, or even caps on total damages. The amounts also vary from state to state and category to category.