What are Punitive Damages?
When is it awarded?
What is the difference between punitive and compensatory damages?
In this article, we will break down the notion of Punitive Damages so you know all there is to know about it
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Table of Contents
What Are Punitive Damages
Punitive damages is a type of damage that a civil plaintiff may obtain from the court when it is proven that the defendant’s wrongful actions or omissions were harmful, grossly negligent, or intentional.
A person suing for punitive damages must prove that the defendant’s actions were so outrageous that the courts must punish such behavior by ordering the defendant to pay an amount over and above the amount necessary to fully compensate the plaintiff’s damages.
In other words, in punitive damage cases, the plaintiff is likely to receive compensatory damages (fully compensating its actual loss) and “extra” award intended to punish the defendant.
You can consider punitive damages as legal recompense awarded in favor of the plaintiff when the defendant is found guilty of committing a wrong or offense.
Statistically, in about 5% of court cases and civil lawsuits punitive damages are awarded.
Although in 95% of the time the defendant is not found liable to pay punitive damages, some cases have received significant media attention due to the astonishing amount of the awards.
For instance, in 1992, Stella Liebeck of New Mexico suffered second and third-degree burns when a cup of McDonald’s coffee spilled over her.
She suffered $20,000 in medical expenses and spent about eight days in the hospital.
She eventually filed a personal injury lawsuit against McDonald and received $200,000 in compensatory damages but also $2,700,000 in punitive damages.
Later, both the compensatory damage and punitive damage awards were reduced but you can see why this case received so much attention.
The Cornell Law School’s Legal Information Institute defines punitive damages as:
Punitive damages are awarded in addition to actual damages in certain circumstances. Punitive damages are considered punishment and are typically awarded at the court’s discretion when the defendant’s behavior is found to be especially harmful.
In other words, you can define punitive damages as:
- Award of money
- Provided in the court’s discretion
- In addition to actual damages
- Considered as punishment
- For the defendant’s harmful conduct
How Does It Work
In some cases, punitive damages may be awarded in the context of a civil lawsuit such as in personal injury claims, or other types of cases tried under tort law.
In a punitive damage case, it’s rare that the plaintiff does not succeed in obtaining compensatory damages or another form of damage.
In other words, a punitive award is typically granted “in addition to” another type of damage as a means to punish the defendant or the party found guilty of wrongful conduct.
The logic is that the defendant’s conduct was so malicious, intentionally designed to be harmful, reckless, or wanton that the courts will find that it would be justified to have the defendant pay extra money on top of paying for the plaintiff’s award.
For example, in a personal injury lawsuit, the victim of an accident or injury can seek compensation for damages suffered such as the reimbursement of medical bills, medical equipment, loss of wages, and other.
In addition to the plaintiff’s compensation, the court may order the defendant to pay additional sums increasing the plaintiff’s award not because the plaintiff needs it to be whole again but because the court wants to deter the defendant from behaving in the same way in the future.
Punitive Damages Requirements
The application of punitive damages will vary depending on your jurisdiction.
Some states allow punitive damages, others legally cap the total possible award, and others may prohibit them.
Typically, punitive damages are awarded when there is malicious intent, direct harm, and another damage is awarded.
In US tort law, a judge or jury may award a civil plaintiff punitive damages when it considers the defendant’s actions or conduct as reprehensible.
When the plaintiff is able to prove that the defendant’s actions, conduct, acts, or omissions were reckless, intentional, and prejudicial, it may successfully get a punitive damage award when the laws do not prohibit the same.
You must assess whether punitive damages are awarded in the type of legal action you are pursuing by ensuring there are no statutory prohibitions, ensuring that in similar cases punitive damages were awarded, and the defendant’s actions were malicious or grossly negligent.
Breach of Contract
In the United States, punitive damages are generally not awarded when dealing with breach of contract lawsuits and claims.
In contract law, contracting parties may agree to liquidated damages as a contractual means to compensate for a breach of contract.
However, liquidated damages cannot be a means to punish a contracting party or serve as punitive damages.
In fact, under a contract law regime, liquidated damages should reflect a party’s reasonable assessment of what it’s “actual” damages may be in the event of a breach.
The courts will typically use a two-part test to ensure that the liquidated damages in the contract are enforceable when:
- The liquidated damages represent a reasonable forecast for actual damages suffered by a party in the case of a breach of contract
- The beneficiary’s actual damages are difficult to estimate or cannot be accurately determined
If the liquidated damages clause meets the two-part test, the courts will apply it.
On the other hand, if the liquidated damages clause is “punitive” in nature, then the courts will not enforce it.
How To Calculate Punitive Damages
Many wonder how much punitive damages to ask for.
There is no set formula to accurately determine if you will get punitive damages when you file a lawsuit.
Many factors can affect the court’s decision in awarding punitive damages and for how much, like:
- Nature of wrongful conduct
- Nature of injuries suffered
- The consequences of the injuries
- The deliberate nature of the defendant’s conduct
- Statutory limitations or caps
In the United States, the Supreme Court has rendered decisions intended to govern how punitive damages are to be calculated.
In addition to Supreme Court case laws, different states have adopted different sets of laws aimed at controlling punitive damages.
Based on the US Supreme Court’s decision, punitive damages should not exceed four times the amount of compensatory damages although the court does not establish a maximum cap.
In other words, if the plaintiff’s compensatory damage award is $50,000, the court should not award punitive damages in excess of $200,000.
In some cases, the plaintiff may seek for punitive damages for a higher amount:
- When the defendant’s conduct is so reprehensible or offensive to society
- When the plaintiff’s harm exceeds the punitive damages
- When the plaintiff’s non-economic harm is difficult to accurately estimate
In essence, the Supreme Court indicated that a 4:1 ratio between punitive damages and compensatory damages can be high and a 10:1 ratio can almost certainly be unconstitutional.
Example of Punitive Damage
Let’s look at an example of when punitive damages may be awarded and how.
In a Florida lawsuit, a jury awarded the plaintiff the sum of $116.7 million in compensatory damages and $100.1 million in punitive damages when an unlicensed doctor assistance misdiagnosed a stroke for a sinus infection.
On October 4, 2002, a Los Angeles jury awarded the sum of $28 billion in punitive damages against the tobacco maker Philip Morris in an individual case.
What’s astonishing is that the punitive to compensatory damage ratio in this case amounted to 33,000:1.
Punitive Damages vs Compensatory Damages
What is the difference between punitive vs compensatory damages?
Compensatory damages are intended to compensate the plaintiff for damages or harm suffered whereas punitive damages are designed to ensure the defendant (or others) do not engage in a similar conduct again.
Compensatory damages are designed to compensate a civil lawsuit plaintiff for “actual” damages or losses.
For example, in a personal injury lawsuit, compensatory damages can include:
- Medical expenses
- Medical equipment
- Surgery costs
- Therapy costs
- Lost wages
Compensatory damages can be divided into two categories: special damages and general damages.
Special damages are those damages that can easily be calculated (are tangible) like medical expenses, property damage, or out-of-pocket expenses.
General damages are non-economic damages that are subjective in nature such as emotional distress, pain and suffering, disfigurement, shortened life expectancy, loss of consortium, and so on.
Punitive damages are awarded on top of compensatory damages (including special and general damages).
When a defendant injures another intentionally or due to willful misconduct, to the extent punitive laws permit, the courts may punish the defendant for such behavior.
Punitive damages may be awarded when the defendant consciously and intentionally acted in a way to cause harm to another or violated anti-discrimination laws etc.
Punitive Damages vs Exemplary Damages
What is the difference between punitive damages and exemplary damages?
Punitive and exemplary damages actually mean the same thing as they are damages or a legal “award” intended to punish outrageous behavior and conduct of the defendant.
To say “punitive damages”, you are emphasizing that the defendant is to be “punished”.
To say “exemplary damages”, you are emphasizing that the defendant’s damages will set an “example” so others do not engage in similar conduct.
Let’s look at some punitive damage statistics to get a better understanding of how it works and how it is awarded.
Based on the Bureau of Justice Statistics studies of punitive damages in civil trials, they have found the following:
- 12% of civil litigants asked for punitive damages out of 25,000 civil trials in 2005
- 10% of tort trials had a punitive damage claim
- 5% of civil trials led to the award of punitive damages
- $64,000 was the median value of punitive damages
- 76% of cases, the punitive to compensatory damage ratio was below 3:1
Exemplary Damages Takeaways
So what is the legal definition of Punitive Damages?
When are punitive damages awarded?
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Punitive Damages Are:
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