Punitive damages are damages that a court may order a defendant to pay if the defendant’s behavior was particularly reckless or can be classified as an attempt to cause deliberate harm. “Exemplary damages” is another name for punitive damages. In a personal injury case, the plaintiff may receive some or all of the punitive damages amount, if the court orders them.
Punitive damages differ from actual damages because they are not awarded in order to pay the injured plaintiff back for the costs of the injury. They are awarded to punish the defendant, not to compensate the plaintiff. A court may also award punitive damages if it believes that the plaintiff was not properly compensated by the actual damages or if the defendant’s behavior was particularly bad but no actual damages are available.
In addition to punishing a particular defendant for particularly bad behavior, punitive damages are intended to deter other people in the defendant’s position from acting badly. For example, suppose a car company builds and sells vehicles that will explode, even in minor accidents. Suppose further that drivers who are injured by the exploding cars sue the car company, and they prove in court that the car company knew its cars would explode but kept building and selling them anyway. The jury or judge may order the car company to pay punitive damages both to punish the car company for knowingly building exploding cars and to warn other car companies that they must take care not to build exploding cars, unless they want to face a similar judgment.
Punitive damages are usually restricted to tort cases, including personal injury cases. Courts will not usually award punitive damages in contracts cases, except for contracts cases that involve a dispute over coverage under an insurance contract. In insurance cases, the court may award punitive damages if the plaintiff can show that the insurance company breached the requirement of good faith and fair dealing by acting particularly badly when it breached the insurance contract. Punitive damages are, however, available in a wide range of personal injury cases, including cases that deal with premises liability, products liability, and intentional torts like assault.
Rarely, the court in a personal injury case will require the defendant to pay several millions of dollars in punitive damages. These cases often make the news, leading lawmakers and members of the public to believe that punitive damages awards are always huge and that tort reform legislation may be necessary to decrease the amount of these awards. However, research by the U.S. Department of Justice indicates that only two percent of torts cases involve punitive damages, and the average punitive damages award is less than $50,000.
Nevertheless, several U.S. states have tried to limit punitive damages awards by passing laws that either establish rules for calculating punitive damages or put “caps” (i.e., maximum allowable amounts) on punitive damages awards. Several states, including Texas and California, still have statutes that address how to calculate punitive damages awards. The outright caps several states imposed on punitive damages have been ruled unconstitutional in state or federal courts, however.
The U.S. Supreme Court has held that punitive damages must be “reasonable.” Whether or not a particular punitive damages award is “reasonable” depends on the facts of the case and the amount of criminal or civil fines that cover the same or similar behavior. A reasonable punitive damages award also depends on the ratio of the punitive damages to actual damages. If the ratio is 4:1 or higher, courts will treat the punitive damages amount with suspicion. The U.S. Supreme Court has said that if the ratio of punitive damages to actual damages is 10:1 or higher, the amount will almost certainly be deemed unconstitutional.
The Supreme Court has also ruled that, while a judge or jury cannot impose punitive damages based on the actual harm the defendant’s behavior caused to people not involved in the lawsuit, the judge or jury can consider that harm as a part of determining how egregious the defendant’s behavior was. For example, in Philip Morris U.S.A. v. Williams, the Supreme Court held that the punitive damages award could not attempt to make Philip Morris pay for the damage caused to every smoker who used the company’s cigarettes. However, the court could consider the vast number of people harmed by the product in deciding how badly Philip Morris may have acted in covering up information that discussed the dangers of smoking.
Punitive damages should not be confused with actual damages, which pay for the costs caused by the injury, nominal damages, which are a symbolic payment, or liquidated damages, which are a type of payment that may be required if one party breaches a contract.