Punitive damages

Law Encyclopedia: Punitive Damages - Monetary compensation awarded to an injured party that goes beyond that which is necessary to compensate the individual for losses and that is intended to punish the wrongdoer.

Punitive damages or exemplary damages are damages intended to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit. Although the purpose of punitive damages is not to compensate the plaintiff, the plaintiff will in fact receive all or some portion of the punitive damage award.

Punitive damages are often awarded where compensatory damages are deemed an inadequate remedy. The court may impose them to prevent under-compensation of plaintiffs, to allow redress for undetectable torts and taking some strain away from the criminal justice system. However, punitive damages awarded under court systems that recognize them may be difficult to enforce in jurisdictions that do not recognize them. For example, punitive damages awarded to one party in a US case would be difficult to get recognition for in a European court, where punitive damages are most likely to be considered to violate ordre public.

Because they usually compensate the plaintiff in excess of the plaintiff's provable injuries, punitive damages are awarded only in special cases, usually under tort law, where the defendant's conduct was egregiously insidious. Punitive damages cannot generally be awarded in contract disputes. The main exception is in insurance bad faith cases in the United States, where the insurer's breach of contract is alleged to be so egregious as to amount to a breach of the "implied covenant of good faith and fair dealing," and is therefore considered to be a tort cause of action eligible for punitive damages (in excess of the value of the insurance policy).

Punitive damages in the United States

Punitive damages are a settled principle of common law in the United States. They are a matter of state law, and thus differ in application from state to state. In many states, including California and Texas, punitive damages are determined based on statute; elsewhere, they may be determined solely based on case law. Many state statutes are the result of insurance industry lobbying to impose "caps" on punitive damages; however, several state courts have struck down these statutory caps as unconstitutional.

The general rule is that punitive damages cannot be awarded for breach of contract. But if an independent tort is committed in a contractual setting, punitive damages can be awarded for the tort. Punitive damages are usually reserved for when the defendant has displayed actual intent to cause harm (such as purposefully rear-ending someone else's car), rather than in cases of mere negligence.

Punitive damages will not be awarded in tort actions based on the defendant's negligence alone. The conduct must have been willful, wanton, or reckless to constitute an intentional offense. Willfulness implies a plan, purpose, or intent to commit a wrongdoing and cause an injury. For example, if an automobile manufacturer knows that the gas tank in its car will likely explode on impact but does not change the design because it does not wish to incur additional costs, the behavior could be classified as willful. Conduct is considered wanton if the individual performing the act is cognizant that it is likely to cause an injury, even though specific intent to harm someone does not exist, such as when an individual shoots a gun into a crowd. Although the individual does not have the intent to injure anyone in particular, injury is a natural and probable consequence of the act. Recklessness is an act performed with total disregard of its foreseeable harmful consequences. Punitive damages can be awarded on the basis of an injurious act done with ill will, a wrongful or illegal motive, or without any legal justification, but a wrongful act performed in good faith is an inadequate basis for such an award. For example, if a grocery sold canned goods that later turned out to be tainted, and the store did not know of the problem before selling the canned goods, it would be liable for compensatory damages to the victims who ate the food, but would not be liable for punitive damages.

Maximum dollar amount of punitive damages

There is no maximum dollar amount of punitive damages that a defendant can be ordered to pay. In response to judges and juries which award high punitive damages verdicts, the Supreme Court of the United States has made several decisions which limit awards of punitive damages through the due process of law clauses of the Fifth and Fourteenth Amendments to the United States Constitution.

Punitive damages in Canada

Punitive or exemplary damages are generally only available in Canada where there is proof of malicious conduct on the part of the defendant. Canadian courts are generally careful in exercising their discretion to award these damages, which are an exception to the time-honored principle that civil damages seek to compensate the victim. As the term implies, "punitive" damages are meant to punish the offending party rather than to compensate the plaintiff.

There are two sources of punitive damages in Canada - the Common Law and statutes. Historically, punitive damages were not available in Quebec civil law but are now provided for in certain legislation.

Exemplary damages (punitive damages) in the UK

Under UK law, exemplary damages (sometimes also called "punitive damages", "punitive award" or "penal damages" or "penal award"), can be awarded only if permitted by statute or if the conditions of what is called the "categories test" are fulfilled. The categories test requires that:

• the wrongdoer has committed a legal wrong of a type for which punitive damages were awarded before 1964 (thus ruling out punitive damages in all cases under the sex, race, disability and other anti-discrimination legislation, all of which is post-1970); and
• the wrongdoer's conduct was an abuse of power by public servants or was motivated by calculated profit seeking or has affected a large number of people who have made claims to be made in respect of it.

However aggravated damages are different. It is clear that employment tribunals have power to make awards of aggravated damages in discrimination (including whistle-blowing) cases (see Vento v West Yorkshire Police CA 2002 EWCA Civ 1871, Court of Appeal on 22nd December 2002, British Telecommunications plc v Reid CA 2004 IRLR 327, Court of Appeal on 6th October 2003 and Virgo Fidelis Junior School v Boyle EAT 2004 , EAT on 23rd January 2004).

The Law Commission's report of 16th December 1997 recommends that the law should be changed so that "punitive damages would be available for a legal wrong (other than breach of contract) if the defendant has deliberately and outrageously disregarded the plaintiff's rights."