Punitive damages: a proposal

I’m afraid I don’t have a cite, but I just heard on the news that the Supreme Court issued a ruling that punitive damages can no longer be “excessive” and will now be limited to 9 times the compensatory damages. The reasoning seems to be that the amount of damages need to be directly proportional to the injury suffered by the plaintiff.

Now, I agree that it’s not necessary to award a plaintiff $50 million for an injury worth $500,000. But punitive damages have long been meant to serve as a deterrent to bad behavior by businesses, and I’m worried that this decision will return us to the days of exploding Pintos when corporations decided it’s cheaper to pay damages to plaintiffs rather than fix a known defective product.

Anyway, I think the best solution would be to allow punitive damages to be as high as the juries decide, but instead of giving the punitive part of the award to the plainitff, it should go to the state. This would not only preserve the deterrence effect, but would also benefit the rest of us (through lower taxes, improved roads, better schools, etc.)

Any thoughts?



I have always had the opinion that punitive damages given to the plaintiff are a conflict of interest, so we are definitely singing the same tune. Compensatory damages should be sufficient to compensate for the injury. Why should the plaintiff become a lottery winner in the process of punishing the companies?

I have often thought that the punitive damages could be given to funds set up for medical research or helping crime victims and so forth. Sadly, the details of how to split such a huge pot are probably beyond the capabilities of our society, and the amount of money involved would surely attract graft and corruption.

One negative aspect of this approach is that a large punitive award would end up benefitting the very jurors that decided on it (in the form of lower taxes).

Kind of negates the concept of an impartial jury.

Here is a summary that I received from a colleague today, including a link:

I wholeheartedly agree with the Court’s decision here. Punitive damages can get outrageous. In this case, it was $147 million and the defendant, State Farm, to my mind, didn’t even do anything wrong.

They decided to litigate rather than settle, got hit with a judgement 3x the policy limit, and paid the whole thing anyway. The policy holder (Campbell) then sued them for bad faith, fraud, and emotional distress. State Farm paid the judgement! The bad decision to litigate didn’t cost Campbell anything, but he got $1 million in compensatory damages alone. Considering that the family of the persons he killed and maimed (an accident of some sort) got $150 thousand I think that $1M award alone is absurd, the $147M in punative is beyond all reason.

Killed and maimed in an accident gets you $150,000 compensation.
Emotional distress and fraud gets you $1,000,000 compensation.

I thought compensation was supposed to be based on what happened not on how deep someone’s pockets are. Ugh, if I keep typing this will just become a rant.

Obviously, the jury disagreed. Whil I agree that some reform is needed, this decision is a bad thing. The threat of a large punitive damage award is something that will keep companies in line. Or was something that kept companies in line. The no longer need be as concerned about liablity.

However, I would be OK with doing away with punitive damages altogether, if the decision makers of offending companies actually did jail time when they decided to do something harmful to the public.

Compensatory damages are based on what happened; they (theoretically) bear no relation to the depth of the defendant’s pockets. If my improper actions resulted in your loss of $1000, I have to reimburse you for $1000. It doesn’t matter whether I’m a person of modest means or a giant multinational corporation. You still get $1000 in compensatory damages.

Punitive damages, on the other hand, are designed to be stiff enough to discourage the defendant from repeating the bad behavior. So, if you or I were hit with $10,000 in punitive damages, that would certainly be enough to convince us never to do that (whatever it was) again. But hitting, say, Exxon with $10,000 in punitive damages would have no effect on them at all. In other words, punitive damages are, by necessity, directly related to the depth of the defendant’s pockets.

Theory is nice, but reality is somewhat different. From the link above

This is the initial case, a judgement of “over” $150,000 (I assume not too far over) for the death and permanent disability of 2 people, caused by Mr. Campbell.

The second trial

So, for emotional distress caused by State Farm’s decision to not settle you get $2.6M in compensatory damages (eventually reduced to $1M). Note that State Farm’s bad decision did not cost the Campbells a single penny, since SF paid the entire judgement, even though it was greater than their policy limit. There is absolutely no question whatsoever that the “compensatory” damages in these two cases were decided upon based on the depth of the defendant’s pockets.

Do you really think punative damages should bear zero resemblance to the actual damage inflicted? What if it were $500 of real damages, would $150M punative still be acceptable? That’s like hitting a guy over the head with a baseball bat to stop him from picking his nose.

The problem as I see it is that juries are totally haphazard in their application of these damages. There is no rhyme or reason, no consistency, no inherent validity to the numbers thrown out there. Someone figured that State Farm could eat a $150 mil, so they awarded it.

$150,000 for 1 dead and 1 maimed person vs. $146,000,000 for emotional distress.

Yes, Cheesesteak, juries sometimes do some bizarre things, usually when they disregard the judge’s instructions and decide to create their own brand of “justice.” Thankfully, it doesn’t really happen all that often (and a lot of the more outrageous damage awards get reduced on appeal).

But how would you change the system? Who should decide how much your injury is worth? Who should decide how much a guilty defendant should have to pay in punitive damages? Should judges do it? Should the legislature set up a fee schedule? (Loss of eye: $10,000. Loss of right arm, if right-handed: $50,000. Loss of ring finger: $2000.)

Back to the OP, lest we wander too far off the track: I agree that punitive damages should be paid to the state, or to some worthy cause, rather than going to the plaintiff. I’m not too concerned about the fact that the jury might indirectly benefit from such payments - I think their interest in it is sufficiently dilute that it wouldn’t really affect their judgment.

Your idea of jail time, spooje, is appealing, but these judgments always come from civil cases, where prison is not a possible outcome (hence the lower standard of proof than what’s required in a criminal case). For your idea to work, the civil suit would have to be followed up by a criminal prosecution (or preceded by one, I suppose). Very messy, and, because of the higher standard of proof required for a criminal conviction, I’d wager that a lot of “bad guys” would walk.