General rule of punitive damages: no more than 10 times compensatory damages

If you watch the news and see a story about a lawsuit, it is common to hear a mention of “punitive damages” followed immediately by a very, very large dollar sum. There is some confusion about what punitive damages are and when they can be awarded.

When someone files a lawsuit, it is almost always for the purpose of rectifying some legal damage that has been done to them. If the person filing the lawsuit shows that legal damage has been committed and, as a result, has suffered an injury, they will be awarded, at a minimum, a dollar amount intended to compensate them for the injury, to the extent possible , in the position they occupied before the damage occurred. These awards are known as “Compensatory damages”, because they are intended to compensate for the damage. They are not intended to be a punishment for the person who caused the damage, but are simply intended to force that person to undo the damage they caused. Examples include damages awarded for property damage, medical expenses, pain and suffering, lost wages, and the like. These are things that can often be reduced to a dollar amount.

Punitive damages, on the other hand, are not tied to any particular injury. Rather, they are intended to punish and deter unlawful conduct. Because juries sometimes award punitive damages that exceed compensatory damages on many occasions, laws have been written to limit when they can be awarded. The focus is on the defendant’s conduct, rather than the extent of the harm caused by the conduct.

When the defendant is an individual person, punitive damages can generally only be awarded when they act with “fraud, malice or oppression.” This basically means that if they acted with the intention of doing harm. Examples would include legal torts such as burglary, assault, battery, fraud, and false imprisonment, among others. Negligence (causing careless damage, but not intentionally) will generally not create a right to punitive damages. However, if someone commits gross negligence (causing harm through recklessness or willful disregard for known and probable harm), there may be punitive damages. A good rule of thumb is that conduct that would result in criminal liability is likely to result in punitive damages in a civil lawsuit.

When the defendant is a corporation, the rule is slightly different. Corporations generally do not act with the true intention of harming a particular person or class of people. When they cause serious harm, it is generally the result of ignoring the possibility of harm, albeit without the intention of causing it. In the case of punitive damages against a corporation, it will usually have to be shown that there was a long pattern of misconduct. In deciding to award punitive damages to a corporation, the court will generally consider factors such as the reprehensibility of the corporation’s conduct, its wealth, and the amount of compensatory damages.

The Supreme Court has repeatedly intervened on the issue of punitive damages. Because the amounts awarded can vary widely and are not intended to compensate for a particular injury, they can be unpredictable. The Supreme Court has held that extremely large punitive damages against companies constitute a violation of their right to due process, since they are being effectively punished without prior notice of what the punishment might be for a particular act. While the court said that the appropriateness of an award of punitive damages must be analyzed on a case-by-case basis, a general rule of thumb is that punitive damages should be no more than 10 times compensatory damages.

If you are involved in a lawsuit and seeking punitive damages, this is a factor to consider when deciding how much to demand.