Punitive Damage Trends

Email This Share on LinkedIn Share on Facebook Tweet This

As alluded to above, recent years have seen an increasing number of large punitive damage verdicts, prompting many to criticize the absence of meaningful standards or guidelines for determining the appropriateness of the amount of such awards. Several recent constitutional challenges have forced the United States Supreme Court to review this issue. Unfortunately, the Supreme Court has been slow to articulate tangible substantive guidelines or limits.

The Court overturned a punitive award on constitutional grounds, but failed to articulate a standard to guide lower courts in Honda Motor Co. Ltd., et al. v. Oberg, 512 U.S. 415 (1994). The majority opinion did state that certain basic procedural steps, including the opportunity for a post-verdict review of the award’s size, must be taken. It also suggested that there are constitutional limits on the size of punitive damage awards.

In 1996, the Court again overturned an excessive punitive damages verdict and finally supplied guidelines for other courts to follow when facing the same issue. BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996). At the trial court level, despite the defendant’s good faith attempts to comply with the law, a jury returned a punitive damages award 500 times the size of the compensatory amount. The jury multiplied the compensatory damages by an estimated number of other potential plaintiffs around the country. The Supreme Court held that punitive damages may not be imposed or increased to attempt to deter conduct that is lawful in other jurisdictions. Although avoiding the establishment of a mathematical formula, the Court provided the following considerations to determine whether punitive damage awards are excessive (1) the degree of reprehensibility of the defendant’s conduct, (2) a reasonable ratio between the punitive damage and the compensatory award, and (3) a comparison of the punitive damages award and the civil or criminal penalties that could be imposed for similar misconduct.

Most recently, the Supreme Court in State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003), held that in awarding punitive damages, courts must ensure that the measure of punishment is both reasonable and proportionate to the amount of harm to the plaintiff and to the general damages recovered. While the Court again declined to adopt a bright-line rule, it noted that in practice, few awards significantly exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process.

The next issue facing review by the Supreme Court is likely to be whether multiple punitive damage awards arising from different trials of identical conduct, such as in mass tort litigation, pose a threat to due process. Several district and circuit courts have considered the question without reaching a uniform result.

In the absence of significant guidance from the Supreme Court, individual states have made statutory and common law reforms, seeking to restrain juries from awarding seemingly limitless punitive damages. A number of state courts and statutes have raised the burden of proof for punitive damages, limited punitive damages to a multiple of compensatory damages, or set a cap on punitive damages. Another prominent trend includes the bifurcation of trials into separate liability and punitive damages stages, and the allowance of evidence of the defendant’s financial worth to be used to determine both the ability to pay and the amount necessary to punish.

At this point, there are some encouraging signs of changes in the law that may, in the long run, lead to a reduction in the size of punitive damage awards. The establishment of judicial guidelines and statutory reforms is an important trend that should be monitored.