A recent national study about Punitive Damages showed what most of us who practice law understand, they are rare and they are effective. Punitive damages are only allowed in limited situations. For example, in Idaho, the law only allows punitive damages when a plaintiff can “prove, by clear and convincing evidence, oppressive, fraudulent, malicious or outrageous conduct.” Such damages are rarely sought or awarded because in a regular breach of contract or personal injury case they are not appropriate.
In Idaho, the Supreme Court only allows a jury to impose punitive damages when a defendant has engaged in an “extreme deviation from reasonable standards of conduct.” The Court knows that punitive damages serve the legitimate and important public policy interest of deterring egregious behavior by reducing the economic incentive to engage in that behavior. “[A]n award of punitive damages serves the dual function of deterrence and expressing society’s outrage. In contrast, compensatory damages are defined as damages that `will compensate the injured party for the injury sustained, and nothing more; such as will simply make good or replace the loss caused by the wrong or injury.'” ” The purposes which may make a punitive damage award appropriate are not satisfied by an award of purely compensatory damages.” Punitive damages can only be considered when a defendant acts with an extremely “harmful state of mind,” like malice, oppression, fraud or gross negligence.
Among the findings in the national report are:
- Punitive damages are rarely sought and rarely awarded (5 percent of civil cases, 3 percent of tort cases with plaintiff winners). Most punitive damage awards are quite modest ($64,000 median in civil cases; $55,000 median in tort cases).
- History shows that the imposition or threat of punitive damages has caused corporations to take dangerous products and services off the market and operate more safely. Manufacturers support caps on punitive damages because caps allow them to precisely budget their potential liability as a cost of doing business. However, if it becomes cost-effective for companies to simply pay victims and their families for deaths or injuries rather than fix the problem, the essential function of punitive damages to deter unsafe corporate conduct is undermined.
- Since the 1990s, the U.S. Supreme Court has been placing arbitrary limits on punitive damages remedies. Moreover, in addition, 38 states have passed laws that impede consumers’ ability to seek punitive remedies. Legislative restrictions include: 1) outright bans on punitive damages; 2) damages caps; 3) mandatory apportionment of punitives to state funds; 4) heightened burdens of proof; and 5) bifurcated trials.
- Many who have pushed for restrictions on consumers’ ability to seek punitive damages, including major companies pushing for caps on damages and other liability limits, do not hesitate to demand punitive damages when they feel their own interests have been compromised.
- Federal and state tax laws generally allow corporations to deduct punitive damages payments. Allowing companies to deduct punitives as “ordinary and necessary business expenses” effectively rewards and subsidizes grossly irresponsible or intentional behavior, undermining their purpose to deter egregious misconduct.