Punitive Damages: Achieving Fairness and Consistency after State Farm V. Campbell

By Sud, Nitin | Defense Counsel Journal, January 2005 | Go to article overview
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Punitive Damages: Achieving Fairness and Consistency after State Farm V. Campbell

Sud, Nitin, Defense Counsel Journal

Despite its best efforts, the U.S. Supreme Court's opinion leaves many blank spaces and holes with which appellate courts have had to cope

PUNITIVE damages have been a part of the American jurisprudence and have been recognized by the U.S. Supreme Court for more than 150 years.1 But that Court began to suggest the possibility of limiting such damages in 1988.2 As businesses became more financially vulnerable to excessive punitive damages awards, several states enacted statutes limiting them. Although the U.S. Supreme Court consistently had upheld the constitutionality of punitive damages as determined by lower courts, in 1996 it created limitations and set a standard in BMW of North America v. Gore,3 a test re-emphasized and clarified in 2003 in State Farm Mutual Automobile Insurance Co. v. Campbell.4

Section 908(1) of the Restatement (second) of Torts states that punitive damages are designed to "punish [the defendant] for his outrageous conduct and to deter him and others like him from similar conduct in the future." Unfortunately, the focus of punitive damages has shifted from deterring defendants to rewarding plaintiffs with windfalls. Some argue that plaintiffs should not receive punitive awards because they are made whole by compensatory damages.5 The dilemma is who should receive punitive damages. To address this problem, some states, including Alaska, Georgia, Illinois, Indiana, Iowa, Missouri, Oregon, and Utah, have enacted split-recovery statutes, which allocate a portion of the punitive damages to either the state or a special fund.

A problem of excessive punitive damages is the severe financial impact they have on defendants, many of whom have gone bankrupt as a result of adverse judgments resulting in large compensatory and punitive damages. As the purpose of punitive damages is primarily to deter and punish, it is difficult for juries and judges to determine an appropriate award under such an arbitrary goal in a consistent manner. Historically, punitive damages were intended to punish a private harm done to a specific plaintiff,6 not to compensate the plaintiff.7

Over time, courts and lawmakers have used punitive damages to address the harm done to society.8 Despite the inherent problems that policy imposes, another basic issue arises. Under the historical approach, it is more acceptable for plaintiffs to receive the punitive damages because the harm suffered by plaintiffs is paramount. The harm to society is now taken into account, however, adding an additional dilemma of whether plaintiffs or society should be entitled to punitive damages.

Another effect of assessing punitive damages occurs when defendants face multiple punitive damages for conduct for which they were previously punished.9 Under section 908(1) of Restatement (second), once a company pays punitive damages for "outrageous conduct," hypothetically, it has been deterred and punished. Therefore, similar to the law against double jeopardy in criminal cases, why should a defendant be penalized again for the same conduct?

States and courts have directed their efforts in reducing extreme payments of punitive damages in two general ways: limiting the actual amount of punitive damages awarded and trying to prevent multiple punitive damages.


A. Monetary Limits

Many states have enacted legislation limiting punitive damage awards. These statutes implement a variety of means to impose limits, like using a multiple of compensatory damages (Idaho, Indiana, New Jersey), basing damages on the net worth or annual income of the defendant (Alabama, Kansas, Mississippi), limiting damages for certain types of claims or conduct (Florida, Georgia, Oklahoma) or setting a specific dollar amount (Virginia). Table 1 shows these statutes and the limitations.

B. Split Recovery

Eight states (Alaska, Georgia, Illinois, Indiana, Iowa, Missouri, Oregon and Utah) also have split-recovery statutes, by which the state obtains a portion of the punitive damages awarded.

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Punitive Damages: Achieving Fairness and Consistency after State Farm V. Campbell


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