What Are Punitive Damages and When Can They Be Awarded?

Rather than being awarded to compensate the plaintiff, punitive damages aim to deter the defendant and others who would pursue a course of injurious action such as the one the defendant took, from taking such an action. They are awarded in certain cases in which compensatory damages are not deemed a sufficient remedy. Such cases tend to involve aggravating circumstances in which the defendant acted maliciously, intentionally, or with total disregard for the interests and rights of the plaintiff.

While in many states, including Texas and California, punitive damages are determined based on statute, in others they are determined based solely on case law. An award of nominal damages, which acknowledges that although little harm was done, a legal right has been violated, is an adequate foundation in some states for the recovery of punitive damages. In yet other states, compensatory damages must be awarded in order for punitive damages to be allowed. If not required by statute, the award of punitive damages is often left to the discretion of the trier of fact.

Some highly publicized multi-million dollar verdicts and the resulting common perception that punitive damage awards tend to be excessive have fueled the "tort reform" debate. The insurance industry has lobbied to impose statutory maximums or "caps" on punitive damages, but several state courts have declared such caps unconstitutional. But in response to some verdicts in which high punitive damages were awarded, the U.S. Supreme Court made several decisions that limited such awards based on the Fifth and Fourteenth Amendments to the U.S. Constitution.

In BMW of North America, Inc. v. Gore, for instance, the Court ruled that punitive damages have to be determined based on the degree of the reprehensibility of the conduct, any civil or criminal penalties applicable to the conduct, and the ratio of punitive damages to compensatory damages. In State Farm Auto Insurance v. Campbell, the Court then decided that punitive damages could only be based on the acts of the defendants that harmed the plaintiffs.