Punitive Versus Compensatory Damages
By Sean Lally, Staff Writer
You may, from time to time, come across news articles mentioning punitive damages granted to plaintiffs who have sued major corporations. You may also notice, in those same articles, the mention of compensatory awards, or actual damages. Each of these terms – punitive and compensatory – signify something different and should not be confused with one another. In the following, we will outline the major differences between compensatory and punitive damages.
When we think of personal injury cases, or tort law, we might first think of quid pro quo situations where one person sues another to recover the money owed them. Determining what is owed an injured party is the subject of many blog posts and involves the enumeration of economic damages, such as medical bills, lost income and decreased earning capacity.
Additionally, related economic losses might arise in the future and would also be included in this calculation. These include future losses in income, home health care, rehabilitation, recurring expenses for medications and medical supplies, and any other costs that might be incurred in the future as a result of your injury.
In addition, compensatory damages might include those intangible losses that aren’t easily quantifiable. These are called noneconomic damages (or pain and suffering damages) and include the following: ruined relationships, debilitating injuries or disfigurement, depression, embarrassment or any other extreme emotional turmoil that might significantly diminish a person’s quality of life. In many cases, noneconomic damages make up the largest portion of compensatory awards.
In short, compensatory awards are specifically meant to restore plaintiffs to the fiscal and mental condition they were in prior to the accident. Thus, compensatory, or actual, damages refer to those economic and noneconomic injuries directly experienced by the plaintiff.
By contrast, punitive damages do not refer directly to any particular injury. Rather, they refer to the severity of the harm and are meant to punish the injuring party for their egregious wrongdoing. Relatedly, punitive awards are supposed to deter the offender from engaging in the behavior that caused the harm. According to a 1997 working paper entitled, “Assessing Punitive Damages…”, these types of damages “may have a retributive or expressive function, designed to embody social outrage at the actions of serious wrongdoers,” and thus may have something to do with a “sense of the community.” In short, punitive damages are granted only in extreme cases and have more to do with deterrence than with economic compensation.
For punitive damages to be awarded, the plaintiff must be able to show that the defendant’s misconduct was willful, which is to say the defendant proceeded with an action knowing full well it was illegal or potentially harmful. If the plaintiff argues successfully, punitive damages are added to the total compensatory damages.
Calculating Punitive Damages
When awarded, punitive damages can be much higher than compensatory losses. This is because jurors are generally given an “unbounded dollar scale” when determining the amount of punitive damages. Thus, one jury might decide to grant a punitive award that is 96 times greater than the compensatory damages (such as with Phillip Morris USA, Inc. v. Williams), while another jury might choose a much lower number.
However, as outlined in a Southern Law Review paper, there are guideposts in place that allow courts to reduce punitive awards in cases where they are deemed excessive. In BMW of North America, Inc. v. Gore, the Supreme Court created a tripartite formula to help keep punitive damages in check:
- The “degree of reprehensibility” should be taken into account
- The ratio between the punitive and compensatory award must be reasonable
- The punitive damages should be compared to civil penalties already imposed by enforceable laws
In sum, punitive damages are award to plaintiffs who have been willfully and egregiously harmed by another party. These types of damages are meant to prevent similar harm from occurring in the future. Compensatory damages, on the other hand, are meant to remunerate a plaintiff for any financial losses or emotional turmoil caused by the injury.
If you think you’ve been the victim of egregious harm, you may want to consult with a skilled attorney who has experience in tort law. They will help you determine which damages you are entitled to recover.