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Punitive Damages

Ron Stormoen

Punitive Damages: How Much Can I Get—Or How Much Can Plaintiff Get Against Me?

Individuals and companies contemplating litigation often ask about the possibility of recovering punitive damages against a defendant. We all read articles about the “millions and millions” recovered in certain cases. Punitive damages are fundamentally punishment damages, essentially an amount of money a defendant may be required to pay to a plaintiff, which does not relate to a plaintiff’s damage or injury but as a punishment, or deterrent, for certain bad acts by the defendant. The following article provides the reader with some general guidance regarding such damage awards.

The famous 1997 John Grisham film “The Rainmaker” centers around a legal case against an alleged “evil” insurance company who refused to pay for a patient’s life saving medical treatment. Without this life saving treatment the patient died, and the patient’s family brought a wrongful death case against the insurance company. If you have seen the film, you will remember the climax of the film is when the jury read off its verdict. In the film, the jury foreman stands up and says:

“We the jury, find for the plaintiff, and award actual damages—in the amount of $150,000. … And we the jury, find for the plaintiff, and award punitive damages—in the amount of $50 million.”

At that moment, the audience is jubilant as the alleged “evil” insurance company supposedly got what it deserved and the plaintiffs in the case were overnight millionaires. Of course this is a work of fiction, but this movie, and others like it, have shaped that way many people think of the legal system and the idea of punitive damages.

How close to reality is this situation? If you are suing someone, what are the chances that you too could be an overnight millionaire? If you are being sued, what are the chances you will owe the plaintiff millions? The following provides a general discussion regarding these issues according to California law.

“In California, a trial court reviews a motion challenging the excessiveness of an award of punitive damages ... as a ‘thirteenth juror.’” (Boeken v. Philip Morris, Inc. (2005) 127 Cal.App.4th 1640, 1689.) This means that the trial court (the judge) can weigh the propriety of a punitive damages award and strike it down if the award is excessive. In California, there are three main tests that the trial court will subject an award for punitive damages award to, in order to ensure that the award is not considered legally “excessive.” Let’s look at each one:

1. Defendant's Wealth

Under California law, “[w]ealth is an important consideration in determining the excessiveness of a punitive damage award. Because the purposes of punitive damages are to punish the wrongdoer and to make an example of him, the wealthier the wrongdoer, the larger the award of punitive damages.” (Downey Savings & Loan Assn. v. Ohio Casualty Ins. Co. (1987) 189 Cal.App.3d 1072, 1099–1100.)

The point of punitive damages is to punish wrongdoing and deter wrongful conduct. “Obviously, the function of deterrence ... will not be served if the wealth of the defendant allows him to absorb the award with little or no discomfort.” (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 928.)

In assessing whether a punitive damages award is excessive relative to the defendant's wealth, “the key question ... is ... whether the amount of damages exceeds the level necessary to properly punish and deter.” (Adams v. Murakami (1991) 54 Cal.3d 105, 110.)

2.    The Degree of Reprehensibility of the Defendant’s Conduct

The most important guidepost in determining if a punitive damages award is excessive is the reprehensibility of the defendant’s conduct. In cases where: “[1] the harm caused was physical as opposed to economic; [2] the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; [3] the target of the conduct had financial vulnerability; [4] the conduct involved repeated actions or was an isolated incident; [or] [5] the harm was the result of intentional malice, trickery, or deceit, or mere accident,” a large punitive damages award is more appropriate. (Roby v. McKesson Corp. (2009) 47 Cal.4th 686, 713.)

This means if the plaintiff was physically injured and the defendant intentionally caused the injury, intentionally ignored the risk of injury, or acted with an indifference to the health and safety of others, a large award may be appropriate. On the other hand, if the injury was economic and it arose only out of defendant’s negligent behavior, punitive damages would not be appropriate. This is a spectrum on which all cases will fall. The worse the conduct, the greater the amount punitive damages could be awarded.

3.    The Range of Constitutionally Acceptable Ratios

The California Supreme Court has held, “ratios between the punitive damages award and the plaintiff’s actual or potential compensatory damages significantly greater than 9 or 10 to 1 are suspect and, absent special justification …, cannot survive appellate scrutiny….” (Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1182.)

Compensatory damages are the damages awarded by the judge or jury meant to compensate the plaintiff for actual harm suffered. Under the rule above, the punitive damages award should not be more than 10 times the compensatory award absent special justification.

4.    Using These Tests How Does the “Rainmaker” Award Stand Up?

Defendant’s Wealth: While the common assumption is that corporations are wealthy, not many companies (in any industry) could pay $50 million without it seriously affecting the bottom line. In the movie, the $50 million award forced the insurance company into bankruptcy. That being the case, the award is probably too big and will be reduced because the award exceeds the level necessary to “properly punish and deter,” and courts will often strike down an award that will force the defendant to go out of business. This means the award in the Rainmaker movie was probably too large under this test.

Reprehensibility of Defendant’s Conduct: In the movie, the insurance company refused to pay for reasonable life saving medical treatment which lead to the death of a patient. Additionally, this conduct was not an isolated incident and in the movie we learned the insurance company did this regularly. One could determine that such conduct was sufficiently reprehensible (of course different circumstances could lead to different results) which would mean the conduct satisfies the requirements of an award of punitive damages.

Ratio: The compensatory award was $150,000; therefore, using a ten to one ratio supported by the California Supreme Court, a proper award would be $1,500,000. Based on this, the $50,000,000 award is improper, representing a ratio of 333.33 to 1. This award would probably not survive appellate review as the ratio is SO LARGE.

All in all, it seems like the award of the magnitude found in the fictitious Rainmaker movie would probably be reduced by the trial court, or on appeal.

Due to the reprehensibility of the conduct, a ratio exceeding 10 to 1 might be appropriate, so perhaps the punitive damage award would be reduced to $2 or $3 million. This award would still be a windfall to the plaintiffs but not enough to destroy the insurance company and force the company into bankruptcy.

Is a $3 million punitive damages award more just than a $50 million award? This is for you (and, if you are in litigation, your lawyer) to decide, but a punitive damages award in the smaller amount, while it would not sell many tickets to the movies, is probably more appropriate under the law in California.

DISCLAIMER: This entry does not give specific legal advice about your specific legal problem. No text or graphic contained in this entry is to be or should be used or relied upon as legal advice. This entry does not create an attorney-client relationship. If you want specific legal advice about your particular legal issues, or if you want to create an attorney-client relationship, you need to retain the Law Offices of Ron A. Stormoen by a signed written retainer agreement.