Damaging Ruling on Punitive Damages

Damages are a key part of the law of torts, which deals with personal injuries. When a person is injured by the negligence or inattention of another, the victim can recover damages. In most cases, t

Mar 14, 2007 at 2:06 pm

Damages are a key part of the law of torts, which deals with personal injuries. When a person is injured by the negligence or inattention of another, the victim can recover damages. In most cases, the jury sets the amount of the damages based on instructions from the trial judge.

Let's take the example of a person injured in a car accident. There are two kinds of damages that person can recover. One kind is economic damages, such as lost wages, medical bills and the cost of fixing the damaged car. The other kind is non-economic damages, which includes pain and suffering and psychological problems resulting from the physical injuries.

Collectively, these damages are called compensatory damages, because the theory behind them is to compensate the injured party for his or her loss and to restore that person, insofar as money can, to pre-injury status. In the vast majority of tort cases, these are the only kinds of damages that can be recovered.

But in tort law there is another category of damages altogether, reserved only for those cases in which the behavior that causes injury is not just accidental but reckless or intentional.

One example could be injuries caused by a drunk driver. This additional category of damages is punitive damages, and these damages are to punish the offender and to deter the kind of conduct involved in the tort.

With punitive damages, there is more involved than just the individuals in the case. There is a societal interest involved. As the Ohio Supreme Court has put it, "The purpose of punitive damages is not to compensate a plaintiff but to punish the guilty, deter future misconduct and to demonstrate society's disapproval. At the punitive-damages level, it is the societal element that is most important."

Punitive damages are more like criminal fines than civil damages. As a general rule, insurance does not cover these damages.

In recent years, businesses have been pressing the U.S. Supreme Court to put some kind of limit on the amount of punitive damages that can be recovered in an individual case and to limit the kind of evidence a jury should consider in making such awards.

In 1996, the high court decided the key punitive damages case of BMW v. Gore. An Alabama physician had bought a BMW that he thought was brand new, but he later learned from a detailer that the car had been repainted due to acid rain. The cost to repair the car was $600 — about 1.5% of the retail price. For this, a jury awarded Gore $4,000 in compensatory damages for the loss in the market value of the car and $4 million for punitive damages, because it determined BMW's conduct was fraudulent under Alabama law.

The Alabama Supreme Court lowered the punitive damages to $2 million under a power called remittitur, which is the court's power to lower an award that is too high. Even though this seldom makes the newspapers, many courts lower awards that are too high using this power.

The U.S. Supreme Court accepted the case of BMW v. Gore. It established three guideposts to help courts decide if punitive damages are too high. The first, which the court held was most important, is the reprehensibility of the defendant's conduct. The second is the ratio between compensatory and punitive damages. The third is to compare the award with civil penalties imposed by state legislatures for comparable misconduct.

Applying its guideposts to the Gore case, the court found that because the conduct involved only economic harm, it wasn't particularly reprehensible. The court next found the damages ratio of over 500:1 too high but refused to set its own ratio. Finally, the court found the punitive damage award far out of proportion to the $2,000 maximum civil penalty for violation of Alabama Deceptive Trade Practices Act.

Before sending the case back to the Alabama Supreme Court, the U.S. Supreme Court also made a finding that has come to dominate the law in this field. In setting a punitive damage award, it is impermissible for a jury to consider a defendant's out-of-state conduct. Evidence of that behavior should not have been heard by the jury.

When the Alabama Supreme Court got the Gore case back, it considered the new guideposts and reduced the punitive damages award to $50,000.

In 2003 the U.S. Supreme Court revisited this issue. An elderly retired man, Curtis Campbell, caused an automobile accident in Utah in which one person was killed and another seriously injured. Campbell was insured by State Farm and had very low limits on his policy. Despite an unequivocal report from the adjuster that the accident was entirely Campbell's fault, there was strong evidence presented that State Farm did not handle this claim in good faith, placing Campbell's personal assets at risk.

Handling an insurance claim in bad faith is a separate tort from the accident itself, and Campbell brought such a suit against State Farm. Space doesn't permit the litany of State Farm's conduct, but ultimately a Utah jury awarded Campbell and his wife $2.6 million (remitted to $1 million) in compensatory damages and $145 million in punitive damages. The Utah Supreme Court upheld this verdict, which went to the U.S. Supreme Court.

Once again the high court held that the punitive damage award was impermissibly based on evidence of its national policies rather than just its in-state conduct directed at the Campbells. Once again the court found the 145:1 ratio of compensatory to punitive damages too high. Once again the court refused to set a bright-line ratio for all cases, as State Farm had urged, but did say this: "Few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process."

When the case went back to the Utah Supreme Court, it reduced the punitive damages award to $9 million, in language politely suggesting it disagreed with the high court's assessment of the case.

This brings us to the present. An Oregon jury awarded the estate of Jesse Williams, a lifelong smoker, $821,000 in compensatory damages and $79.5 million in punitive damages against Philip Morris, based on "a 40-year publicity campaign by Philip Morris and the tobacco industry to undercut published concerns about the dangers of smoking." The evidence on this point was extensive.

After it decided the Campbell case, the U.S. Supreme Court told Oregon to reconsider the damages in the Philip Morris case. The Oregon Supreme Court reconsidered but refused to reduce the punitive damage award. The U.S. Supreme Court agreed to hear the Philip Morris case on its own.

The issue in Philip Morris USA v. Williams was whether it was proper for the jury to base its punitive damages award on conduct of Philip Morris that harmed persons who were not parties to the lawsuit. On Feb. 20 a 5-4 U.S. Supreme Court said that it was not and threw out the $79.5 million dollar punitive damages award. But the majority also said it was proper for the jury to consider that same conduct in evaluating the reprehensibility of Philip Morris' conduct.

I'm with dissenting Justice John Paul Stevens, who said, "This nuance eludes me." The same conduct that affected Jesse Williams affected the public at large. I don't see how they can be separated in setting a punitive damages award.

I think punitive damages do play an important role in tort law. But to me the Philip Morris case is singularly unhelpful.

I suspect the supreme courts of Alabama, Utah and Oregon would agree.

Marianna Brown Bettman, a former Ohio appeals court judge, teaches at the University of Cincinnati College of Law.