What Are Punitive Damages Purpose Cap Calculation and Example

Punitive damages are additional payment ordered for a defendant found guilty of a wrong or offense, on top of compensatory damages. They are awarded when compensatory damages are deemed insufficient. Punitive damages go beyond compensating the injured party and are designed to punish defendants with grossly negligent or intentional conduct. They are also known as exemplary damages, as they set an example to deter others.

Key Takeaways:

1. Punitive damages are legal recompense ordered on top of compensatory damages.

2. They are awarded to punish defendants, not compensate injured plaintiffs.

3. The hope is that punitive damages will deter future misconduct.

4. The typical cap on punitive damages is four times compensatory damages.

5. Criteria for punitive damages differ among states.

The purpose of punitive damages is to add extra punishment to defendants and deter similar misconduct. They are awarded with other damages, never alone. In personal injury claims, punitive damages may be added to cover medical expenses, lost wages, etc.

An example of punitive damages:

If a weight loss company advertises all-natural and safe dietary supplements, but a customer becomes ill after taking them, the customer can file a lawsuit. The court may award compensatory damages for expenses and punitive damages to deter the company from repeating the conduct.

Factors influencing punitive damages:

The court must consider if the defendant’s actions were malicious, intentional, or grossly negligent. They may look at similar cases to see if punitive damages were awarded. The application of punitive damages varies by state.

The cap on punitive damages:

There is no maximum sum, but punitive damages usually do not exceed four times compensatory damages. However, higher amounts may be awarded for especially reprehensible actions, greater harm suffered, or difficult-to-calculate non-economic harm.

A real-life example of punitive damages:

Stella Liebeck sued McDonald’s after suffering burns from spilled coffee. Liebeck was awarded both compensatory and punitive damages. McDonald’s had faced similar claims and was aware of the dangers associated with high-temperature coffee.

The difference between punitive damages and compensatory damages:

Compensatory damages compensate the victim, while punitive damages are given on top of compensatory damages to deter future misconduct.

Another name for punitive damages:

Exemplary damages can be used interchangeably with punitive damages.

Considerations for reviewing punitive damages:

The court must consider the degree of negligence, malice, or intention in the defendant’s actions and whether similar cases awarded punitive damages.

Frequency of punitive damages awards:

Approximately 5% of verdicts include punitive damages, typically not exceeding four times compensatory damages.

Taxability of punitive damages:

Punitive damages are generally taxed as ‘Other Income,’ with exceptions for personal injury or physical illness settlements.