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What are punitive damages, and how does tort reform affect them?

Updated: Apr 13

Courts impose punitive damages when a wrongdoer has done something extraordinarily careless or intentionally harmful. The idea of punitive damages is to punish and deter wrongful conduct. When a court grants punitive damages, the damage figures for compensation that are intended to make victims whole are then multiplied by another factor — for instance, two or three — and then the two figures are added to each other. (So, for instance, suppose a judge found that a wrongdoer had harmed someone else by creating $100,000 worth of damages, but because of the wickedness of the act, the judge also decided to impose triple punitive damages: $300,000. This would add up to a total of $400,000 in damages.)

Juries sometimes go overboard in awarding damages, especially in the realm of punitive damages. In the infamous “hot coffee” case in New Mexico, the jury awarded the plaintiff $200,000 in compensatory damages but more than thirteen times that amount ($2.7 million) in additional punitive damages, for a total of $2.9 million. The trial judge found that the jury’s award was so extreme that he reduced both the compensatory damages and the punitive damages so as to produce a sum of $640,000 — a total of less than one-quarter of the original award. The reason that judges sometimes reduce swollen punitive damages is that courts are not supposed to be in the business of overcompensating people for injuries — and, at a certain point, if punitive damages are sky-high, then overcompensation is going to be the result.

The proposed tort reform amendment, SJR 8, would limit some kinds of punitive damages. If SJR 8 passed, punitive damages would not be permitted unless they were either (a) $500,000 or less or (b) three times the size of the compensatory damages that were awarded or less. (To put it another way, punitive damages would be permitted as long as they met either or both of the two tests immediately above.) However, SJR 8 makes it clear that there is no upper limit on punitive damages at all if those damages are awarded against a wrongdoer who intentionally tried to harm someone.

In the recent past, the United States Supreme Court has expressed serious concerns about out-of-control punitive damage awards. In 2003, the Court found that a punitive damages ratio of four times the amount of the compensatory damage award was so large as to be “close to the line of constitutional propriety.” In 2008, in a maritime case, the Court found a 1 to 1 ratio of compensatory to punitive damages to be a “fair upper limit” in that area of the law.

Nobody really knows exactly where the United States Supreme Court would set the upper limit of a punitive damages multiplier in any particular case. What we do know is that the courts are wary of excessive punitive damages and are generally ready to rein them in. It is reasonable to argue that SJR 8’s limits on punitive damages at the state level are quite moderate and do not very much change what is already the law of the land. The tort reform amendment’s punitive damage limits will help courts to stay within the mainstream of American law.

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