Punitive damages, sometimes known as exemplary damages, have been a part of the common law for hundreds of years. English cases from the 1700s note its use. Punitive damages have one specific purpose to punish and deter a defendant and others from engaging in outrageous behavior. Thus, in order to obtain punitive damages, one must be able to provide evidence of egregious conduct by another party. In California, it must be shown by clear and convincing evidence that a party has acted with "malice," "oppression," or "fraud" as those terms are specifically defined under California law. This is a more exacting standard than "preponderance of the evidence," which is what is required to prove most things in civil courts. It is not as high a standard as "beyond a reasonable doubt," which is required in criminal proceedings. Most other states that permit punitive damages have similar laws.
Punitive damages are reserved for rare cases in which the conduct deserves such an extraordinary award. Thus, simply because an insurance company denies a claim, even if it denies the claim in bad faith, punitive damages are not necessarily available. In a nutshell, California law requires a finding by the jury that the conduct of the party is outside the bounds of acceptable conduct.
If a finding supporting punitive damages is made, the next question is how much in punitive damages must be awarded. For many decades, California law has been clear that a jury must consider three fundamental considerations when awarding such damages:
- The reprehensibility of the harm
- The financial status of the defendant
- The ratio of punitive damages to the actual damages awarded.
The first factor, reprehensibility, is the most important, and the third factor, ratio of punitive damages to compensatory damages, is the least important. The ratio of punitive damages to compensatory damages as high as 2000-to-1 have been approved in the State of California. In addition, the punitive damages must be of sufficient size to affect the conduct of the defendant. Thus larger defendants need larger punitive damages in order to be effective.
The law on punitive damages is now in flux as a result of United States Supreme Court's ruling in State Farm Mutual Insurance Co. v. Campbell, 538 U.S. 408 (2003), and cases that have followed and interpreted it. Many courts have interpreted the Campbell case as replacing clear standards for when punitive damages are appropriate and the range of punitive amounts that are permissible with a confusing set of "guideposts" which exaggerate the importance of the ratio between punitive damages and the compensatory damages in a case. Pillsbury & Levinson works diligently to pursue, where appropriate, punitive damages which actually serve to punish and deter corporate abuses against our clients.
Arnold Levinson is a noted national authority on punitive damages and has written and lectured extensively on this subject across the country. Read his latest article sharply criticizing the United States Supreme Court's rulings on Punitive Damages, "The Supreme Court's Shameful Descent Into Disrepute", published in Mealey's Insurance Bad Faith Reporter, April 16, 2003.