U.S. Punitive Damages

In the United States jurisdictions punitive damages have taken on almost folkloric qualities with numerous cases (both true and false) circulating in the internet and elsewhere on astronomically-high awards being made by juries that go beyond compensation and are intended to see the wrongdoer (tortfeasor) punished.

One of the most popular stories in this area involves a fast food chain and some very hot coffee. It is a true case from New Mexico. In Liebeck v. McDonald’s Restaurants (N.M. Dist. Ct. 1994), 79 year old Stella Liebeck spilled McDonald’s coffee in her lap which resulted in her suffering second and third degree burns on her thighs, buttocks, groin and genitals. The burns were severe enough to require skin grafts. Liebeck initially proposed  to settle the case for $20,000 in pre-trial negotiations, an amount which covered her already-incurred medical expenses, and those she anticipated to incur for future treatment. McDonald’s settlement offer however was a mere $800. Liebeck therefore sued. During the pre-trial discovery procedures internal documents from McDonald’s revealed that the company had received hundreds of similar complaints from customers claiming McDonald’s coffee caused severe burns. The jury decided at the trial the company had been aware of the coffee being dangerous and that the company had done nothing to mitigate the situation. As a result, the jury decided on compensatory damages of  $160,000. However, the jury also awarded Liebeck $2.7 million in punitive damages. A judge subsequently reduced the punitive damages to $480,000.

However such reports should always be read with great care. Firstly, it should be remembered that (unlike the Liebeck case) many of these “reported” cases have no basis in fact or, at the least, are grossly exaggerated in the retelling.  Secondly, even in those cases that did in fact take place there is usually a further opportunity for a judge (e.g. on appeal) to reduce the dramatic amounts of punitive damages imposed by U.S. juries in the hearing of first instance.

It should also be remembered that in the U.S. jurisdictions punitive damages are awarded under Torts (especially negligence) and not under Contract Law. Moreover, punitive damages are limited in many states to situations of gross negligence, wilful acts or negligence caused by economic reasons, or negligence motivated by fraud. Numerous states have also capped the amount of punitive damages by way of statute. In addition, the U.S. Supreme has moved to limit the impact of puntive damages whereby any awards should exceed compensatory damages by a single-figure ratio (9:1) (State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408 (2003)). Thus, for each dollar awarded as compensatory damages the court will allow only a maximum of 9 dollars as punitive damages.