Punitive damages (also called exemplary damages) are damages not awarded in order to compensate a plaintiff, but in order to reform or deter the defendant and similar persons from pursuing a course of action such as that which damaged the plaintiff. Punitive damages are a settled principle of common law in the United States. They are a matter of state law, and thus differ in application from state to state.
Punitive damages are often awarded where compensatory damages are deemed an inadequate remedy. The court may impose them to prevent under-compensation of a plaintiff, to allow redress for undetectable torts and taking some strain away from the criminal justice system.
U.S. Supreme Court decisions
In response to judges and juries which award high punitive damages verdicts, the U.S. Supreme Court has made several decisions which limit awards of punitive damages through the due process clauses of the Fifth and Fourteenth Amendments to the U.S. Constitution. In a number of cases, the Court has indicated that a 4:1 ratio between punitive and compensatory damages is broad enough to lead to a finding of constitutional impropriety, and that any ratio of 10:1 or higher is almost certainly unconstitutional.
In BMW of North America, Inc. v. Gore, the Court ruled that punitive damages must be reasonable, as determined based on the degree of reprehensibility of the conduct, the ratio of punitive damages to compensatory damages, and any criminal or civil penalties applicable to the conduct. In State Farm Auto. Ins. v. Campbell, the Court held that punitive damages may only be based on the acts of the defendants which harmed the plaintiffs.
Most recently, in Philip Morris USA v. Williams, the Court ruled that punitive damage awards cannot be imposed for the direct harm that the misconduct caused others, but may consider harm to others as a function of determining how reprehensible it was. More reprehensible misconduct justifies a larger punitive damage award. Dissenting in the Williams case, Justice John Paul Stevens found that the "nuance eludes me," suggesting that the majority had resolved the case on a distinction that makes no difference.
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