Punitive Damages: Punishment or Further Compensation?

The purpose of this paper is to provide evidence about court practice in awarding punitive damages. Of the four prominent theories of punitive damages, the validity of the Punishment-Deterrence Theory and Compensation Theory were determined to be quantifiable for testing. Regression analysis is employed to relate the size of punitive damages to measures of financial punishment, compensation, punitive damages insurability, degree of malice, and type of liability claimed. The analysis was applied to several samples of cases in which punitive damages were assessed against corporations. Support for the Compensation Theory is evident in all of the samples. Support for the Punishment-Deterrence Theory is evident in a precisely-defined sample. These results indicate that the size of the punitive damages award is substantially determined by the compensatory award given the plaintiff and to a lesser degree by the financial status of the defendant. Liability issues have received extensive attention recently due in large part to the unavailability of affordably-priced commercial liability insurance. One aspect of that attention has been proposals to limit punitive damages. Although the desirability and appropriate application of punitive damages has long been an item of debate,' these proposals seem to be the first significant attempt at the legislative level to limit the scope of punitive damages awards. Much of the debate about these legislative actions has been anecdotal. In this paper an attempt is made to provide some empirical evidence of the practice of awarding punitive damages. Development of such evidence should help assess the impact of proposed and recently enacted laws related to punitive damages.