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What Are ‘Penal Damages’ In A Civil Claim?

Video Transcript

“0:00 one our penal damages in a civil claim

0:03 penal damages are damages usually under

0:06 a contract theory which are designed to

0:09 punish someone for the breach these

0:12 types of damages are looked down upon

0:14 and not usually upheld however there is

0:17 a theory of law that allows you to

0:20 recover what are known as liquidated

0:22 damages but in order for you to recover

0:25 liquidated damages you had to have known

0:28 at the time of the creation of the

0:30 contract what the damages would be if

0:33 the other party breached if they’re

0:35 readily calculable at the time of the

0:37 entry into the contract you can have a

0:40 liquidated damages provision which

0:42 allows the other party to recover for

0:45 that breach a specific amount of money

0:47 however they cannot be just mere

0:50 conjecture and if they are based upon

0:52 mere conjecture conjecture it will be

0:55 deemed a penalty and therefore a court

0:58 will not uphold that type of damage.”

Injured victims typically receive compensatory damages, the money awarded in a civil case to compensate the victim for medical expenses, lost wages, and other losses. However, in some cases, the defendant may also pay punitive damages in addition to compensatory damages in civil cases.

Ehline Law and our personal injury attorneys have received millions of dollars in compensatory and punitive damages for our clients.

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Since there is often confusion between the different types of civil damages, here we will answer the question, “What are penal damages in a civil claim?”.

What Are Punitive Damages?

Penal, exemplary, or punitive damages mean the same and is the payment on top of compensatory damages that the defendant must pay if they’re guilty of their wrongdoings. These types of damages are typically awarded when the court believes the compensatory damages awarded are insufficient for the plaintiff.

Although courts award punitive damages to the plaintiff, they go beyond compensating as they are specifically designed to punish the defendant for their grossly negligent conduct.

Punitive damages serve as a way to punish others, to make an example of the defendant, and to deter them and others from carrying out similar acts. 

It was first recognized under the English common law in the case of Huckle v. Money, and soon afterward, the United States courts recognized punitive damages in 1784 in the case of Genay v. Norris.

Do Punitive Damage Awards Arise in Personal Injury Cases?

When an injured victim files a personal injury claim in a civil court, they seek economic and non-economic damages for their loss. However, it is in the court’s discretion to decide whether it wishes to award punitive damages to the plaintiff.

Punitive damages are a type of legal weapon the court has to deliver punishment to the defendant for their negligent conduct to prevent them and others from conducting similar misconducts in the future.

Plaintiffs can seek punitive damages in most states, but the exact requirements may vary depending on the state law. Generally, they must prove that the defendant acted with intent to cause harm or acted in a grossly negligent way.

Let’s look at an example to help understand the concept of punitive damages.

Suppose the findings of a research team indicate that a product is not safe for public consumption. However, the manufacturer misreads the report’s findings and releases the product under the belief that it is safe for public use.

In that case, if the product harms anyone and the injured victim sues the manufacturer, the company may be liable for the injuries, but they did not have the intent to harm.

On the other hand, if the manufacturer was aware that the product was not safe for public consumption and still released it, the plaintiff could argue that it was in the manufacturer’s knowledge resulting in gross negligence. The court may decide to award punitive damages for the defendant’s conduct.

What Factors Influence Punitive Damages?

Compensatory damages are very common in personal injury cases, while punitive damages are relatively rare. The court must take into consideration several factors before awarding punitive damages, and these include:

  • Whether the defendant’s acts were grossly negligent or intentional.

  • Whether similar cases in the past resulted in a punitive award.

Every state has its criteria when considering punitive damages, and some are more likely than others to award these types of damages.

What Is the Cap on Punitive Damages?

When calculating punitive damages, the Supreme Court and state laws provide the necessary guidelines.

The US Supreme Court has found that a punitive damage award four times the compensatory damages is close to excessive but still constitutional. It must bear a reasonable relationship to the actual damages.

In the 1800s, the most significant punitive damage award was $4,500; in 1955, a court awarded $75,000. However, by 1979, it went up to $14.75 million awarded by the San Diego federal jury in a securities fraud class action.

There have been a lot of debates over the amount of punitive damages awarded in the past. The court has awarded punitive damages four times and even 526 times greater than compensatory damages. However, they have also rejected punitive damage awards that were five times and 145 times greater than compensatory damages.

When awarding punitive damages, the jury should consider the defendant’s net worth or financial position. Wealthy individuals or corporations face greater punitive damage awards than those with weaker financial status.

State Farm Mutual Automobile Insurance Co. v. Campbell

In the case of State Farm Mutual Automobile Insurance Co. v. Campbell, a multi-vehicle accident resulted in the death of one of the drivers.

The victims decided to settle the case for $50,000. However, the insurer refused, resulting in the case going to court, where the jury determined that the insurer was entirely liable and awarded a $185,000 judgment.

The defendant responsible for the accident later found that the insurer acted in bad faith for several reasons and brought a bad faith action against their insurer.

In court, the jury awarded $2.6 million in compensatory damages and $145 million in punitive damages, which the trial court later reduced to $25 million, stating that the punitive damages award did not satisfy the Due Process Clause of the Fourteenth Amendment.

Liebeck v. McDonald’s Restaurants

Liebeck v. McDonald’s Restaurants is one of the country’s most famous punitive damages cases. 

In 1992, Stella Liebeck ordered a cup of coffee from McDonald’s drive-thru and accidentally spilled it on her lap after her grandson stopped the car for her to add the sugar and cream. The hot coffee resulted in second and third-degree burns.

Liebeck asked McDonald’s for $20,000 to help her pay for the medical bills arising from the injuries, and McDonald’s refused, which prompted Liebeck to sue the fast-food chain.

During the discovery, Liebeck’s attorney found that McDonald’s had already received over 700 complaints previous to Liebeck’s accident.

These complaints suggested that the fast-food chain knew the dangers associated with the hot temperature coffees and did not take any corrective measures. Even rival firms did not serve coffee that hot.

The jury awarded Liebeck $200,000 in compensatory damages, which they later cut down to $160,000, and $2.7 million in punitive damages, later reduced to $480,000, three times the compensatory damage award.

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