Exemplary damages, also known as punitive damages, can be awarded to a plaintiff as a way to punish a defendant for extremely harmful conduct. In some cases, courts award exemplary damages in addition to actual damages, which are also referred to as "compensatory damages."

Damages are usually designed to compensate the plaintiff for losses they have suffered, but exemplary damages serve a different purpose. They are supposed to punish the defendant for wrongful conduct and make an example of them so that others know the behavior in question will not be tolerated. Although compensation is not the goal of exemplary damages, a defendant still pays them to the plaintiff following a court ruling.

When Are Exemplary Damages Awarded?

Courts rarely grant punitive damages, even though plaintiffs frequently request them. When a plaintiff calls for punitive damages, they are not doing so to get compensation. They do so because they believe that the defendant's conduct was willful or egregious.

When a court does grant a plaintiff's claim for exemplary damages, the judge or jury determines the total damages to be awarded. It could be a specific amount or treble damages, which means a tripling of the other damages awarded in the case.

A judge or jury may decide to award exemplary damages for behavior that is:

  • Malicious
  • Fraudulent
  • Violent
  • Oppressive
  • Reckless

To obtain punitive damages, the plaintiff usually must demonstrate that the defendant's wrongful conduct was deliberate or resulted from gross negligence. In some states, like Texas, the burden of proof for exemplary damages is higher than for ordinary damages. Plaintiffs seeking punitive damages in Texas must demonstrate to the court that the loss they suffered was caused by fraud, gross negligence, or malice.

A Public Example

A key idea behind imposing punitive damages is that they will deter others from engaging in wrongful conduct. For example, in cases of egregious behavior, such as involvement in sexual violence or fraud schemes, courts have enforced substantial punitive penalties against defendants even though the provable losses to the plaintiffs were not very large. Overall, courts call for punitive damages in roughly 5 percent of verdicts.

Do Actual Damages Affect Exemplary Damages?

A judge awards actual or compensatory damages to the plaintiff for losses they have suffered, such as lost income, medical bills, and other fees. Some jurisdictions require that actual damages be obtained before the court can apply punitive damages.

In 2003, the U.S. Supreme Court provided guidance on how to calculate the ratio between compensatory damages and punitive damages. The ruling stated that the level of punitive damages must be reasonable and proportionate to the total compensation that the plaintiff recovered for the harm they experienced.

The Supreme Court's ruling reflected the fact that under the 14th Amendment of the U.S. Constitution, the awarding of excessive exemplary damages is prohibited. Other courts have also given consideration to the ratio between actual damages and exemplary damages.

Determining a Reasonable Amount of Exemplary Damages

The Supreme Court ruled in State Farm Mutual Automobile Ins. Co. v. Campbell that a court should apply three considerations when deciding on the total punitive damages to award. These were:

  • How reprehensible the defendant's misconduct is
  • The difference between the total exemplary damages and the harm that the plaintiff experienced
  • The extent of any difference between civil penalties enforced in similar cases and the punitive award that the jury has agreed on

State courts have also adopted guidelines to ensure that the amount of punitive damages awarded is fair.

Exemplary Damages Versus Liquidated Damages

In a case concerning breach of contract, courts generally do not award exemplary damages. This is often because contracts sometimes contain liquidated damages clauses that can be applied if the agreement is violated. If the court thinks the liquidated damages are in fact exemplary damages, they can ignore this clause.

To decide whether to use such a clause, the court will consider two things:

  1. The agreed damages must represent fair compensation for the harm done by breaching the contract
  2. The court must be able to accurately predict the harm

If a judge decides that the clause meets both of these conditions, they will find no evidence of punitive damages.

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