Punitive damages or exemplary damages are damages intended to punish and/or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit. Although the purpose of punitive damages is not to compensate the plaintiff, the plaintiff will in fact receive all of the punitive damage award. Punitive damages are often awarded where compensatory damages are deemed an inadequate remedy. The court may impose them to prevent under-compensation of plaintiffs, to allow redress for undetectable torts and taking some strain away from the criminal justice system.
Because they are usually paid in excess of the plaintiff's provable injuries, punitive damages are awarded only in special cases, mostly tort cases, where the defendant's conduct was egregious, oppressive, or malicious. Generally Punitive damages cannot be awarded in contract disputes. However, where a contract is procured through fraud, punitive damages may be allowed. The In addition, punitive damages are regularly awarded in insurance bad faith cases where the insurer's breach of contract is alleged to be so egregious as to amount to a breach of the "implied covenant of good faith and fair dealing," and is therefore considered to be a tort cause of action eligible for punitive damages (in excess of the value of the insurance policy).
A famous example of punitive damages can be found in the case of Mathias v. Accor Economy Lodging, Inc. 347 F.3d 672 (7th Cir. 2003). In Mathias, the Plaintiffs, a brother and sister, were bitten by bed bugs during their stay at a Motel 6 in downtown Chicago. They sued for compensatory and punitive damages, arguing that the motel was guilty of willful and wanton conduct, having failed to alleviate a known risk. The jury in that case returned a verdict in favor of Plaintiffs and awarded $5,000.00 in compensatory damages in addition to $186,000.00 in punitive damages.
What is most interesting is the result on appeal. There, Judge Richard Posner, writing for the majority, found the award of punitive damages to be constitutional despite the fact that it was 37.5 times the amount of compensatory damages. Judge Posner, a famously conservative Judge known for his application of economical principals to law, opined that such an award of punitive damages is proper in order to deter future negligent conduct when dealing with the problem of bed bugs.
In Nevada, a plaintiff may recover punitive damages when evidence demonstrates that the defendant has acted with "malice, express or implied." NRS 42.005(1). "`Malice, express or implied,' means conduct which is intended to injure a person or despicable conduct which is engaged in with a conscious disregard of the rights or safety of others." NRS 42.001(3). A defendant has a "[c]onscious disregard" of a person's rights and safety when he or she knows of "the probable harmful consequences of a wrongful act and a willful and deliberate failure to act to avoid those consequences." NRS 42.001(1). In other words, under NRS 42.001(1), to justify punitive damages, the defendant's conduct must have exceeded "mere recklessness or gross negligence." Thitchener, 124 Nev. at 742-43, 192 P.3d at 254-55.
Punitive damages are controversial, to say the least, and an award of punitive damages by a jury is often reduced on appeal through a process known as “remitittur” in appeals courts. For example, in a famous case in which a jury awarded hundreds of millions of dollars against Allstate Insurance in an insurance bad faith case, the United States Supreme Court, on appeal, reduced that judgment to several million, still a hefty amount.
Outside the United States the practice of awarding punitive damages in civil cases is unknown and met with scorn. The following excerpt from the New York Times is instructive on the general feeling among business and foreigners on punitive damages:
In the late summer of 1985, Kurt Parrott, a 15-year-old who loved baseball and Pac-Man, was thrown from his motorcycle in Opelika, Alabama.
The buckle of his helmet failed, and he died when his bare head hit the pavement. Parrott's mother sued the Italian company that made the helmet, and an Alabama court awarded her $1 million.
The company refused to pay. And last year, when lawyers for the Parrott family tried to collect in Italy, they were blocked by the Italian Supreme Court.
The court said that a peculiarity of U.S. law - punitive damages - was so offensive to Italian notions of justice that it would not enforce the Alabama judgment.
Most of the rest of the world views the idea of punitive damages with alarm. As the Italian court explained, private lawsuits brought by injured people should have only one goal: compensation for a loss.
Allowing separate awards meant to punish the defendant, foreign courts say, is a terrible idea.
Punishments, they say, should be meted out only by the criminal justice system. It is not fair, they add, to give plaintiffs a windfall beyond what they have lost. And the ad hoc opinions of a jury, they say, are a poor substitute for the considered judgments of government safety regulators.
Some common-law countries do allow punitive damages, though in limited circumstances and modest amounts. In the United States, by contrast, enormous punitive awards are relatively common. Though such awards are often reduced or eliminated on appeal, they terrify foreign courts.
Generally, the same sentiment is felt by professionals and business people in the United States. Nevertheless, punitive damages are regularly awarded were the conduct is “malicious, willful and oppressive.”