Learn more about what punitive damages are in business.
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The definition of punitive damages is a category of damages a plaintiff can seek against a defendant in a civil lawsuit. Punitive damages are distinguished from other categories of damages, such as compensatory damages. Compensatory damages are designed to compensate plaintiffs for their economic losses. Punitive damages, however, are not designed to compensate the plaintiff for losses but are to punish the defendant for their behavior.
Punitive damages can’t be sought out by plaintiffs in every civil lawsuit. To bring a valid demand for punitive damages in a civil lawsuit, the plaintiff must allege certain facts that, if proven true by competent and compelling evidence, would rise to the level necessary for an award of punitive damages. To support an award of punitive damages, the judge has to find that the defendant’s actions were much more than just malfeasance or mere negligence. A judge has to determine that the defendant’s actions were considered outrageous, reckless, grossly negligent, or even intentional. If the judge makes this initial finding, then a jury would hear the evidence and issue an award of both compensatory damages and punitive damages.
The advantages of punitive damages are several. First, it is a way to punish a defendant for conduct that is repugnant to society and the average reasonable person would consider to be outrageous. This would have the extra benefit of potentially changing the defendant’s behavior in the future so that they would not engage in this type of activity again.
Second, this has the ability to affect the actions of other people and entities, such as corporations, to set an example that they should also not engage in similar actions. This is why punitive damages are also often referred to as exemplary damages because they are intended to set an example to deter others from committing similar acts.
Third, because punitive damages have to be paid to someone, it allows a plaintiff who has already been awarded compensatory damages to receive extra money to make them even more whole. This is especially important given the significance of how bad a defendant’s actions must be to justify punitive damages.
The disadvantages of punitive damages are that, in some cases, the awards issued by juries can be extremely excessive due to the emotional aspects of the case. Some appeals courts have attempted to lower large punitive damage awards when factoring small compensatory awards.
The examples of punitive damages are rare because they are not awarded very often due to the fact that the defendant’s behavior has to be extremely bad for a judge and jury to award punitive damages. Actually, punitive damage awards are only given in about 5% of civil verdicts. Here are some examples of punitive damage awards:
As you can see, punitive damage awards tend to be rare, and—when a corporation is concerned—can reach astronomical amounts.
We hope that this article clearly explains to you what punitive damages are and how they are used in civil litigation cases. Every business, no matter how big or small, has to always consider the decisions they make and how those decisions will affect their companies. However, if there is a possibility that your company will be involved in a lawsuit, the best decision is to consult a legal professional as soon as possible. Knowledge is power. You don’t want to be on the wrong end of a punitive damage award.
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Disclaimer: The content on this page is for informational purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.