Why Do Courts Allow Punitive Damages?

Punitive Damages Are Designed to Punish Wrongdoing

Every lawyer who represents a plaintiff suing an insurance company for the tort of bad faith or the lawyer defending an insurer against claims that it committed the tort of bad faith, must understand, why punitive damages can be awarded to punish an insurer. Through an analysis of punitive damages as applied in the United States to insurance bad faith suits, this book will analyze why the various states allow judges and juries to award punitive damages against insurers in civil litigation.

First and foremost, lawyers and litigants must understand that unlike contract or tort damages punitive damages are awarded to punish the tortfeasor sufficiently to act as a deterrent to others who may be considering to act similarly. Until the 1950’s a person suing an insurance company could only recover contract damages. The most the insured could recover, if an insurer breached the contract of insurance, is the benefits promised by the policy. When the courts created the tort of bad faith they changed contract law enormously by allowing unhappy insureds to sue insurers for both contract and tort damages, including punitive damages.

Basic tort damages are designed and expected to provide indemnity to the plaintiff. Tort damages attempt to use money to place the plaintiff in same situation he or she was in before injured by a tortfeasor.

The award of punitive damages provides the plaintiff with sums greater than the damages actually incurred as a result of the tort in a sum sufficient to punish the defendant and deter the defendant – and others – from repeating the wrongful conduct. Punitive damages do not help the insured return to the situation he or she was in before the insurance contract was breached. If they collect the punitive damages the insured is placed in a better position than he or she was in before the breach of the contract.

Traditional Tort Damages

When an American is damaged by the tortious conduct of another his or her ability to reason analytically disappears. The damaged person becomes angry and wants to punish the person who caused the harm. Indemnity, the general measure of tort or contract damages, is insufficient. The injured person wants revenge, he or she wants the defendant tortfeasor to suffer. The plaintiff is not satisfied with traditional tort damages that merely compensates him or her fairly for the damages incurred.

Punishment was limited to that authorized by statute for criminal conduct of a defendant. The common law of England and the common and statutory law of the United States only allowed tort damages designed to make the plaintiff whole. Damages for breach of contract or for injuries to person or property by the tortious conduct of the defendant were limited to the cost to repair or replace the damaged property or compensate the plaintiff for the injuries incurred. The defendant who acted tortiously – negligent or intentionally – was only required to pay damages resulting from the tortious conduct that placed the plaintiff back in the position he or she was in before the injury or damage.

Civil juries have a difficult enough time establishing appropriate numbers to indemnify a person so that he or she is back the way he or she was before damaged by a tort. To ask a civil jury to, after concluding a tort caused damage to the plaintiff, add to the actual damages an appropriate civil punishment does not appear to be fair to the judge or jury. Punitive damages are assessed by civil juries where only nine out of twelve must agree to punish the defendant. Without the protection given criminal defendants by the Fifth Amendment to the U.S. Constitution and the right to a trial by a jury of the tortfeasors’ peers who must vote unanimously to punish the tortfeasor is the reason why punitive damages are controversial.

The wild differences in awards of punitive damages from a single dollar to billions of dollars is evidence of the difficulties the assessment of appropriate quantum of punitive damages give juries. As Benjamin Franklin once said: “Tis more noble to forgive, and more manly to despise, than to revenge an injury.” Punitive damages allow revenge and are neither noble nor manly but is a court ordered revenge.

ZALMA OPINION

It is time for punitive damages to leave U.S. jurisprudence. It gives a false impression that the punishment helps to deter others from acting wrongfully. It does not, it only adds to the wealth of plaintiffs’ lawyers, gives a great deal of money to the tax collectors, and does not help the plaintiffs. It is an effective example of the law of unintended consequences.

 


© 2017 – Barry Zalma

This article, and all of the blog posts on this site, digests and summarizes cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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