Skip to Content

January 22, 2003

This is one of a series of articles under the by line “Butler on Bad Faith” originally published in Mealey’s Litigation Report: Insurance Bad Faith, Vol. 16, #18, p. 20 (January 22, 2003). © Copyright Butler 2003. 

I. Two-Thousand Years

Horace once wrote: “Anger is a brief madness.” Such human condition apparently has not changed in over 2000 years.

USA Today’s January 9, 2003 editorial page began with the topic sentence: “Horror stories abound about huge damage awards turning courts into lotteries, transforming plaintiffs and their lawyers into instant winners.” In addressing a recent Ohio Supreme Court decision, the editorial stated:

The 4-to-3 ruling addresses only one piece of a knotty legal puzzle: damages meant to punish and deter. While they are a sound idea in principle, excessive awards pocketed by a few victims and lawyers ultimately penalize consumers, who get stuck with higher prices to cover increased insurance costs. The public also can lose beneficial services, such as when doctors flee high-risk specialties.(1)

In a March 13, 2000 issue of the Wall Street Journal, Dick Thornburgh wrote:

Enormous punitive damage awards are a unique feature of America’s legal system. They aren’t designed to compensate a victim for any actual injuries sustained (that is the purpose of compensatory damages), but solely to punish the alleged wrongdoer. While they were once reserved for only the most egregious conduct, in recent years plaintiffs’ lawyers have called for punitive damages in cases against any defendant with deep pockets. Sky-high awards generate extravagant contingency fees — litigation windfalls that are then used to finance the next round of lawsuits.

Waffle House was hit for a $7.5 million in punitive damages based on the fact that the company had “total revenues of $283 million.” The Nevada Supreme Court upheld a $1.9 million judgment against Dillard Department Stores after generously concluding that “the award will not financially destroy or annihilate Dillard.”(2)

In a December 1996 issue of U.S. Business Litigation, Michael A. Pope, in an article entitled “Threat of Huge Verdicts Spurs Settlement,” wrote:

Highly emotional issues in a punitive damage debate are whether the amounts paid are excessive, and therefore, a threat to the civil justice system.

The mere threat of such huge verdicts can effect the company’s credit rating, stock value — and even employee morale — to such an extent that an inflated settlement may be preferable to litigation. Only the strongest company or the most stubborn CEO is likely to be immune to the influence of such claims.(3)

Theodore B. Olson and Theodore J. Boutrous, Jr. in a September 1993 article published in DRI Magazine: For The Defense, entitled, “The Constitutional Battle Against Punitive Damages: Where to Go After TXO,” wrote:

Punitive damages, on the other hand, are pursued by self-interested private bounty hunters who are motivated to impose the largest possible punishment in every case. They are assessed in unlimited amounts for violation of vague, elastic, retroactive, and highly subjective standards of conduct. And, while punitive damage defendants are not afforded the numerous procedural rights of the criminal system, punitive damage awards often vastly exceed criminal punishments for comparable conduct.

* * *

Until the last decade or so, punitive damages were rarely awarded; they were generally assessed in relatively modest amounts in traditional tort-law cases involving egregious, intentional misconduct that resulted in personal injury or death.

p. 2—3.

II. Punitive Damages

A punitive damage award is intended to punish, hence the term “punitive.” It is also intended to deter the wrongdoer from future similar conduct. Punitive damages are not compensation for injury, but instead, are private fines levied by civil juries to punish reprehensible conduct and to deter its future occurrence.(4)

The typical terms describing such wrongful conduct that call for punishment are “wilful,” “wanton,” “reckless,” “intentional,” “reprehensible,” and “malicious.”(5)

Would you punish a child for accidentally knocking over a glass of milk? You don’t punish someone for being fallible. Even negligence is not enough. A tortfeasor may need to pay restitution for actual damages resulting from their carelessness, but punishment to deter wrongful conduct is not required — the child neither intended nor wanted to knock over that glass of milk. A defendant, like a child, must have intended to do what she did, although not necessarily intended the consequences, for there to be a need to deter — for there to be a reason to assess punitive damages.

III. The Jury

Therefore, taking a post-mortem perspective, assume a fair and intelligent jury renders a punitive damages award. What must that jury have been thinking? In what appears to be an empirically based study on the subject, the authors of “Punitive Damages: How Juries Decide,” write:

We seek to understand why juries do what they do when faced with punitive damages cases. With that understanding, we hope to provide a better sense of how people think about both dollars and punishment — and in the process to contribute to the continuing social reevaluation of juries, punitive damages, and risk regulation in general.

Lawyers and social scientists know very little about how juries set damages awards, for punishment or for anything else . . .(6)

The authors of the present commentary have not attempted a scientific empirical study. Instead, the basis of this commentary is anecdotal, observational, and intuitive. What must a jury awarding punitive damages have been thinking? First, that the defendant acted wrongfully. That is, the defendant did something it should not have done, or failed to do something it should have done. Second, that such defendant acted intentionally and, more than likely, maliciously. That is, the defendant knew what it was doing, chose to do it, and did so knowing that it may harm the plaintiff. When a jury renders a punitive damages award, this is their thinking.

But to understand the process, it is insufficient and a misnomer to simply understand what a jury rendering a punitive damages award was “thinking.” Instead, you must understand what such a jury was feeling. A defendant has denied that it acted wrongfully. That same defendant has just testified that even if it acted wrongfully, it was unintentional, and certainly not malicious. After hearing all the evidence, however, you do not believe that defendant. In fact, you believe the defendant was acting wrongfully and did so knowingly, intentionally, and maliciously. How do you feel right now? How do you feel just reading of such a hypothetical scenario? Now, be a juror. You believe plaintiff was harmed by the intentional wrongful conduct of the defendant who has spent the last two weeks denying it. What do you feel? The authors suggest if such reflection does not elicit a chemical and biological reaction consistent with what we call “anger,” you may not be human.

It is difficult to imagine a jury returning a punitive damages award when it is not angry with the defendant. The plaintiff has already been compensated for his actual damages. The punitive damages are neither intended to compensate nor enrich the plaintiff, but rather punish and deter defendant. If the defendant needs no deterrence, there is no need to punish. When was the last time you punished your own child without experiencing any anger at the thought of that child’s “wrongful” conduct? Rarely, if ever. And you love your child. Many jurors may sympathize with a particular defendant, but never do they love it.

Researchers have found that punishment is mentioned approximately one and one-half times as often as deterrence when jurors describe their reasoning processes, suggesting that punishment plays a larger role in a jury’s thoughts about punitive damages than does deterrence. (7) Not surprisingly, it has been found that juries do not carefully follow judicial instructions, and are willing to ignore a large number of the legally necessary conditions to punitive damages verdicts. Instead, they use their everyman’s intuitive sense of right and wrong for the assessment of blame as a substitute for the legal standards described to them:(8)

An inevitable by-product of this adaptive habit is that events in the past seem more comprehensible than they were before they occurred. One implication is that ex post judgments of liability by jurors or by judges, attribute more ex ante for knowledge to another person than is reasonable. In short, a juror is prone to a hindsight bias when judging what the defendant could have and should have been able to foresee when taking an action that resulted in harm to the plaintiff. Second, there is a tendency to rely on everyday intuitions about what is proper rather than on the law, especially when the legal principles are unfamiliar and sometimes incomprehensible to the juror.(9)

IV. Defendant’s Dilemma

How does one prosecute a punitive damages case? The authors suggest that the essential element is “anger.” How do we make this jury dislike defendant? How do we make them angry? What admissible facts do we have that will anger the jury? What can we say about defendant in closing that will get the jury riled-up?

Conversely, how can defendant admit and explain its conduct without angering the jury? How does defendant defend against the tort or contract claim yet not prejudice its defense of the punitive damages claim?

Assume defendant takes the position it did not engage in wrongful conduct. In many cases defendant contends it did not even make an innocent mistake. The jury, however, renders its verdict in disagreement. Now what?

That jury must now determine the amount of punitive damages, if any. Let’s see, at trial you were already made aware of the alleged wrongful conduct yet you told the jury under oath that you did not believe it was wrongful. Now you are going to take the stand and testify, “Your verdict has convinced us that indeed what we did was wrong. We promise it won’t happen again. There is no need to punish us (at least not very much) — we got the message. Last night, after you returned your verdict, we e-mailed throughout our company the following guidelines to ensure that this conduct never ever happens again. . . .”

This defendant has a problem. The jury already disagrees with it, as the underlying verdict reveals. Now that same jury is to decide whether defendant who testified and argued for two weeks it did nothing wrong, has now experienced an epiphany and is sincere in its contrition. You do not have to be an experienced plaintiff’s attorney to salivate at such an opportunity to shine in a courtroom:

Ladies and gentlemen. For two years defendant and its counsel have submitted paper after paper after paper, argument after argument after argument, all stating that it did nothing wrong. That such conduct was appropriate and that it will continue to engage in such conduct. For the past two weeks you have watched and listened to defendant and its counsel categorically deny any wrongful acts, without remorse, without regret, without contrition, without any acknowledgment that it even made an innocent mistake, let alone engaged in intentional wrongful conduct. Now, after being found guilty, and facing judgment day, actual punishment for their wrongful conduct, they come before you and tell you, “We agree. We agree! We agree!!” Have they no shame. They don’t agree. They have no regret, no remorse, no contrition, no belief whatsoever that any of their conduct was wrong to any degree. They regret they lost the case. They regret that judgment day has now arrived. They regret that now you the jury will now award punitive damages against them. Yes, they do not wish to be punished and will tell you anything to avoid that punishment. Anything to save them from losing what they cherish above all else — money.

It wouldn’t be difficult to get any jury to believe such a defendant is untrustworthy, manipulative, and dishonorable, thereby deserving punishment, notwithstanding its belated “admissions” of guilt and remorse. So what’s the alternative for the defendant?

Defendant could have chosen another path. Defendant could have said we did wrong:

We were careless, selfish, and inconsiderate, and we take responsibility for our wrongful conduct. We have admitted our mistakes. Moreover, here is what we have done to take care of the plaintiff and all others similarly situated. Yes, initially we were in denial and defensive, but once our upper management was made aware of all the facts, we acted swiftly, honorably, and effectively to repair the actual damage we caused and prevent such from ever happening again. However, we were never malicious toward the plaintiff, or anyone else. Our subsequent conduct proves that we never intended to harm anyone. We needed to be educated, which we were. Once educated, we acted fairly, honestly, and appropriately. Punitive damages are designed to punish those who must be punished to deter them from acting in a similar fashion again. We believe our conduct to date, clearly establishes we are not a company that needs to be punished in order to get it to do the right thing.

Of course, to be able to argue the above is defense counsel’s fantasy. Rarely do the facts provide such an opportunity. Rarely does the defendant believe it did anything wrong, and, to admit that it did, will almost guarantee litigating, if not trying a punitive damages claim. Few defendants believe it, and even fewer want to admit it even if they did believe it; thus, defendant’s dilemma.

Does a defendant argue it did nothing wrong? Does defendant argue it made mistakes, but they were innocent, maybe even careless, but never wilful, wanton, reckless or intentional? The correct strategy in any particular case is the one that works. Unfortunately, if it does not, you will never know if the other would have.

In an excellent article entitled “What Everyone Should Know about Punitive Damages!,” Philip L. Harris writes:

Long before trial, the company and its trial attorney should have discussed how to present in a clear and favorable light evidence about the company’s conduct. Every company that I have represented has a good story to tell, but putting that story together may require a monumental effort. The key players might be dead or incompetent, or be ex-employees who now refuse to cooperate (or are testifying for your adversary). Not to be deterred by these possibilities in your on-going quest to personalize your corporate client, you should have identified and prepared several witnesses who can address what a responsible citizen your client really is. Often, this requires the development of corporate representative who may have given a deposition pursuant to Fed. R. Civ. P. 30(b)(6) or similar State provisions.

* * *

If you do not have any good stories to tell, then what are you doing in the courtroom? The absence of a compelling company conduct story might lead the jury to conclude that your client really did put profits over safety and did its best to “coverup” the truth about the product [or service].(10)

Thus, in a nutshell, if the plaintiff can’t rile-up the jury, she does not have a punitive damages case. Conversely, if defendant does not have a credible explanation for its conduct that does not anger the jury — it does have a punitive damages case.


  1. p. 10A.
  2. p. A47.
  3. p. 17.
  4. 4.Exxon Valdez v. Hazelwood et al., 27 F.3d 1215, 1241 (9th Cir. 2001) (an appeal of a $5 billion punitive damages award arising out of the Exxon Valdez oil spill. The Ninth Circuit upheld the lower court in every regard, but found the $5 billion punitive damages award to be excessive and therefore returned it to the trial court for reconsideration of the amount of the punitive damages award: “The $5 billion damages award is too high to withstand a review we are required to give it under BMW and Cooper Industries. It must be reduced. Because the Supreme Court decisions came down after the District Court ruled, it cannot apply then. We therefore vacate the award and remand so that the District Court can set a lower amount in light of the BMW and Cooper Industries standards.”)
  5. Punitive Damages: How Juries Decide, Cass R. Sunstein, Reid Hastie, John W. Payne, David A. Schkade, and W. Kip Viscusi (University of Chicago Press 2002) (“although there is some differences across States, the terms most commonly used as bases for punitive damages awards are ‘recklessness,’ ‘reckless disregard,’ ‘maliciousness,’ ‘oppression,’ ‘reprehensibility,’ ‘egregious or outrageous behavior,’ or similar such terms relating to the character of the defendant’s actions.” p. 12) [the authors of this commentary strongly recommend the addition of this invaluable reference book to any litigator’s or claims professional’s library].
  6. p. vii.
  7. Punitive Damages: How Juries Decide, at 70.
  8. Punitive Damages: How Juries Decide, at 75.
  9. Punitive Damages: How Juries Decide, at 222.
  10. DRI Insurance Coverage and Practice Symposium, December 10—11, 1998, New York, New York, p. J—14—15.