Some Limits on Punitive Damages
Although case law has steered clear of bright-line tests for determining the appropriateness of punitive damage awards, certain governing principles can be distilled.
Ratios < 10:1
Ratios of less than 10:1 (punitive damages to compensatory damages) are more likely to comport with due process, while still achieving the state’s deterrence and retribution goals.
|State Farm v Campbell (2003) 538 US 408, 410|
|Insureds sued their car insurance company for bad faith failure to settle within their policy limits, fraud, and intentional infliction of emotional distress. The jury found in favor of the insureds. They awarded $1,000,000 in compensatory and $145,000,000 in punitive damages. The United States Supreme Court held that the punitive damages award violated due process.|
|Limitation on Punitives||Single-digit multipliers are more likely to be acceptable, at least when compensatory damages are “substantial.”|
|Rationale||The Court has been reluctant to identify concrete constitutional limits on the ratio between harm, or potential harm, to the plaintiff (as measured by compensatory damages) and the punitive damages award. But, in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process. Single-digit multipliers are more likely to comport with due process, while still achieving the State’s deterrence and retribution goals.|
|Amerigraphics, Inc. v Mercury Cas. Co. (2010) 182 CA4th 1538|
|A commercial insured sued its insurer for breach of contract and bad faith after the insured’s business premises were flooded and the insurer denied full coverage under the policy.|
|Limitation on Punitives||A 10:1 ratio of punitive to compensatory damages is too high. Generally, a single-digit ratio is proper.|
|Rationale||The court reduced the ratio from 10:1 to 3.8:1, based on the following factors: (1) the defendant’s relatively low degree of culpability, (2) the fact that the harm caused by defendant was not physical, (3) the fact that the wrongdoing did not involve disregard for another’s safety, and (4) there was no intentional malice.|