Punitive Damage Jury Verdicts Continue to Decline

The billion-dollar jury verdict has disappeared from U.S. courtrooms. For the second time in the past three years, there were no jury awards above $1 billion in 2008, according to data compiled by Bloomberg News. In 2007, there was one such verdict, for $1.5 billion.

Of the 10 largest jury verdicts in U.S. history, the last to be added to the list was in 2003. It was an $11.9-billion award against Exxon Mobil Corp. in a lawsuit by the state of Alabama claiming fraud in the underpayment of natural-gas royalties. It also was the last for more than $2 billion. The $11.8-billion punitive part of the Exxon verdict was erased in post-trial appeals, and Alabama wound up with about $120 million.

This reduction in billon-dollar jury verdicts is due in large part to courts applying caps or ratios on punitive damages. For example, many courts will apply a 3 to 1 ratio of punitive damages to compensatory damages. At first glance this may seem to be a good idea that a company can not be liable for more than 3 times the plaintiff’s compensatory damages (medical bills, lost wages, out of pocket expenses, pain and suffering); however, when this tort reform concept is closely analyzed it leaves the corporate defendant with little incentive to ensure that they are producing the safest possible product. For example, car manufacturer X may decide they can produce a cheaper car by using an inferior part and save themselves $5.00 a car or millions over the production life of the vehicle. When making this decision the car manufacturer will compare the likely number of injuries and deaths that may occur as a result of using this inferior part and the amount it may have to payout in claims against the amount of money it is saving by using this cheaper part. Reducing the threat of punitive damages against a corporate defendant encourages companies such as the car manufacturer in the aforementioned example to place dangerous inferior products into the stream of commerce.

The lower of threat of a high punitive damages award has also aided the corporate defendant by reducing their incentive to settle out of court.

In 1999, the Alabama Legislature enacted a punitive damages cap. Alabama Code section 6-11-21 states that no award of punitive damages for physical injury shall exceed the greater of three times compensatory damages or $1,500,000.