Tort Reform

"When dealing with the American legal system, there are times when punitive damages seem too punitive."

So you're watching a legal drama where a Frivolous Lawsuit comes up from a Ambulance Chaser. There Should Be a Law to keep them from getting a big cash settlement, right?

Maybe. Some folks think so and want to do tort reform. The idea is that frivolous lawsuits are big bucks. The US media tends to treat huge multimillion-dollar settlements as the norm. A combination of laws enacted some time ago combined with an increase of the awareness of frivolous lawsuits has led to a decrease in the actual amount of damages.

In U.S. courts, there are two types of damages: compensatory damages and punitive damages. Compensatory damages have a large amount of rules on them, and include all the physically concrete damages you can establish (hospital bills, lost wages and so forth); and pain and suffering. "Pain and suffering" is a loose term, but is usually linked to the physical damages you can establish and designed to compensate for the emotional damages. It also has the effect to make sure the bills for actual damages get paid after a lawyer's cut of the physical damages. Emotional damages have quite a lot of rules that vary from place to place, with rules on who can recover and for what. In Malpractice case limits exist in many states to cap the damages, no matter how horrific. In California, a cap of $250,000 has existed for 40 years on damages with no increase in that time.

Punitive damages are not designed to compensate a person for losses caused by the other side, but to punish socially reckless or intentional behavior considered wrong by society. Punitive damages are much harder to get because of the requirement for reckless or intentional harm, rather than merely careless behavior, but can be much higher against companies deemed to do wrong.

Since they are designed to punish, a jury may look at many things and set the punishment at something they think will hurt the company. That's where $250 million verdicts come from—the behavior of the company was so bad as to need punishment. And for sufficiently large companies (Microsoft comes to mind), any amount of punitive damage that doesn't look ridiculously large is gonna be a slap on the wrist.

Those awards seldom stay that high. A $250 million verdict against insurance companies for denying claims may be reduced to $25 million by the judge at trial and to $2 million on appeal. The Supreme Court has ruled that excessive punitive damages are an unconstitutional violation of due process, and criteria for assessing punitive damages include the reprehensibility of the defendant's conduct, the other civil or criminal penalties they would face for similar conduct, and a comparison of the punitive damages awarded to the actual damages (with anything greater than nine times the actual damages requiring a particularly strong showing).

Subtrope of There Should Be a Law and counter-trope to Ambulance Chaser.