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Consumer Protection

WHY PUNITIVE DAMAGES ARE IMPORTANT TO CONSUMERS

      Punitive damages are those recovered by plaintiffs in cases where defendant's conduct has been fraudulent, oppressive or malicious. The purpose is to punish and to deter defendant and others from engaging in similar conduct.

      Big businesses continually pressure lawmakers to put a cap or limit on punitive damage awards. They complain about the enormous costs of punitive damages. However, putting arbitrary caps on punitive damages would defeat their purpose.

      Experience shows that punitive damages discourage bad corporate behavior. It is one of the means available to consumers who have been wronged by corporate misconduct to obtain justice. This remedy protects or equalizes the legal position of the consumer in relation to big businesses. Because the ordinary individual is powerless to match the resources of big corporations, the availability of punitives as a sanction for bad behavior merely "levels the playing field".

      A good example may be seen in the relationship between a consumer and his or her insurance company. An individual who files a false insurance claim, for instance, can be held liable for a felony and can be punished with imprisonment. However, if an insurance company cheats or misleads a helpless senior or disabled individual, the insurance executives do not go to jail. The only sanction against the company is the imposition of these damages.

      Even though cases involving multi-million dollar punitive damage awards are widely reported, the reality is that juries are not running wild awarding these damages. In fact, punitive damages are rarely awarded. According to an Institute for Civil Justice study, punitive damages are awarded in less than 4 percent of all jury verdicts. The reason is that punitive damages are not awarded unless the plaintiff shows that the defendant intended to injure plaintiff, or knew that plaintiff was likely to be injured, but consciously disregarded that risk.

      Big companies are also entitled to additional protection. Under California law, the type of misconduct that allows the recovery of these damages must be proven by clear and convincing evidence, a standard in civil cases that is stricter than the ordinary proof beyond preponderance of evidence. In addition, verdicts on punitives are always reviewed by the trial judge or by a higher court to determine whether they are reasonable . In certain cases, like the tobacco verdicts, courts have reduced the amount of jury awards.

      Despite these safeguards under the law, there are still instances when corporate defendants engage in reprehensible behavior. If this occurs, the law allows punitive damages to discourage them from repeating the behavior. The reason that punitive damage awards can be substantial, is that they are tied to the assets of the defendant. A $1 million punitive damages award is only 1 percent of the value of a $100 million company. The financial impact is similar to the fine for running a red light.

      Large punitive damage awards force companies to change their behavior. It is deterrent to fraudulent and unsafe corporate practices. The following are examples from actual cases.

      The Dalkon Shield IUD, manufactured by A.H. Robins, caused pelvic infections, septic abortions, infertility, and death in thousands of women after it was put on the market in 1971. Even though A.H. Robins received reports of these injuries, it did not stop selling the product until 1974, when the FDA intervened. After juries awarded over $24.8 million in punitive damages, the company finally agreed to advise women and doctors to remove the device, and to pay for the removal.

      In a 1981 case, American Motors had to pay a $1.1 million punitive damages award after two passengers suffered life-threatening injuries when their Jeep rolled over in an off-road area and the roll bar collapsed. The evidence showed that American Motors had never tested the safety of the roll bar, but still advertised the jeep as suitable for off-road use. After the award, American Motors redesigned the jeep to reduce the rollover risk.

      In a 1982 case in Arkansas, a newborn baby suffered permanent brain damage when he stopped breathing after he had been left alone for 35 minutes. The hospital intentionally left the nursery understaffed on the night shift in order to save costs. After a jury awarded $2 million in punitive damages, the corporation that owned the hospital changed its staffing policy.

      Bottled sodas previously had aluminum caps. In 1985, an 80-year-old woman was blinded in her left eye when the aluminum cap blew off a 7-Up bottle while she was removing it. At trial, evidence showed that 7-Up had known about the problem of exploding bottle caps since the early 1970s, but did nothing except add a warning label on the bottle. After a jury awarded $10 million in punitive damages, the entire soda industry switched to pre-formed plastic caps.

      These cases demonstrate that punitive damages are necessary to ensure the safety of consumers. Making products and services safer may involve costs but the benefits of promoting safety and preventing injuries are worth these costs. Sometimes, however, businesses choose to protect their profits, instead of their customers. Punitive damages force them to reconsider.

© Law Offices C. Joe Sayas, Jr.