Policy Study

Punitive Damages and Environmental Law

Rethinking the Issues

Executive Summary

The current debate over punitive damages, both in environmental cases and in general, is misguided. That debate paints a false dichotomy between environmental protection and corporate profits. There is a problem with punitive damages, though contrary to what tort reformers may argue, the problem is not large punitive damages awards per se. The problem is not that punitive damages are assessed in “crisis” proportions-no one knows what “crisis” proportions are. Rather, the problem is that punitive damages are often assessed in inappropriate situations or in unjustifiable amounts.

Formulations like “Punitive damages are too high” or “Punitive damages are too low” suffer from the same problem as statements like “Too many people are convicted of murder.” Such statements, based on aggregate results, lose sight of the purpose of the law, which is to establish a fair process for achieving a fair result in individual lawsuits. In the legal system, a fine that is $100 too high and one that is $100 too low do not cancel each other out. A solution to the punitive damages problem must explain what a “correct result” is and how to achieve it in individual cases. This paper will argue that:

  • Only recklessness, intent to harm, and intentional violations of the law should carry punitive sanctions; accidents and negligence are adequately deterred with compensatory damages, and punishment for such cases is inappropriate.
  • Criminal law is a better tool than punitive damages to punish and deter. In criminal law, the burden of proof is higher, the criminal fines go to the state and not to the injured party (though the injured party may also bring a civil suit for compensatory damages), punishments are more predictable, the problem of multiple punishment for the same cause of action does not exist, and decisions to prosecute rest with public authorities vested with the task of punishing criminal conduct.
  • However, if the civil law continues to be used to impose punitive damages, various reforms merit consideration.
    a) Juries themselves aren’t the problem; the more fundamental problem is unlimited discretion, whether on the part of juries or judges. Punitive damages reform must involve at least the procedural safeguards mandated by the Supreme Court in the Haslip case: clear jury instructions, post-verdict review by the trial court, and appellate review.
    b) In addition, punitive damages should incorporate those features pointed out above as advantages of the criminal law. The burden of proof for awarding punitive damages should be higher; plaintiffs shouldn’t keep punitive damages awards; punishments should be more predictable; and multiple awards of punitive damages for a single action should be curtailed.
    c) Punitive damages should concentrate on how much defendants benefited from their reckless or malicious conduct. All penalties already incurred by defendants, like regulatory fines or compensatory damages, should be subtracted from this number. Multipliers may be appropriate, in cases where the underlying conduct was hard to detect.
    d) The ratio between compensatory and punitive damages should be irrelevant. Relying on this sort of simple formula, or using a ratio as a cap on punitive damages, makes it more difficult to come up with appropriate deterrent fines, and it magnifies any previous errors in the calculation of compensatory damages and regulatory fines.
    e) The wealth of the defendant generally should not be a consideration in establishing damages.