Introduction
Historically rare, punitive damages are intended to punish egregious misconduct and deter future wrongdoing. Recently, however, jury verdicts—including both compensatory and punitive damages—have garnered significant public attention, indicating a possible shift in jury attitudes and expectations. Although punitive damages traditionally appear in only 2–5% of civil jury trials, recent verdicts suggest juries increasingly seek to deliver strong messages regarding corporate responsibility and ethical conduct.
Prominent examples include the $2 billion punitive damage award against Bayer in Georgia, tied to allegations that its Roundup herbicide caused cancer, signaling jurors’ intense concern about corporate disregard for consumer safety. Similarly, a California jury awarded $50 million in compensatory damages against Starbucks when a delivery driver suffered severe burns due to corporate negligence—a verdict extensively covered by plaintiff attorney Nick Rowley in his influential “Brutal Honesty” podcast series. Another notable verdict involved a $375 million punitive damage award in New Mexico, also featuring Rowley as plaintiff attorney, emphasizing juror intolerance for severe medical misconduct.
Historical Context and Purpose
Punitive damages originate from English common law, notably the landmark case Wilkes v. Wood (1763), establishing their purpose beyond mere compensation—to explicitly punish wrongdoing. This principle transitioned into American jurisprudence with cases such as Genay v. Norris (1784) and Day v. Woodworth (1851). Traditionally, punitive damages serve three fundamental purposes:
· Punishment: Penalizing defendants for morally reprehensible behavior.
· Deterrence: Discouraging future misconduct by both defendants and others.
· Vindication: Publicly affirming societal values by condemning wrongful conduct.
Legal scholars like Professor Catherine Sharkey support the societal role of punitive damages as supplementing public regulation. Others, such as Professor Cass Sunstein, argue punitive damages are unpredictable and may not serve their intended function efficiently. Despite differing views, there is general agreement that punitive damages should reflect principled legal frameworks.
Split-Recovery Statutes
To address concerns about windfalls and promote broader social benefits, some jurisdictions have adopted “split-recovery statutes,” requiring that a portion of punitive damages be directed to public funds or charitable purposes. These laws are designed to preserve the deterrent effect of punitive damages while reducing excessive financial benefit to plaintiffs and their attorneys.
Examples of States with Split-Recovery Statutes:
· Oregon: 70% of punitive damages go to the state’s Crime Victims Compensation Fund.
· Georgia: In product liability cases, 75% of punitive damages (after attorney’s fees and costs) are paid to the state treasury.
· Indiana: Requires 75% of punitive damages to be deposited into the state’s Violent Crime Victims Compensation Fund.
· Missouri: 50% of punitive damages go to the Missouri Tort Victims Compensation Fund.
Judicial and Scholarly Support
The American Law Institute’s Restatement (Third) of Torts: Liability for Physical and Emotional Harm acknowledges the legitimacy of split-recovery statutes as a tool for reform. The ALI does not object to such statutes and provides commentary on their potential benefits.
Criticisms and Constitutional Challenges
Critics argue that split-recovery statutes may violate constitutional rights, such as the Takings Clause, by reallocating jury awards without due process. Plaintiffs contend that these laws undermine the jury’s role and their entitlement to awards. Additionally, concerns exist about governmental overreach and the fairness of diverting funds intended to punish specific misconduct.
Relevant Court Decisions
Several important cases have shaped the boundaries of punitive damages:
· BMW of North America, Inc. v. Gore (1996): Established substantive due process limits on punitive damages, emphasizing proportionality.
· State Farm Mut. Auto. Ins. Co. v. Campbell (2003): Reinforced the need for a reasonable ratio between punitive and compensatory damages, typically no more than 9:1.
· Exxon Shipping Co. v. Baker (2008): Imposed a 1:1 cap on punitive damages in maritime cases, citing unpredictability and excessive jury discretion.
· Cheatham v. Pohle (Indiana, 2003): Upheld Indiana’s split-recovery statute against constitutional challenges, ruling that plaintiffs have no vested right to punitive damages.
These cases highlight judicial concern over excess and arbitrariness in punitive awards, encouraging statutory and procedural safeguards.
Defense Strategies and Tort Reform
Responding to large jury verdicts—including punitive and significant compensatory damages—defendants frequently advocate tort reform to limit liability exposure. Common tort reform measures include caps on damages, elevated evidentiary standards requiring clear and convincing evidence, procedural changes to curb perceived litigation abuses and periodic payment of judgments. Historically, these reforms were driven by defense concerns over rising insurance premiums, increased litigation frequency, and substantial jury awards threatening economic stability. Nevertheless, such reforms remain controversial, given their potential to unjustly restrict compensation to injured parties.
A prominent example is California’s Medical Injury Compensation Reform Act (MICRA) of 1975, which capped non-economic damages at $250,000 without adjustments for inflation, severely limiting recovery for severely injured plaintiffs. Rowley, alongside Jakob Norman, and patient advocacy groups, successfully spearheaded legislative changes through Assembly Bill 35, substantially raising damage caps and introducing annual inflation adjustments—an important step toward fairness for victims.
Judicial Grounds for Reduction or Dismissal
According to studies by the RAND Corporation and the Bureau of Justice Statistics, appellate courts commonly reduce punitive damage awards in a substantial percentage of appealed cases. Extremely large punitive awards, such as those mentioned above, face even greater scrutiny and reduction potential, guided by Supreme Court decisions like BMW v. Gore (1996), State Farm v. Campbell (2003), and Exxon Shipping Co. v. Baker (2008).
Verdicts, Punitive Damages and Cultural Shifts
The recent trend in explosive jury verdicts—including both significant compensatory and punitive damages—arguably reflects broader societal frustration and populist anger toward corporate misconduct perceived as prioritizing profits over public safety and ethical standards. Even verdicts that exclude punitive damages, such as the Starbucks case, demonstrate jurors’ desire to send potent messages demanding corporate responsibility and accountability. Rowley’s podcast analysis underscores this cultural shift, where jurors act as proactive agents driving corporate transparency and ethical reform.
Implications for the Structured Settlement Market
The increase in large jury verdicts, both punitive and compensatory, creates substantial opportunities within the structured settlement market. Punitive damages, unlike compensatory damages for personal injuries, do not benefit from favorable tax treatment under IRC Section 104(a)(2). As a result, recipients face immediate, significant tax obligations, motivating plaintiffs to seek tax deferral solutions via non-qualified structured settlements.
However, compensatory damage awards like the $50 million Starbucks verdict, qualify for favorable tax treatment under IRC Section 104(a)(2). Plaintiffs thus gain significant tax advantages, while defendants can strategically manage risk and financial exposure by offering structured settlements. This increased use of structured settlements enhances financial predictability, potentially shortens litigation timelines, and benefits both parties involved.
Conclusion
While traditionally uncommon, punitive and explosive compensatory damages are increasingly pivotal in contemporary litigation, mirroring deeper societal, political, and cultural changes. High-profile jury verdicts reflect jurors’ heightened determination to enforce accountability, drive deterrence, and uphold societal expectations for corporate responsibility. Legislative and judicial developments—including split-recovery statutes and constitutional limitations—are shaping the evolving role of punitive damages.
Furthermore, the rise of significant jury verdicts significantly impacts the structured settlement market, expanding opportunities for both qualified and non-qualified structured settlements. As societal demands for corporate accountability continue to shape jury awards, the structured settlement industry is uniquely positioned to provide innovative solutions benefiting plaintiffs, defendants, and the overall legal system. Ultimately, these developments reflect the legal system’s dynamic response to evolving conceptions of justice, fairness, and public purpose.
