RISKVUE ARCHIVE | FEATURE STORIES

Minimizing The Risk Of Punitive Damages

By Kristine L. Mollenkopf, Esq.

What Are Punitive Damages?

Unlike compensatory damages, punitive damages are not typically awarded in an ordinary negligence lawsuit. This is because mere negligence, even gross negligence, is insufficient to justify an award for punitive damages. In most jurisdictions, a plaintiff seeking punitive damages must establish that the defendant is guilty of oppression, fraud or malice by clear and convincing evidence. A higher burden of proof than “preponderance of the evidence” is required.

What constitutes oppression, fraud or malice? It is not enough for the conduct to simply be intentional; the conduct also must be accompanied by aggravating circumstances that amount to an intent to vex, annoy or injure. The defendant must engage in intentional conduct designed to injure the plaintiff, or perform despicable conduct with a willful and conscious disregard for the rights or safety of others. To be guilty of willfully and consciously disregarding the rights or safety of others, the defendant must have been aware of the probable dangerous consequences of the conduct, and have willfully and deliberately failed to avoid those consequences.

Frequency And Severity Of Punitive Damages Awards

On average, allegations of punitive damages will be asserted in approximately one out of every ten litigated cases. Actual awards of punitive damages are less frequent. However, even though statistically the risk of a verdict including punitive damages is small, the potential should not be overlooked.

The amount of punitive damages awarded varies significantly from case to case and may be determined by a judge, jury or both. The amount of such an award is left to the discretion of the trier-of-fact, which may consider the reprehensibility of the conduct of the defendant, as well as an amount that would act as a deterrent in light of the defendant’s financial condition. However, an award for punitive damages usually also must be reasonably related to the injury, harm or damage actually suffered by the plaintiff.

In relatively small cases, findings of punitive damages can easily double the verdict value of a claim. To the opposite extreme, the effect of punitive damages on a total plaintiff’s award is apparent in recent verdicts against the tobacco industry where punitive damages in the amount of billions of dollars were assessed.

The Risk Of Punitive Damages Must Be Analyzed On A Case-by-Case Basis

The risk of an award for punitive damages must be critically analyzed on a case-by-case basis. Often for tactical reasons alone, plaintiffs will seek to amend a complaint to allege punitive damages in the hope of being able to introduce evidence prejudicial to the defense that would otherwise be inadmissible. Such evidence may consist of the defendant’s reputation, prior accidents, character evidence, or evidence of wealth.

Egregious violations of law, particularly of those laws designed to protect the public, will often form the basis of a claim for punitive damages. For example, punitive damages are frequently alleged in lawsuits involving accidents caused by reckless drivers or drivers under the influence of alcohol or drugs. Lawsuits involving fraud and deceit allegations are also frequently accompanied by a prayer for punitive damages. Such lawsuits are the ones at greatest risk of ultimately resulting in an award of punitive damages against the defendant.

An employer’s alleged insufficient training and supervision of employees is often raised as a basis for a punitive damages claim. Plaintiffs may argue the defendant employer knew or should have known the employee was not qualified to occupy the position for which he or she was hired; that the employer violated its own policies when hiring the employee; that the employer’s training of the employee was so inadequate that it created a danger to the public’s safety; or that the employer retained the employee even after repeated violations of statutes or company policies.

Similarly, defendants whose operations consist of or include monitoring or maintenance obligations may be pursued for punitive damages. Poor maintenance of a large fleet of vehicles, for example, has been cited as endangerment of the public’s safety.

Mere knowledge of and failure to remedy a dangerous condition prior to that condition causing an accident can be enough for an award of punitive damages, placing defendants ranging from homeowners to large corporations at risk.

The Impact Of Punitive Damages Allegations Can Be Minimized

Once the potential for punitive damages has been identified, there are steps defendants can be taken to minimize exposure.

The best way to prevent a claim for punitive damages is an aggressive loss prevention program. Unfortunately, even the best program is not impervious to litigation. Fortunately, defense counsel, insureds and insurers have several techniques available to them to minimize the impact of a punitive damages claim.

First, defense counsel should be retained as soon as the defendant is served with the lawsuit. This provides work-product and attorney-client protection of all investigation efforts.

Second, once the case proceeds to litigation, plaintiff’s allegations of punitive damages must be attacked at the pleadings level, with a motion to strike, or by vigorously opposing motions to amend the complaint to include a prayer for punitive damages. Even if unsuccessful in foreclosing plaintiff’s claim at the pleadings phase, the attack can begin the process of educating the court regarding the inadequacies of the plaintiff’s case.

Third, the allegations must again be attacked during the discovery process. Defendants and defense experts should have all of the materials necessary to counter the evidence plaintiff will rely upon in order to establish the defendant’s willful and malicious conduct. Such materials include evidence that the defendant complied with federal, state and/or industry standards, performed regular safety inspections and/or maintenance, the lack of prior, similar accidents, etc. Given the tripartite relationship of defense counsel, insured and insurer, consideration must also be given to advising the defendant of the need for separate legal counsel regarding the exposure to punitive damages.

Fourth, the allegations must still again be attacked during trial. Defense counsel should move to bifurcate the punitive damages claim from the remainder of the trial at the earliest opportunity. Then, if successful, evidence of the insured’s assets will be permitted only if the plaintiff makes a proper showing of evidence entitling the plaintiff to punitive damages. Also, depending upon the facts of the case, the defendant may want to consider admitting liability. Such admission portrays an image to the court that the defendant has nothing to hide and is taking responsibility for its conduct, thus quelling the inflammatory potential of punitive damages.

Conclusion

While punitive damages can increase the risk of exposure to the insurer and the insured, there are real and tangible ways to minimize this risk. It is important to analyze the potential for punitive damages early, so that the best defense can be mounted. 

ABOUT THE AUTHOR

Kristine L. Mollenkopf, Esq. is an associate of the law firm of Hardin & Coffin, LLP, in Santa Barbara, California. She specializes in the defense of general liability, construction defect and product liability litigation. Ms. Mollenkopf may be reached at 805-963-3301 or klm@hardincoffin.com.

riskVue | The webzine for risk management professionals
April 2002