Constitutional Limitations on Punitive Damages: Ambiguous Effects and Inconsistent Justifications

Punitive damages occupy a special place in the U.S. legal system. Courts award them in very few cases, yet they have been the center of tort reform efforts because of their controversial nature.' This controversy centers around the purposes for which punitive damages are awarded-to punish reprehensible conduct and to deter future bad acts. While compensatory damages exist to redress specific harms and to compensate a victim for a particular harm suffered, punitive damages exist to further the much broader social goals of retribution and deterrence. Because punitive damages must be calibrated to achieve these broad social goals, they necessarily involve more discretion on the part of the adjudicator awarding them.

Adjudicators may receive some guidance when setting the final award amount, but this guidance is often minimal when provided at all. The broad discretion exercised by adjudicators combined with a lack of guidance has created a system with the potential to impose very large and unpredictable punitive damages awards on defendants. While punitive damages can efficiently deter defendants when compensatory damages are not large enough to induce defendants to take the appropriate amount of caution in their activities, large and unpredictable awards tend to have a chilling effect on desirable activities. Empirical evidence has demonstrated that punitive damages do not actually provide strong incentives for defendants to take extra precautions in their activities and that they can even systematically harm consumers.'