Punitive Damages vs Compensatory Damages: A Guide for Businesses

In the realm of civil litigation, businesses often face the potential of being held liable for damages caused to individuals or other businesses. Understanding the key differences between punitive damages and compensatory damages is crucial for businesses to effectively navigate legal proceedings and mitigate risks.

Defining Punitive and Compensatory Damages

Punitive damages are non-compensatory awards intended to punish the defendant for egregious or malicious conduct. Their purpose is to deter similar behavior in the future by setting an example and imposing severe financial consequences. Unlike compensatory damages, punitive damages are not meant to compensate the injured party but rather to serve as a public policy deterrent.

Compensatory damages, on the other hand, aim to make the injured party whole by compensating them for the actual losses they have suffered as a result of the defendant's actions. These damages cover various types of losses, including:

Determining Punitive Damages

Courts consider several factors when determining whether to award punitive damages, including:

• The reprehensibility of the defendant's conduct
• The defendant's financial resources
• The potential deterrent effect of the award

Success Stories

• In 2019, a jury awarded $250 million in punitive damages to a woman who alleged that Johnson & Johnson's talcum powder caused her ovarian cancer. The jury found that the company had concealed evidence linking its product to cancer and continued to market it as safe.
• In 2017, a jury awarded $150 million in punitive damages to a consumer who was injured by a defective product manufactured by General Motors. The jury found that the automaker had known about the defect but failed to correct it.

Conclusion

Understanding the differences between punitive damages and compensatory damages is essential for businesses as they navigate legal proceedings. By carefully considering the potential for punitive damages and implementing measures to mitigate risks, businesses can protect themselves from excessive financial liabilities while upholding ethical and responsible practices.