Introduction

As Congress and state legislatures consider proposals to change or limit the purview of punitive damages, a fresh look at the facts is warranted. The chief question of fact in the public debate has been to ascertain what the trend is: how many punitive damage awards are being given by juries, and have the number of awards and the average amount of awards been growing rapidly or not? Several studies have yielded different findings, and there is a clash of views on how to interpret the trends.

It is important to recognize that most civil lawsuits are brought under the jurisdiction of state courts, and punitive damages vary widely from state to state. Some states, such as Washington, prohibit punitive damages entirely, while other states restrict the size of awards. The evidence analyzed here demonstrates that punitive damages in California tend to be larger and more frequent than in other states. Moreover, a comparison with other states shows that California's median punitive damage award is between three and six times higher than the national average. The evidence further suggests that median punitive damage amounts have doubled over the last decade.

A Review of the Research

Sorting out the competing claims about punitive damage trends is difficult because there is a scarcity of comprehensive data on the subject. There is no "Bureau of Litigation Statistics," like the Bureau of Labor Statistics, to which one might turn to find complete, authoritative data. Even Michael Rustad, while defending punitive damages, has acknowledged that "the actual number of punitive damage awards in product liability cases is unknown and possibly unknowable because no comprehensive reporting system exists."(1) In the absence of reliable data, the debate has proceeded on the level of anecdote and headline-driven perception.

A number of studies suggests that the frequency and size of punitive damage awards has been growing over the past two decades. These studies are from different jurisdictions and from different time frames, and in some instances limited to certain types of litigation, and are difficult to compare. Critics of these studies argue that punitive damages are awarded in only a small fraction of all lawsuits, and that average award figures give a false impression because average figures are skewed by a handful of very large awards. These critics suggest using median award amounts rather than averages. But even median figures will demonstrate that punitive damages in California are large in relation to any comparable criminal sanction, and growing far more rapidly than the rate of inflation.

The findings of the major studies on both sides of the issue are summarized here:

The Washington Legal Foundation's 1992 study compared punitive awards in business-related cases in four large states (California, Texas, Illinois, and New York) for the years 1968-1971 and 1988-1991. (See Table 1 below.) In the first four-year period, there were a total of 73 punitive damage verdicts. In the second four-year period, there were 401 punitive damage verdicts. The study found that total punitive damages had grown from less than $800,000 in the first four-year period, to more than $312 million in the later four-year period. The average award in the first period was only $1,080 while the average award in the second period was $778,000-nearly equal to theentire amount of punitive damages awarded during the first four-year period. The study did not report the median size of punitive damage awards among these verdicts. While punitive damages in this comparison grew 117 times from the earlier period, Gross Domestic Product (GDP) had only doubled. "The startling fact is," the study concluded, "that the growth of punitive damages has dwarfed the growth in the productive sectors of the economy."(2)

Table 1: Washington Legal Foundation Study

The RAND Corporation's Institute for Civil Justice is currently updating its widely publicized comparison of jury verdicts in Cook County, Illinois and San Francisco County. (3) RAND has gathered verdicts in four-year increments from both jurisdictions, starting with the 1960-1964 period. Since 1960, RAND has identified 396 punitive damage awards in the two jurisdictions. Table 2 below displays the average, median, and total punitive damages awarded in each jurisdiction.

Table 2: RAND Corporation Data

Table 2 indicates that there is a large variance between average awards and median awards. This variance highlights the unpredictability of punitive award amounts. While total punitive damages increased more dramatically in Cook County than in San Francisco County between 1990 and 1994, our research (discussed in the next paragraph) reveals that during that same four-year period juries in Los Angeles County awarded more than $800 million in punitive damages.

A recent study by the Pacific Research Institute examined 539 punitive damage awards in California courts between 1984 and 1994. (4) These verdicts were drawn from reports in Jury Verdicts Weekly. Over this ten-year period, juries awarded over $3 billion in punitive damages, of which $2.5 billion survived appeals and post-trial motions.

During the period of 1984 - 1989, this study examined reported punitive damage awards greater than $100,000. From 1990 to 1994, the study examined all reported punitive damage awards. These verdicts are displayed in Table 3 below.

Table 3: Pacific Research Institute Data

It is worth noting that the statewide median reported in this survey ($300,000 for all 291 cases over five years) is substantially higher than the median the RAND study found for San Francisco for the past four years ($97,000). As the next study reviewed here makes clear, San Francisco County likely represents the low end of the spectrum for large California counties.

Research by Stephen Daniels and Joanne Martin, legal scholars who defend punitive damages, further confirms that California's median punitive damage awards are larger than in other states. (5) Daniels and Martin surveyed 25,627 jury verdicts from 47 counties in 11 states from 1981 through 1985 (with a few exceptions where county records for the entire time period were not available). Daniels and Martin contend that average punitive damage awards are misleading, because in a small sample a few very large award amounts will skew the averages. They prefer median figures instead, and do not include average award amounts in their figures. However, it is worth noting that the statistical variance (the range in the size of awards) in the various samples of cases is huge, which is again illustrative of the unpredictability of the size of punitive damage awards.

Table 4: Daniels and Martin Data

Data tabulated from counties with 10 or more punitive damage awards, from 1981 to 1985, inflation-adjusted to 1985 dollars.

Daniels and Martin argue that punitive damages are included in only 5 percent of all trial verdicts-their survey found 1,287 punitive awards among 25,627 verdicts.While the rate at which punitive damages are awarded varies widely among these jurisdictions, Daniels and Martin find no discernible trend of increase in either the frequency of punitive damages or the amount of punitive damages awarded.

While Daniels and Martin claim that no national trend may exist, their data clearly show that California occupies a place at the high end of the distribution. As Table 4 demonstrates, the median punitive damage award in San Francisco County is more than twice the median award in New York, and more than three times the median award in several Texas counties where punitive awards are more frequent. Other large California counties show even larger median award levels. Moreover, it is worth noting, in the two right hand columns of Table 4, that the median award level in cases involving punitive damages is significantly higher than the median award level for all civil cases involving damages.

The Bureau of Justice Statistics in the U.S. Department of Justice recently produced a study of civil litigation in the nation's 75 largest counties.6 The most prominently reported finding of this study is that punitive damages were awarded in only 3 percent of jury verdicts (364 out of 12,000 jury verdicts), with the median punitive damage award being only $50,000. This median would seem to be in line with Daniels and Martin's median figures for the nation as a whole. There are several methodological difficulties with this study, however. While the study purports to represent a review of 762,000 case filings and 12,000 jury verdicts, in fact the Department of Justice only scrutinized a sample of these cases. It is from these samples that extrapolations are made in the various tables in the study. The sample size is not divulged. Moreover, the Department of Justice study does not provide a state-by-state breakdown, so it is impossible to offer observations specific to California from this study.

Conclusion: California's Median Punitive Award Substantially Higher than National Average

These studies allow a comparison of punitive damages in California with other states. Figure 1 displays a comparison of median award figures, adjusted to constant 1993 dollars, showing that California is far out of line with the rest of the nation. Although the Daniels and Martin median is half the median reported in our data, it should be remembered that Daniels and Martin's data came from the period of 1981 to 1985, while our data came from 1990 to 1994. This suggests that median punitive damage amounts have doubled in California over the last ten years.

Figure 1: Median Punitive Damage Awards Compared

--By Steven Hayward,
vice president, research
for the Pacific Research Institute for Public Policy

Endnotes

* Nothing contained in this briefing is to be construed as necessarily reflecting the views of the Pacific Research Institute for Public Policy or as an attempt to thwart or aid the passage of any legislation. (1) Michael Rustad, "Demystifying Punitive Damages in Product Liability Cases: A Survey of a Quarter-Century of Verdicts," Iowa Law Review, October 1993.

2. George S. Branch, James D. Miller, Stephen M. Turner, Lawrence R. Jerz, and Robert E. Fuller, IPunitive Damages Explosion: Fact or Fiction?, Washington Legal Foundation, October 1992.

3. Deborah Hensler and Erik Moller, Trends in Punitive Damages: Preliminary Data from Cook County, Illinois and San Francisco, California, RAND Institute for Civil Justice, DRU-1014-ICJ, March 1995. The report notes that "The views and conclusions expressed [in this preliminary report] are tentative."

4. Steven Hayward, "Punitive Damages in California: A Preliminary Report" (San Francisco: Pacific Research Institute, 1995). It should be noted that the 539 verdicts in this study represent only those punitive verdicts reported in Jury Verdicts Weekly. We are aware of several large punitive damage verdicts in California from this time period that were not reported in Jury Verdicts Weekly

5. Stephen Daniels and Joanne Martin, "Myth and Reality in Punitive Damages," 75 Minnesota Law Review 1-64 (October 1990).

6. "Civil Jury Cases and Verdicts in Large Counties," U.S. Department of Justice, Bureau of Justice Statistics, Special Report NCJ-154346, July 1995.