Are you involved in a personal injury lawsuit?
If you were injured due to someone’s negligence, chances are your attorney is talking about punitive and compensatory damages.
You may only be concerned with paying your rising medical bills, replacing damaged property, and maybe even recouping lost wages, but you should know the difference between the two types of damages. Not knowing may mean you’re losing out on financial compensation or potentially putting someone else at risk.
Before reaching a settlement, here’s what you should know about punitive damages and the difference between compensatory damages.
Understanding the Difference Between Punitive and Compensatory Damages
A jury or judge awards punitive or exemplary damages in personal injury lawsuits. Compensatory damages are awarded to cover financial and non-financial losses suffered by the plaintiff in a personal injury lawsuit. There are two types of compensatory damages, and you can be awarded one or both.
Special compensatory damages cover easily identified financial losses like lost pay due to missed work and medical expenses. General compensatory damages cover a broader area that is not easy to put a value on. For example, any pain and/or suffering you may experience from the injury.
Occasionally, punitive damage awards make headlines—think of the historic settlement between the five primary tobacco manufacturers and the thousands of Florida smokers who joined the famed personal injury lawsuit. In it, the Miami court awarded the plaintiffs a whopping $145 billion in punitive damages.
Even though cases asking for punitive damages tend to make the headlines, this type of personal injury award, regardless of the amount, is relatively rare. While most states allow plaintiffs in personal injury lawsuits to seek punitive damages, the regulations and limitations vary. Some states only allow punitive damage awards when it’s proven the defendant intentionally tried to harm the plaintiff.
Punitive Damages Can Serve an Important Purpose
The purpose of punitive damages is pretty simple—the plaintiff’s financial award is meant to punish the behavior of the defendant since prison time is not an option in civil lawsuits. The financial award can also act as a deterrent, so in other words, punitive damage awards can deter the defendant from engaging in the same or similar behavior.
How Punitive Damages Work in Tort Law
So, you’re probably wondering what is tort law; tort law applies when someone’s negligence results in personal injuries or property damage, and if someone intentionally causes another person’s injuries, tort law also applies. A medical malpractice lawsuit is a good example of a case in tort law. To win the civil lawsuit, the plaintiff must prove the defendant acted with the intent to cause harm or their actions were reckless or negligent.
Going back to the above example of the civil lawsuit against the tobacco manufacturers. The lawsuit proved that tobacco manufacturers were aware of their product’s risks and dangers to consumers’ health. Since the manufacturers continued producing and selling their products they acted negligently.
However, another example is when a company’s research department tags a product as unsafe for the public. The manufacturer misreads the report and begins selling the product. Serious injuries occur, but the manufacturer is not liable for punitive damages since they did not display negligent or reckless behavior.
What Are Punitive Damages in Contract Law?
What is contract law? The term sounds more complex than it is, but it’s actually more straightforward than you may think.
Contract law refers to a binding agreement between two parties, and a good example of this is your auto insurance contract. You pay a monthly fee with the exception that your auto damage claim will be settled, which means either financial compensation for repairs or the blue book value of the vehicle.
If the insurance provider refuses to pay, you can file a lawsuit, which may allow your attorney to use tort law to settle your lawsuit. However, not all punitive damage cases in contract law are winnable. You will want to read the fine print carefully in any contract before signing. Most have clauses protecting them from punitive damage lawsuits.
If you’re unsure if this applies to your contracts, it’s a good idea to have an attorney review each one.
Do Punitive Damages Have a Limit on Award Amounts?
The multi-billion dollar settlement against the five major tobacco manufacturers is a good example of there not being limits on the amount you may be awarded in punitive damages.
However, some states have laws capping punitive damage awards at a percentage of the defendant’s net worth. This cap helps protect the defendant from overeager juries looking to award large settlements.
Other states have split-recovery laws, where you split the punitive damage award with the state. The percentage varies by state, but most are anywhere from 50 to 75%. In these states, you may only receive half or even less of the total award.
Some factors also determine punitive damage award amounts, which include the severity of the defendant’s behavior and the amount of physical and/or financial harm you suffered. The Supreme Court has also weighed in on punitive damages caps and ruled damages shouldn’t be more than nine times the amount of the compensatory award.
Before you consider filing your punitive damages claim before a compensatory lawsuit, you should know the two types of claims typically go hand-in-hand. In other words, filing for punitive damages first does not necessarily mean a larger settlement.
Do You Have to Pay Taxes on Punitive Damage Awards?
Okay, so you’re already splitting the punitive award with the state (if applicable). Does this mean you also owe taxes? Well, the unfortunate answer is yes.
While compensatory damages are non-taxable, the opposite is true for punitive damages. When it’s time to file taxes, go to line 8z on Form 1040; your punitive damages amount then goes under ‘other income’.
Don’t File for Punitive Damages Alone
Navigating the sometimes complicated legal system regarding punitive damages is always best done with help from an attorney. Not only will your attorney tackle your compensatory damages case, but they are also equipped to handle punitive damage lawsuits.
Whether your injury was caused by negligence or outright intentional behavior, always talk to an attorney to try to find the very best solution for your case.