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Punitive Damages in Corporate Liability Claims

Punitive damages are often asserted in transportation lawsuits based upon the claims we discussed last week—hiring, training, supervision, entrustment and retention. Claims for punitive damages require more than mere “negligence” and are brought for various reasons.

While “punitive damages” is a common term, many misunderstand their purpose, effect, and importance. The specific law varies from state-to-state. However, the following is an overview of the general concept and law to provide a basic understanding.

The purpose of “punitive damages” is what the name implies—punish conduct and deter such action in the future. Conceptually, “punitive damages” in a law suit have a very similar purpose as those of criminal sanctions.

As such, “punitive damages” require a higher level of culpability and fault than does a “negligence claim”. As a quasi-criminal concept, these damages are reserved for the most egregious of conduct.

Again, while the law varies by state. mere “negligence” or even “gross negligence” is usually not enough. The plaintiff who sues must present evidence that a defendant’s conduct amounted to intentional, willful, wanton, or reckless conduct.

Generally, “reckless” requires conduct that creates an unreasonable risk of physical harm to another and such risk is substantially greater than that which is necessary to make his conduct negligent. It is more than mere carelessness.

“Reckless” conduct may be found where an actor knows, or has reason to know of facts which create a high degree of risk or physical harm to another, and deliberately proceeds to act or fails to do an act, in conscious disregard of, or indifference to, that risk. That’s the general, legalistic explanation.

By example, a driver who has an accident because of a momentary inattention resulting in the accident may be “negligent”, but would probably not found to be “reckless”. However, if that same driver would speed through a downtown street teeming with pedestrians during a busy lunch hour and strikes someone, he may well be found to be “reckless”. The key is doing or failing to something in conscious disregard to a substantial risk.

Punitive damages are often employed as a tactic by the plaintiffs that sue us. They do so in several ways.

First, it is often intended as a basis to access a company’s financial records. The purposes is to create significant discomfort for the trucking company, particularly if it is privately held.

Fortunately, most courts recognize the tactic for what it is. As such, they frequent provide safeguards requiring proof that the punitive damage claim is viable before requiring the company to disgorge itself of its private financial information. Further, they often provide for confidentiality of any material that is ultimately produced until it is presented at trial.

Second, plaintiffs attempt to use punitive damages as a wedge issue between the company and its insurer. Just as politicians employ emotionally charged issues to polarize the electorate, plaintiffs seek to divide the company and its insurer.

The potential for divisiveness comes from the laws of many states that prohibit insurance from covering or paying for punitive damages. Again, this varies by state.

These laws are based upon the theory that you should not permit someone to avoid responsibility for reckless, wanton, or outrageous conduct by having insurance pay for the punitive damages otherwise there would be no disincentive for the conduct. This creates the potential that the company will push the insurer to settle the injury case to protect the company from exposure for having to pay punitive damages.

Additionally, the potential for having to produce financial records in the face of punitive damages can also potentially cause the company to urge the insurer to settle the case. This is another of the wedges plaintiffs seek to drive between the company and its insurer.

In any case involving punitive damages, be sure to check the specific law of the applicable jurisdiction. The generalizations above are intended to provide an overview of the concept.

In the first two posts, we have looked at the bases of the claims and how plaintiffs try to maximize them by parlaying them into punitive damage claims. Next we will look at what we can do to defend against these claims.

Doug Marcello

Doug Marcello

Doug Marcello is a transportation attorney who has earned his CDL. His law practices focuses upon serving the trucking industry. Based in Central Pennsylvania, he has represented trucking companies in cases throughout the US, having been specially admitted in 35 states. He is a frequent speaker at industry events and driver safety meetings. He has also written numerous articles concerning issues confronting the industry and has produced several DVDs relating to accident response and aggressive defense of claims.
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