I’m originally from Michigan and I have family there. I was researching Michigan insurance law, and discovered that in Michigan, the award of punitive damages to policyholders who have been treated badly by insurance companies is not common – in fact, Michigan courts discourage it.
The Definition of Punitive Damages
The word “punitive” means “intended as punishment.” Punitive damages are the monies that a court (or jury) awards to a plaintiff (the person who brought the lawsuit) when the court wants to send a message to the defendant that they need to stop their bad behavior. When you hear reports of large court awards, such as in the tens of millions of dollars, that is probably due to the punitive damages.
There is a lot of controversy about punitive damages, because when the court punishes a large corporation by imposing a large money judgment, that money goes to the plaintiff for that one case. People don’t know how they feel about “punishment money” meant to deter future bad behavior being awarded to that one person who filed a lawsuit. There are arguments that this motivates plaintiffs to be greedy and file unsubstantiated or frivolous lawsuits. For more on this debate, see the famous McDonald’s hot coffee case.
Punitives Aren’t Perfect But Right Now, They’re All We’ve Got
You are probably already aware that the current American civil justice system is VERY expensive. If you are injured by a corporation and are looking to be compensated for your injury, the odds are severely stacked against you right from the beginning. Corporations have all the resources they need at their disposal to make sure you give up and just go away. They will offer you a ridiculously small amount of settlement money (or nothing) and force you to either give up or find a lawyer willing to take on your case for an amount you can afford.
This significant power imbalance is supposed to be kept in check by the laws of the United States – a combination of American civil court decisions and the laws written by legislatures. Do you feel like the laws of the U.S. are prioritizing your rights? Do you feel like you are treated with equal respect as the wishes of a large corporate entity? In the current United States climate, the answer is a resounding NO, and unfortunately our citizens have just “gotten used to it.” But it doesn’t need to be that way.
The Creation of Punitive Damages – Why?
Punitive damages were created by the American courts in an attempt to equal that “playing field” between you and a giant, all-powerful corporation. This is done in two ways:
- The monetary reward of punitive damages creates motivation for your attorney (called a plaintiff’s or Consumer’s attorney) to take on an incredible, crazy amount of financial risk.
- The corporation who acted badly will think twice about their bad actions if they are facing a punishment of tens of millions of dollars.
1) The Insane Risk of the Plaintiff’s Attorney
In the current climate, if you want to be fully compensated for an injury caused by a corporation, you have to locate a lawyer who is willing to take on your case and then file a lawsuit. This is problematic because the American legal system is incredibly time-consuming and very, very expensive. Why? Mostly because 1) our American courts are severely underfunded and overburdened (and therefore VERY slow – the full lifecycle of a court case from filing to end of appeals, is 7-10 years) and 2) when you are suing a large corporation, it is common strategy for them to drag the process out as long as possible with the hope that it becomes too expensive and burdensome for you, and you will be forced to either give up or settle for pennies on the dollar. Also, if you don’t have a stellar lawyer in your corner, the very clever corporate lawyers will crush you. Feeling intimidated yet?
As a result, unless you are independently wealthy and can pay the hourly rate of a lawyer for years of work (amounting to hundreds of thousands of dollars), you need to find a contingency lawyer who is willing to take your case on and only be paid if they win. There are not that many contingency lawyers with those kind of resources and that level of confidence. They need to be very careful to select only the cases they really believe they can win, and those cases must be worth enough for them to gamble away 7-10 years of their lives. Choose the wrong case and you’ll be bankrupt.
Punitive damages equal the playing field by creating an incentive for you and your lawyer to commit to the case for the long haul – even knowing that the odds are significantly stacked against you. If one thing goes wrong, the entire value of the case can be lost in an instant. And those clever corporate lawyers spend all the time and resources available to find that one thing.
2) Punishing the Greedy Corporation So They Won’t Do it Again
The other reasoning behind punitive damages – and the primary reason cited by courts, is to punish the bad corporate actor so they are deterred from doing it again. This is why punitive damages can be so large. The Supreme Court allows punitives to be about 10 times the award granted to compensate you for what the bad action actually cost you over the years. So for example, if the bad action cost you $1million in losses over the years, a court can award an additional $10million in punitive damages.
The problem with these punishment awards is that modern American corporations are so large and profitable that a $10million punishment is easily absorbed into their multi-billion dollar budget. For example, in the famous McDonald’s coffee case, even if the $2.7million in punitive damages had actually been upheld (it wasn’t), this was only meant to represent two days of coffee sales. Why would McDonalds be concerned about a mere two days of coffee sales, considering that coffee is only one item on their extensive menus and there are 365 days in a year? That “punishment” was a very tiny slap on the wrist, and definitely not enough to stop them from doing whatever they please – including hurting more and more people just to make extra profit.
So, Do Punitive Damages Work?
While punitive damages are a great idea thought up by clever judges, they are not having the effects they are meant to have. American consumers do not have an equal playing field against giant corporations – not even remotely close. Court created remedies like punitive damages are only helpful after the damage is done. To really help the consumer, American lawmakers need to write stronger laws, and those laws need to be enforced. Right now, there are not enough protective laws, and those that do exist are not being enforced by government agencies. The task of enforcement falls to the occasional brave plaintiff who files a claim and does not give up, and his crazy, risk-taking lawyer who cares enough about justice that they will face bankruptcy and ruin. The result? Consumers continue to be mistreated on a daily basis, and there is almost nothing they can do about it.
As you can see from the picture painted above, while punitive damages create incentive for consumers who have been hurt to find a lawyer able to stand up to giant, wealthy corporations (and creates incentive for that lawyer to do so), the consumer is still statistically bound to fail somewhere along the course of the claim, long before punitive damages can ever be awarded.
The noble creation of punitive damages cannot fully compensate for the lack of strong laws written by our elected senators and representatives, and then the actual enforcement of those laws.
The Michigan Idiosyncrasy
Back to Michigan – What prompted this blog post was my discovery that the State of Michigan has a very confusing policy on punitive damages. While technically the Michigan courts will allow punitive damages to be granted, they clarified only “as compensation to the plaintiff, (but) not as punishment of the defendant.” Someone needs to tell Michigan that the very definition of “punitive” is “for punishment.”
See Peisner v. Detroit Free Press Inc., 104 Mich.App. 59, 304 N.W. 2d 814.
For the punitive damages rules in your state, see “Limits on Punitive Damages” – they provide a table listing every state.