Exemplary damages, more commonly known as punitive damages, are financial compensations that surpass the cost of losses directly sustained by the plaintiff. The purpose of these damages is to set an example that prevents and deters future parties from engaging in similar illegal activities. Exemplary damages are typically only rewarded when the defendant’s actions are egregious or particularly fraudulent.
To impose exemplary damages on a violating party, the plaintiff must prove that the defendant acted with malice, acted fraudulently, was reckless, or acted in a violent manner. In order to prove an act is worthy of exemplary damages, the plaintiff must also show that the act was not reasonable to any party.
Examples of acts that qualify as exemplary damages include intentionally lying to ruin someone’s credibility, such as falsely lying that someone killed or raped another, an agent selling their client’s property far below market to a close relative with the intent of profiting on it themselves or lying that a stock will crash when in fact they know the stock will go up due to insider information.
Exemplary damages far surpass the actual amount in damages that a party is owed. For this reason, it is rare that exemplary damages will be granted by the court.
How Exemplary Damages Are Awarded
Exemplary damages are typically awarded when other damages such as basic compensatory damages are viewed as inadequate to satisfy the injustice inflicted on the plaintiff. As indicated above, the main purpose of charging someone more than they are really owed is to prevent future parties from acting in the manner they did. Under tort law, few cases are awarded punitive damages because it is oftentimes very difficult to prove that a defendant should pay higher than the actual damage in which they inflicted.
Punitive damages are typically awarded on the state level therefore each state has different interpretations on how to impose such penalties. Clearly, conservative and liberal states would likely determine how to impose exemplary damages in a different way than one another.
Exemplary Damages and Torts
Exemplary damages typically do not apply to standard breach of contract torts, rather they are imposed when the damage surpasses a standard breach. In other words, the breach in contract must have gone beyond the scope of a normal breach. The defendant must display that they were actually trying to cause harm and do something intentional. To impose such a penalty negligence cannot be a reason why a penalty would be imposed, rather it must be an intent to harm or cause pain.
Only two percent of civil disputes are awarded exemplary damages and oftentimes the guilty party of such a breach must display absolute disregard to other party.
