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Contrary to popular belief, the landmark Supreme Court decision in BMW of North America Inc. vs. Gore has had no real effect on the correlation between compensatory and punitive damages awards or the frequency of court orders reducing such awards, a recent study says.
"It may take a while for it to take effect and trickle down, but right now, there is no evidence" for any significant influence by BMW, said Theodore Eisenberg, the Henry Allen Mark Professor of Law at Cornell Law School and co-author of the study of published court opinions.
The 1996 BMW decision by the Supreme Court was the first to strike down a punitive award on constitutional grounds (BI, May 27, 1996). In that case, Dr. Ira Gore Jr., an Alabama physician, sued BMW for failing to disclose that a new $40,000 sedan had been given a touch-up paint job after being damaged in transit. The jury, urged by Dr. Gore's attorney to teach BMW a lesson for touching up about 1,000 cars nationwide without disclosure, awarded Dr. Gore $4,000 in compensatory damages and $4 million in punitive damages. The Alabama Supreme Court then cut the punitive award in half.
In a 5-4 decision, however, the U.S. Supreme Court struck down the $2 million damage award as unconstitutionally excessive. The high court ruled that the award violated the 14th Amendment's due process clause, which prohibits a state from imposing "grossly excessive" punishment.
In their study, Mr. Eisenberg and Martin T. Wells, associate professor at Cornell's Department of Social Statistics, analyzed 254 state court and federal cases involving compensatory and punitive awards before and after BMW. All cases were considered by a court at least partly for the relation between the two awards.
"We find no significant difference in the pattern of awards before and after BMW and no significant difference in the rate at which courts order a reduction in punitive damages awards," the authors say in the study.
This goes contrary to popular belief, Mr. Eisenberg said. "People prematurely said BMW had a big effect," he explained.
Earlier studies by the same authors since 1996 showed that juries rarely awarded punitive damages (BI, June 24, 1996), especially in product liability and medical malpractice cases. "The available data suggest that businesses, insurance companies and defense lawyers cannot support the claim that punitive awards are frequent, or that they follow a crazy pattern with little or no relation to compensatory awards," Messrs. Eisenberg and Wells said in a study published earlier this year in the Wisconsin Law Review.
The new study confirmed these findings. "The message is that punitive damages depend" on the type of case being tried, Mr. Eisenberg said. In fraud, insurer misconduct and employment-related cases such as discrimination and wrongful discharge, punitive damages were awarded most frequently and at a higher cost, according to the study. In other cases, awards were rare, Mr. Eisenberg said.
"I don't claim that there are no crazy awards out there, but the risk has been exaggerated," Mr. Eisenberg said. In a 1996 study, Messrs. Eisenberg and Wells and three other authors analyzed one year of jury trial outcomes from 45 of the nation's most populous counties. Mr. Eisenberg and his colleagues found that juries awarded punitive damages to 6% of all victorious plaintiffs. Because plaintiffs win about half of all verdicts, approximately 3% of all jury verdicts awarded punitive damages.
The relatively small number of high punitive damage awards could be one of the reasons that courts rarely strike such awards. "Most punitive awards are not reduced because they are not extremely high," the authors say in the study. The study shows that the average punitive damages award is $6.7 million, and the median award is $187,500.
Some of the recent research that concluded there were serious problems in the tort system was funded by Exxon Corp., which is appealing a $5 billion judgment after the 1989 Exxon Valdez oil tanker accident in Alaska, Mr. Eisenberg pointed out. He was not sure that the methodology used in these studies was appropriate, he said.
In the study, the authors also reject the existence of another often-reported phenomenon. There was little evidence for substantial regional differences in the punitive/compensatory awards ratio, they found.
Draft copies of the most recent study by Messrs. Eisenberg and Wells and copies of the two earlier academic articles on punitive damages are available by calling Karen Wilson, 607-255-9653; or by sending an e-mail request to eisnberg@law. mail.cornell.edu.