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- United States Supreme Court Limits Punitive Awards in Maritime Civil Suits
United States Supreme Court Limits Punitive Awards in Maritime Civil Suits
On June 25, 2008, the U.S. Supreme Court issued a decision that significantly limits the award for punitive damages in maritime cases, generally establishing a standard that punitive damages should be no greater than compensatory damages. In the 5-to-3 decision in Exxon Shipping Co. v. Baker, the majority of the Supreme Court Justices address the issue of lower courts’ awarding excessive punitive damages, although they acknowledge that such excessive damage awards are rare.
This celebrated case involved a civil action brought by commercial fisherman and native Alaskans for economic losses due to the negligent misconduct of an intoxicated captain that resulted in the Exxon Valdez’s massive oil spill in Prince William Sound. During the jury trial, the jury awarded the plaintiffs $287 million in compensatory damages and $5 billion in punitive damages against the shipowner, Exxon, which had been held liable for compensatory and punitive damages caused by the reckless acts of its employee. On appeal, the U.S. Court of Appeals for the Ninth Circuit reduced the punitive damages to $2.5 billion. In its June 25, 2008 decision, the Supreme Court addressed Exxon’s three questions of maritime law: (1) is a shipowner liable for the reckless acts of its employees acting in a managerial capacity; (2) does the Clean Water Act preempt punitive damages in maritime civil cases; and (3) when is a punitive damages award (such as an award for $2.5 billion) considered excessive.
The Court did not decide the first question on corporate liability for punitive damages because the Justices were equally divided on the issue. All eight Justices held that the Clean Water Act does not preempt maritime common law for punitive damages. The Court’s opinion is focused primarily on the third question -- when punitive damages should be considered excessive in maritime cases.
The majority decision, written by Justice Souter, began by explaining the general American rule that the purpose of punitive damages is not to compensate the plaintiff but to punish the defendant, thereby discouraging the defendant from acting in a similar way in the future. The Court explained that punitive damages are higher and more frequent in the United States as compared to other countries, with many countries declining to recognize punitive damages in civil cases. Nonetheless, in its review of punitive awards in the United States, the Court generally found that, while there are the outlier cases of excessive awards that receive considerable press coverage, the majority of punitive damage awards actually are less than the awards for compensatory damages. The Court explained that the “real problem, it seems, is the stark unpredictability of punitive awards” and the outlier cases. Studies show that 14% of punitive awards in 2001 were greater than four times the compensatory damages. After examining how various U.S. states have established criteria for punitive awards, the Court held that when “compensatory damages are substantial” in maritime cases, “[a] punitive-to-compensatory ratio of 1:1 thus yields maximum punitive damages in that amount.” The Supreme Court therefore vacated the lower court’s judgment and remanded the case back to the Ninth Circuit to remit the punitive damage award against Exxon in accordance with the Court’s decision using the 1:1 ratio.
In sum, the Supreme Court has now limited the punitive damages that can be awarded in maritime cases. It remains to be seen whether the Supreme Court will likewise limit punitive damage awards in non-maritime cases in the future.
Following the Exxon Valdez incident, Congress passed the Oil Pollution Act of 1990 (OPA), which is now the principal federal law relating to maritime oil spills and pollution.
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