Opinion ID: 2067270
Heading Depth: 1
Heading Rank: 5

Heading: Purpose of Punitive Damages

Text: Our courts have long permitted punitive damages in order to punish and deter outrageous or reckless conduct. [12] Focht v. Rabada, 217 Pa.Super. 35, 268 A.2d 157 (1970); Evans v. Philadelphia Transportation Co., 418 Pa. 567, 212 A.2d 440 (1965); Chambers v. Montgomery, 411 Pa. 339, 192 A.2d 355 (1963) (adopting RESTATEMENT (SECOND) OF TORTS § 908 (1979)). Defendants opposing punitive damages in products liability actions have protested that the prospect of having to pay compensatory damages and of injury to their reputations is adequate to deter reckless marketing practices. But as the Supreme Court of Minnesota has observed, this argument is disingenuous: This argument [that compensatory damages and injury to reputation deter reckless conduct] ignores the fact that [the defendant] was shown to have acted in reckless disregard of the public for purely economic reasons in the past. A punitive damages award serves to deter [the defendant] from acting in a similar manner with respect to other products manufactured by it in the future. Furthermore, since the potential of compensatory damages awards and loss of sales and reputation did not serve to deter [the defendant] in the past, [the defendant] cannot now argue that these considerations act as an adequate deterrent. Gryc v. Dayton-Hudson Corp., 297 N.W.2d 727, 741 (Minn.), cert. denied, 449 U.S. 921, 101 S.Ct. 320, 66 L.Ed.2d 149 (1980). See also Campus Sweater & Sportswear Co. v. M.B. Kahn Construction Co., 515 F.Supp. 64, 107 (D.S.C. 1979), aff'd, 644 F.2d 877 (4th Cir. 1981) (Threat of multiple punitive awards forces a prudent manufacturer intent on maximizing profits to hesitate before marketing a known defective. . . or an untested product); Sturm, Ruger & Co., Inc. v. Day, 594 P.2d 38, 47 (Alaska 1979) ([T]he threat of punitive damages serves a deterrence function . . . in cases in which it would be cheaper for the manufacturer to pay compensatory damages to those who did present claims then [ sic ] it would be to remedy the product's defect); Wangen v. Ford Motor Co., 97 Wis.2d 260, 285, 294 N.W.2d 437, 451 (1980) ([M]ere compensatory damages might be insufficient to deter the defendant from further wrongdoing [; s]ome may think it cheaper to pay damages or a forfeiture than to change a business practice). The conclusion that punitive damages are a needed deterrent against reckless business practices is also supported by the fact that their availability can increase the number of suits brought: [T]he threat of punitive damages serves a deterrence function in cases in which a product may cause numerous minor injuries for which potential plaintiffs might [otherwise] decline to sue . . . . Sturm, Ruger & Co., supra, 594 P.2d at 47. See also State ex rel. Young v. Crookham, 290 Or. 61, 618 P.2d 1268 (1980); Wangen v. Ford Motor Co., supra . As we have noted, the Roginsky court disputed the premise that the threat of punitive damages provides needed deterrence on the ground, inter alia, [13] that if insurance against liability for punitive damages were available, companies could simply insure against the risk and pass this cost on to consumers. But, as the Supreme Court of Wisconsin has observed, it is by no means self-evident that a manufacturer will choose to pass the cost of insurance on to consumers: It does not follow under economic logic that a punitive damage award will be passed on in whole or in part as a cost of doing business. It may or may not, depending upon Ford's price standing in relation to its competitors and its own financial condition. It could mean lower profits for Ford. It could result in stockholder complaints about a lower profit margin because of punitive damage awards for unsafe cars, thereby spurring Ford on to exercise more care in the safe design of its automobiles. It could result in a greater scrutiny by Ford's management of its auto design from the safety standpoint. All of these changes, with the exception of lower profits or higher costs, if they were to take place, would benefit the public as a whole. Wangen v. Ford Motor Co., supra, 97 Wis.2d at 288, 294 N.W.2d at 452 (quoting Barager v. Ford Motor Co., (Memorandum Decision dated September 15, 1977, Circuit Court for Eau Claire County). Nor is there reason to assume that the cost of punitive damage liability coverage would not be considerable, particularly for a company against which punitive damages have already been awarded. See Roginsky v. Richardson-Merrell, Inc., supra, 378 F.2d at 841 (Court noted that compensatory liability insurance did not eradicate deterrent effect of compensatory awards, explaining that the total limited, bad experience is usually reflected in future rates . . . .); Owen, Punitive Damages in Products Liability Litigation, 74 MICH.L.REV. 1257, 1309 (1976) ([P]roducts liability insurance is written on a retrospective or `loss-rated' basis in which premiums are calculated primarily on the manufacturer's past loss experience) (footnotes omitted); Morris, Enterprise Liability and the Actuarial Process  The Insignificance of Foresight, 70 YALE L.J. 554, 560-74 (1961). Thus, we do not agree with the Roginsky court's premise that the availability of insurance against punitive damages awards would eliminate the deterrent effect of such awards. The question therefore becomes whether the problems outlined by Judge FRIENDLY in Roginsky outweigh the need for such deterrence. [14]