Opinion ID: 424892
Heading Depth: 2
Heading Rank: 1

Heading: The Availability of Punitive Damages in the Strict Liability Context

Text: 15 Although this question is one of first impression in the Virgin Islands, we do not lack guidance. Many courts, both state and federal, have already considered the issue, and the overwhelming majority have concluded 16 that there is no theoretical problem in a jury finding that a defendant is liable because of the defectiveness of a product and then judging the conduct of the defendant in order to determine whether punitive damages should be awarded on the basis of 'outrageous conduct' in light of the injuries sustained by the plaintiff. Hoffman v. Sterling Drug, Inc., 485 F.2d 132, 144-47 (3d Cir.1973); Thomas v. American Cystoscope Makers, Inc., 414 F.Supp. 255, 263-267 (E.D.Pa.1976). Punitive damage awards provide a useful function in punishing the wrongdoer and deterring product suppliers from making economic decisions not to remedy the defects of the product. 17 Neal v. Carey Canadian Mines, Ltd., 548 F.Supp. 357 (E.D.Pa.1982) (Bechtle, J.) (construing Pennsylvania law). 6 18 In addition, this court already has held that the existence of strict products liability in the Virgin Islands does not preclude all examination of fault in the formulation of tort doctrine. In Murray v. Fairbanks Morse, 610 F.2d 149, 158 (3d Cir.1979), we considered whether comparative fault principles can be applied effectively in strict products liability actions, where the focus is on the product defect and not on the defendant's personal misconduct. Although defendants in that case argued that the two notions were fundamentally incompatible, we held that [a] system of comparative fault which proceeds to apportion damages on the basis of causation in no way disturbs the plaintiff's burden of proof. The plaintiff still need only prove the existence of a defect causally linked to the injury. Id. at 161. The same rationale applies here: as long as a plaintiff can carry his burden of proof under section 402A, there is no inconsistency in his also being permitted to offer proof regarding the nature of the manufacturer's conduct. 19 The Restatement (Second) of Torts does include a generally applicable provision regarding punitive damages. Section 908(2) declares: 20 Punitive damages may be awarded for conduct that is outrageous, because of the defendant's evil motive or his reckless indifference to the rights of others. In assessing punitive damages, the trier of fact can properly consider the character of the defendant's act, the nature and extent of the harm to the plaintiff that the defendant caused or intended to cause and the wealth of the defendant. 21 Nowhere in that section or the comments did the drafters suggest that these principles should not apply to strict products liability, 7 and we concur with the considered opinion of the Court of Appeals for the Fifth Circuit that [p]unishment and deterrence, the basis for punitive damages ..., are no less appropriate with respect to a product manufacturer who knowingly ignores safety deficiencies in its product that may endanger human life than in other cases in which the defendant's conduct shows wantonness or recklessness or reckless indifference to the rights of others. Dorsey v. Honda Motor Co., 655 F.2d 650, 658 (5th Cir.1981) (construing Florida law), opinion modified on rehearing, 670 F.2d 21 (5th Cir.), cert. denied, --- U.S. ----, 103 S.Ct. 177, 74 L.Ed.2d 145 (1982). 8 22 Some courts and commentators, however, have suggested that the policies underlying punitive damages are so incompatible with those animating strict products liability that punitive damage awards should not be permitted against defendants found liable under 402A. 9 These arguments essentially break down into three groups: contentions that punitive damages will upset the delicate balance struck in the creation of a strict products liability regime, assertions that the goals of punitive damages are unachievable in the strict products liability context, and arguments that the imposition of punitive damages in 402A cases will have extremely undesirable economic and social consequences. We disagree that these considerations warrant our precluding the award of punitive damages, and we discuss each in turn. 23
24 Defendants' first argument is that punitive damages are inherently inconsistent with a theory of strict products liability. Punitive damages, defendants note,  'evolved in the context of a one-on-one relationship and were viewed as a form of punishment--a deterrent for intentional and outrageous conduct.'  Br. at 25 (quoting Ghiardi & Koehn, Punitive Damages in Strict Liability Cases, 61 Marq.L.Rev. 245, 248 (1977)). The touchstone of section 402A, by contrast, is that the character of the manufacturer's conduct is essentially irrelevant to its liability--only the condition of the product is to be considered by the trier of fact. See Murray v. Fairbanks Morse, 610 F.2d 149, 157 (3d Cir.1979). Thus, defendants assert, the two claims should not be joined [b]ecause the strict liability claim expressly relaxes the proof requirements concerning the conduct of the defendant [while] the claim for punitive damages refocuses attention to the conduct of the defendant.... Id. 25 We reject the notion that punitive damages are theoretically inconsistent with strict products liability. While it is true that section 402A eschews the culpability of defendants' conduct as a factor in determining liability, it does not do so because focusing on culpability is always inappropriate. Indeed the drafters of the Restatement explicitly noted that 402A does not preclude liability based upon the alternative ground of negligence of the seller, where such negligence can be proved. Comment a. Rather, the rule is intended to expand recovery by circumventing the restrictions imposed by fault-based standards. See Murray v. Fairbanks Morse, supra, 610 F.2d at 158. The fact that some sellers therefore will be found liable in the absence of fault does not mean that those who are at fault--and outrageously so--should not be punished. 10 Accord Neal v. Carey Canadian Mines, Ltd., 548 F.Supp. 357, 378 (E.D.Pa.1982); Thomas v. American Cystoscope Makers, Inc., 414 F.Supp. 255, 264 n. 13 (E.D.Pa.1976) (dictum) (this Court knows of no sound reason why punitive damages should be precluded when liability is predicated on 402A); Wangen v. Ford Motor Co., 97 Wis.2d 260, 294 N.W.2d 437, 446 (1980). 26 One court, however, recently has advanced an economics-based objection to allowing punitive damages in a 402A action: 27 [T]he allowance of punitive damages would warp the valuation process which is implicit in the litigation process. That is, the product's price should reflect the cost of accidents or the cost of accident avoidance mechanisms in order that the market may assess the usefulness of the product.... The assessment of punitive damages upon the manufacturer and distributors can be analyzed as the imposition of costs for poor managerial decisions. These costs should not be spread to the buying public through an adjustment of the product's price. To do so will deflate the usefulness of the product on the basis of facts which do not relate to the product itself. 28 Gold v. Johns-Manville Sales Corp., 553 F.Supp. 482, 484 (D.N.J.1983) (citations omitted). Although the argument is attractive, it is predicated on a questionable premise, for it is not necessarily true that an award of punitive damages will be spread to the public through an adjustment of the price. In order for such spreading to occur, not only would a manufacturer have to be able to forecast punitive damages awards against him, but the market structure also would have to be such that he had sufficient unutilized market power to pass on the increased costs. Unless an entire competitive industry was behaving similarly (i.e., engaging in the same kind of opprobrious conduct and forecasting), a manufacturer would seem to be unable to afford to pass on the costs. 11 Accord Wangen v. Ford Motor Co., 97 Wis.2d 260, 294 N.W.2d 437, 452 (1980). 29
30 Section 908(1) of the Restatement (Second) of Torts makes clear that 31 [p]unitive damages are damages, other than compensatory or nominal damages, awarded against a person to punish him for his outrageous conduct and to deter him and others like him from similar conduct in the future. 32 (Emphasis added.); see Herman v. Hess Oil Virgin Island Corp., 524 F.2d 767, 772 (3d Cir.1975) ([I]t is proper to assess punitive damages as a deterrent and an example to the community.). While few, if any courts, have challenged these goals, some courts and commentators have suggested that the connection between punitive damages and the goals of punishment and deterrence will be attenuated in the strict products liability context. 33 Proponents of this argument point out that the magnitude of recent jury verdicts, coupled with the potential for a single design defect to serve as the template for hundreds or thousands of defective, injury-causing products, means that a manufacturer may be liable for many millions of dollars merely as compensation to injured victims. See 3 L. Frumer & M. Friedman, Products Liability Sec. 33.01. Thus, the argument runs, compensatory damages have reached such a level in products-liability litigation that, despite their more limited purpose, they have begun to perform the functions heretofore performed by punitive damages. Manufacturers, the argument concludes, therefore already have every incentive to insure that their products are as safe as possible. Indeed the Court of Appeals for the Second Circuit observed as early as 1967: 34 Many awards of compensatory damages doubtless contain something of a punitive element, and more would do so if a separate award for exemplary damages were eliminated. Even though products liability insurance blunts the deterrent effect of compensatory awards to a considerable extent, the total coverage under such policies is often limited, bad experience is usually reflected in future rates, and insurance affords no protection to the damage to reputation among [users, consumers, and distributors] which an instance like the present must inevitably produce. 35 Roginsky v. Richardson-Merrell, Inc., 378 F.2d 832, 841 (2d Cir.1967). Thus the Roginsky court concluded that punitive damages were unnecessary to punish and deter the reckless marketing of defective products. 12 36 We are not persuaded that limiting recovery to compensatory damages will, in all cases, provide an effective deterrent against the type of wrongful conduct for which punitive damages are usually available. For example, the cost of litigation relative to the likely recovery may deter victims of product defects from suing the manufacturer, even under a regime of strict liability, where products causing numerous minor injuries are involved. The availability of punitive damages to those who do sue may offset the decreased deterrence attributable to those who thus could but do not. Similarly, consumers will not always be aware of the source of an injury caused by a product defect, see Sturm, Ruger & Co. v. Day, 594 P.2d 38, modified, 615 P.2d 621 (1980) on rehearing, 627 P.2d 204 (Alaska), cert. denied, 454 U.S. 894, 102 S.Ct. 391, 70 L.Ed.2d 209 (1981); Owen, Punitive Damages in Products Liability Litigation, 74 Mich.L.Rev. 1258, 1287-95 (1976) (also noting the expense of litigation), or they may wrongfully attribute the accident to their own clumsiness; the manufacturer's reprieve in such cases will be offset by the availability of punitive damages in other cases. Finally, under existing doctrine, compensatory damages may prove an inadequate deterrent even when victims do bring suit. Current doctrine does not, for example, allow the estate of a decedent killed by a defective product to recover the value of life to the decedent himself; recovery is instead limited to the pecuniary loss to those immediately surrounding the decedent. In many instances, this doctrine may lead to inadequate compensation. In addition, those peripherally injured by accidents to another generally are not allowed to bring suit, yet their loss may be, in moral or practical terms, extremely substantial. See Owen, Civil Punishment and the Public Good, 56 So.Cal.L.Rev. 103, 113 (1982). While punitive damages may not be a logically perfect method of remedying these perhaps unavoidable flaws in our system of justice, they are a useful surrogate not necessarily precluded by a strict products liability regime. 37
38 Perhaps recognizing that mere redundancy would not be sufficient to supersede considerations in favor of allowing punitive damages, the Roginsky court predicted that the availability of such damages would have unfortunate results. The court noted that there are frequently numerous potential plaintiffs with claims arising from the same defect in design or manufacture; if each such plaintiff can recover punitive damages, the court warned, the aggregate recovery could be catastrophic. 39 If liability policies can protect against this risk as several courts have held, the cost of providing this probably needless deterrence, not only to the few manufacturers from whom punitive damages for highly negligent conduct are sought but to the thousands from whom it never will be, is passed on to the consuming public; if they cannot, as is held by other courts and recommended by most commentators, a sufficiently egregious error to one product can end the business life of a concern that has wrought much good in the past and might otherwise have continued to do so in the future, with many innocent stockholders suffering extinction of their investments for a single management sin. Id. at 841. 13 40 Although we recognize that the effect of punitive damages may be harsh, we find somewhat excessive the Roginsky court's dire predictions about the consequences of allowing punitive damages. First, even assuming that policy considerations would permit manufacturers to insure against punitive damages, 14 it is not clear that such insurance would necessarily emasculate the effectiveness of the remedy or result in needless deterrence. Rather, a 1976 study by the Department of Commerce noted that recent increases in the number of products liability claims, policy cancellations, insurance premiums, and average loss per claim have contributed to a situation in which manufacturers are finding it more and more difficult to obtain adequate coverage. See Bureau of Domestic Commerce, U.S. Department of Commerce, Product Liability Insurance--Assessment of Related Problems and Issues (1976). The upshot is that many manufacturers are making stronger efforts to improve design and quality control. Id. at 9. As one commentator has noted, these developments compel the conclusion that products liability litigation is increasingly forcing manufacturers to improve product safety even when they are insured against claims for product injuries. Owen, supra, 74 Mich.L.Rev. at 1310. 41 More importantly, we do not share Roginsky's in terrorem vision of the consequences of punitive damages for which insurance is unavailable. It is, of course, possible that a sufficiently egregious error as to one product could result in the demise of its manufacturer, but such a result is not inevitable. 15 Comment e to section 908 of the Restatement makes clear that one factor to be taken into account in calculating punitive damages 42 is the existence of multiple claims by numerous persons affected by the wrongdoer's conduct. It seems appropriate to take into consideration both the punitive damages that have been awarded in prior suits and those that may be granted in the future, with greater weight being given to the prior awards. In a class action involving all claims, full assessment of the punitive damages can be made. 16 43 Moreover, this court has previously recognized that both the wealth of the defendant, see Herman v. Hess Oil, supra, 17 and the size of compensatory damages, see Chuy v. Philadelphia Eagles Football Club, 595 F.2d 1265, 1279 (3d Cir.1979) (in banc), should be taken into account in assessing punitive damages. Thus, corporate defendants are protected from excessive punitive damage awards through judicial control both at the district court and appellate levels. Neal v. Carey Canadian Mines, supra, 548 F.Supp. at 377.