Punitive damages are a special type of monetary award designed to punish the defendant for particularly bad behavior and to deter other companies/individuals from acting in a similar manner. They differ from compensatory damages, which are meant to pay back a plaintiff for injury-related costs.
Punitive damages are awarded entirely at the discretion of the court, often when a defendant’s conduct is considered to be reckless, malicious, or deceitful. For example, suppose a drugmaker learns during clinical trials that a medication cause serious harm, but hides the data and does not warn about the side effect. If this is revealed during trial, the court may decide that punitive damages are warranted.
Some states place limits on the amount of punitive damages that may be awarded. The Supreme Court has also ruled that punitive damage awards must be reasonable (although this is open to interpretation based on the case).
The risk of being assessed punitive damages is one reason why a defendant might try to settle a case, rather than take it to trial. A plaintiff must prevail at trial to be eligible for punitive damages. The degree of reprehensibility of the defendant’s conduct, the extent of the plaintiff’s injury, and the defendant’s wealth are factors that go into determining the appropriate amount of punitive damages.