In a liability claim the amount awarded as financial compensation for property damage or bodily injury is called compensatory damages in a civil court. In the United States claimants can be awarded an amount on top of this for what the court considers to be particularly reprehensible or irresponsible actions by the defendant. This amount is called punitive damages, or exemplary damages to draw attention to its deterrent function.
The class of insurance most exposed to the risk of punitive damages is product liability, US courts generally regarding bodily injury as being more serious than property damage. The amount [quantum] of punitive damages depends to a large extent on the defendant’s behaviour. On receiving a subpoena [Vorladung] accompanied by a demand for information, the defendant should respond promptly and provide all the evidence required. Failure to do so may well be construed in court as an attempt to cover up. The correction of evidence already submitted, even if the errors were unintended, is even more serious.
From a European perspective punitive damages is a notorious feature of the US legal system, avaricious lawyers making emotional appeals to jurors. The practice undoubtedly blurs the distinction between civil law, that determines compensation, and penal law, which punishes. In practice, however, punitive damages are awarded in a relatively small percentage of cases, the average amount being less than what is popularly imagined. Furthermore, extravagant verdicts in lower state courts may be thrown out on appeal to the United States Supreme Court. This is illustrated by the case BMW versus Gore , in which the Alabama Supreme Court was instructed to reconsider its award of US-$ 2,000,000 punitive damages for compensatory damages of US-$ 4,000. For the US Supreme Court this was an unacceptably high ratio of fifty to one, four to one being closer to the desired norm. German liability insurers of companies operating in the United States usually exclude punitive damages.
Using the fear of punishment to discourage antisocial behaviour is deeply ingrained in American culture. However, the same puritanical ethic that made punitive damages an element of civil law also relentlessly punishes corporate corruption, and it is thanks to this impulse that compliance is now an integral part of good governance, not only in America but also worldwide, including Germany. Although the payment of extremely…