A claim for punitive damages can have a tremendous impact on any case. Even when an insurer is providing a defense and would not be obligated to pay for any punitive damages, the mere presence of a punitive damages claim can dramatically alter the handling of the case by adding uncertainty to the process. This, in turn, makes it much more difficult to determine the value of the case to reach a settlement.

Actually, punitive damages awards are relatively rare, and most are relatively modest in size. According to a recent study by the U.S. Department of Justice, successful plaintiffs obtain punitive damages roughly three percent of the time, and the median award is $55,000. See Tort Bench and Jury Trials, 2005, U.S. Department of Justice, Bureau of Justice Statistics (Nov. 6, 1999).

Juries, however, sometimes award dramatically larger amounts of punitive damages, and the problem is that there is no reliable way to predict whether an outsize award might occur in any particular case. Over the last 25 years, American juries have awarded punitive damages in excess of $100 million in more than 100 cases. Those awards were distributed across a variety of subject areas involving defendants in many different industries. Although conventional wisdom suggests that personal injury cases are more likely to generate punitive damages, the opposite is true -- many of these awards occurred in cases involving purely economic harm, not physical injuries or death. In fact, the Department of Justice study shows that, in cases involving torts arising out of contractual relationships, punitive damages are actually more likely to exceed the amount of compensatory damages, as compared to cases involving personal injury claims. In short, punitive damages awards are simply not predictable.