Also known as: anticipated harm · actual harm · imminent harm · actual injury
Written by attorneys — see sources below.
A measure of loss used to assess whether a stipulated damages clause is enforceable. The amount must bear a reasonable relationship to the harm the parties anticipated at contracting or the harm that actually occurred.
Ridge Buildings paid WindowCo a 40 percent deposit for custom panels. When Ridge cancelled, WindowCo kept the entire deposit. The clause is enforceable because the amount reasonably approximates the anticipated harm from producing specialized goods that are hard to resell plus the difficulty of proving exact loss.
A newspaper published false statements about a business owner. At trial the owner proved specific reputational losses including lost contracts. The defendant is liable for the proved actual harm to reputation even if no presumed damages apply.
An insurer's bad-faith conduct caused the insured $1 million in compensatory damages. The jury awarded $145 million in punitive damages. The award is unconstitutional because the ratio to actual harm is grossly excessive under due-process standards.
In 1981, Curtis Campbell was driving with his wife Inez in Cache County, Utah, when he attempted to pass six vans on a two-lane highway. This caused an oncoming driver, Todd Ospital, to swerve onto the shoulder, lose control, and collide with a vehicle driven by Robert G. Slawson and his wife, killing Ospital and permanently disabling Slawson. Campbell's insurer, State Farm Mutual Automobile Insurance Company, declined settlement offers of the $50,000 policy limit from Slawson and Ospital's estate despite early investigations indicating Campbell's fault and advice from its own adjuster. A jury in the underlying tort actions found Campbell 100 percent at fault and returned a judgment of $185,849 against him. State Farm refused to pay the $135,849 excess over policy limits or post a supersedeas bond. The Campbells then entered an agreement with Slawson and Ospital's estate under which the claimants would not seek satisfaction of the judgment in exchange for the Campbells pursuing a bad-faith action against State Farm, being represented by the claimants' attorneys, and assigning 90 percent of any recovery to them. The Campbells sued State Farm for bad faith, fraud, and intentional infliction of emotional distress. The trial court bifurcated the case into two phases before separate juries. In phase one the jury found State Farm's refusal to settle unreasonable. In phase two the jury heard evidence that State Farm's decision was part of a nationwide Performance, Planning and Review policy implemented since 1979 to cap payouts and meet corporate profit goals, including testimony from former Utah employees and experts about practices in multiple states over twenty years. The jury awarded $2.6 million in compensatory damages and $145 million in punitive damages. The trial court reduced the compensatory award to $1 million and the punitive award to $25 million. Both sides appealed. The Utah Supreme Court reinstated the $145 million punitive damages award after applying the three guideposts from BMW of North America, Inc. v. Gore and relying on the nationwide evidence, State Farm's wealth, and the statistical likelihood of punishment in only one of 50,000 cases. The United States Supreme Court granted certiorari.
View caseA car manufacturer concealed a paint defect that reduced a vehicle's value by $4,000. The jury awarded $2 million in punitive damages. The Supreme Court vacated the award because the ratio to actual harm was unconstitutionally high.
In January 1990, Dr. Ira Gore, Jr., purchased a black BMW sports sedan for $40,750.88 from an authorized dealer in Birmingham, Alabama. The vehicle had been manufactured in Germany by BMW and shipped to the United States, where an independent service company in Brunswick, Georgia, determined that its finish had been damaged by acid rain during transit from Europe and refinished it at a cost of $601.37 before delivery to the Birmingham dealership. At the time of the purchase, BMW of North America, Inc., maintained a policy of not disclosing to dealers or customers that a new vehicle had been refinished if the cost of the repairs was less than 3 percent of the suggested retail price, and the refinishing cost for Gore's car amounted to approximately 1.5 percent of that price. After driving the car for about nine months, Gore took it to an independent detailer, who informed him that the car had been repainted. Gore then filed suit against BMW of North America, Inc., alleging fraud under Alabama law for the failure to disclose the repainting. At trial, BMW acknowledged that it had sold approximately 983 refinished cars as new in the United States since 1983, including 14 in Alabama, without disclosing the repairs when the cost exceeded $300 per vehicle. The jury awarded Gore $4,000 in compensatory damages, representing the difference in value between the car as delivered and its value had it not been refinished, along with $4 million in punitive damages. BMW moved to set aside the punitive damages award, introducing evidence that its nondisclosure policy aligned with the laws of roughly 25 states that required disclosure only for repairs exceeding 3 percent of the suggested retail price. The trial court denied the motion. On appeal, the Alabama Supreme Court affirmed the judgment but reduced the punitive damages to $2 million after applying factors from Green Oil Co. v. Hornsby and Pacific Mutual Life Insurance Co. v. Haslip, concluding that the jury's award was excessive but that $2 million remained permissible. The Supreme Court of the United States granted certiorari to review the case.
View caseA noncitizen pleaded guilty after counsel failed to warn of deportation. The defendant later shows that correct advice would have led to a trial with a realistic chance of avoiding removal. The claim succeeds only upon proof of actual prejudice from the deficient performance.
The court compares the stipulated amount to the anticipated harm at the time of contracting and any actual harm that occurred. If the amount is unreasonably large in light of those harms and the difficulty of proving loss, the clause is unenforceable as a penalty.
Supporting sources
When the communication is defamatory, the defendant is liable for proved actual harm to reputation. Nominal damages are available even without proof of harm for libel or slander per se, but compensatory recovery requires evidence of actual injury.
Supporting sources
Courts examine whether the punitive award bears a reasonable relationship to the actual harm caused. Grossly excessive ratios, such as 145 to 1, violate due process and require reduction or reversal.