‘Nuclear Punitives’ Could Be the New Normal for Damages

In December, a California jury awarded $150 million in punitive damages to an in-house attorney for Farmers Insurance Group who was terminated in retaliation for his testimony against the company in a gender discrimination case. It’s believed to be one of the largest verdicts in California in an employment case.

Amd last October, another California jury found Tesla Inc. liable for $137 million in punitive damages after a contract worker was subjected to racial harassment. Although Tesla sought a new trial, the judge is unlikely to grant that request, looking instead at simply reducing the award. Farmer’s has not said whether it will appeal.

Welcome to the age of “nuclear punitives,” a category of damages increasingly dwarfing the underlying damages awarded to plaintiffs. The term “nuclear verdicts” was originally conjured to capture outsized awards in trucking accidents, medical malpractice, and other personal injury actions, raising alarms within those industries and their insurance carriers.

For this analysis, our focus is punitive damage awards in employment lawsuits. In the Farmers and Tesla cases, juries found that the companies had engaged in unlawful actions against their employees, warranting substantial compensatory damages. The Tesla contractor received $6.9 million, the Farmers attorney $5.4 million.

But it didn’t stop there. The juries found that the companies had engaged in conduct calling for a harsher penalty.

In a second phase of each trial, they awarded large punitive verdicts. Tesla punitives were 18 times underlying damages. For Farmers, the multiplier was 27 and the jury reached the verdict in less than 40 minutes.

How to explain—and justify—double-digit awards? Although many states impose limits on punitive damage awards, there is no cap under California law. The 14th Amendment prohibits grossly excessive or arbitrary punishments, and the U.S. Supreme Court has stated that “in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process,” with a punitive damages ratio of 4 to 1 “close to the line of constitutional impropriety.”

Double-digit punitive multipliers are not new. Almost two decades ago, a California jury awarded $28 billion in punitive damages to a woman whose inoperable lung cancer was caused by Philip Morris tobacco products. Compensatory damages were a mere $850,000. On appeal in 2011, the punitive award was ultimately reduced to $13.8 million, still 16 times the underlying verdict, even though the plaintiff had died in 2003.

What is new is the frequency of double-digit awards.

Frequency Up, Along With Bad Attorney Behavior

Juries are increasingly fed up with the litigation tactics of corporate defense teams. The past five years have seen an alarming move away from the rules of social civility, a shift mirrored by the defense bar.

Legal teams representing large corporations have routinely defied subpoenas and even committed outright perjury, and judges have largely turned a blind eye to bad behavior, at most slapping the wrists of violators. Plaintiff’s counsel in the Farmer’s trial reminded jurors, as part of his closing statement, of numerous instances of perjury by the defense.

Other recent employment cases that showcase defense misconduct, abetted by the courts, include Evans v. CEMEX, a case in which our discovery requests were ignored for months and we still await critical information because the court has refused to rule on our motion to compel. Tyszka v. Premier Agency Services, handled by a different firm, names the Superior Court of San Diego County as a respondent because it ordered the plaintiff to produce photographs of intimate body parts without explaining their relevance to the underlying case.

Defense attorneys, who have faced no sanctions for breaking rules, have become complacent. Not so the jurors who hear the cases. These citizens, many of whom were buffeted by the Covid-19 economic downturn, are fed up. They view with distaste or outright revulsion the courtroom antics of attorneys representing companies that grew significantly richer while their workers suffered. They want their pound of flesh.

Despite judicial aversion to excessive awards, it is likely these record verdicts will be substantially upheld on appeal. Under California law, employers can be held liable for punitive damages based on the acts of their employees if their own hands are dirty.

In making this determination, juries are expected to consider (1) the reprehensibility of the defendant’s conduct; (2) whether there is a reasonable relationship between the amount of punitive damages and the plaintiff’s harm; and (3) what amount will punish the defendant and discourage similar future conduct. The defendant’s financial condition is also relevant.

Both the Tesla and Farmers juries found defendants with very dirty hands: An officer, director, or managing agent had acted with malice, oppression, or fraud against the plaintiffs. A senior Tesla executive with sufficient opportunity to stop the harassment failed to do so. Retaliation against the Farmers lawyer occurred at the highest levels of the company.

According to a 2019 report by insurer Chubb Bermuda, punitive damages are awarded at higher rates in employment cases than other civil cases, with data showing a median award for employment discrimination 8.45 times greater than the median for “all civil trials” and 4.5 times greater than the median for “contract trials.” For every dollar awarded in employment discrimination cases, 55 cents comprises punitive damages. The prevalence of mandatory arbitration in employment cases could explain such high awards, as few cases actually get heard by juries.

Although insurance coverage is allowed for punitive damages in a majority of states, this is cold comfort for employers. States that don’t permit insurance coverage constitute the nation’s major business centers, including California, New York, Illinois, and Pennsylvania.

According to the Chubb report, only 3% of punitive damage awards occurred in jurisdictions where insurability was not restricted. Allowing insurance for punitive damages arguably frustrates the purpose of an award intended to punish wrongdoers for bad conduct. When an insurer pays the award, the only real “punishment” may be higher insurance premiums.

Defense counsel routinely appeal these judgments, despite the fact that interest accrues at an alarming rate—as much as $10 million per year—and comes out of the bottom line. These attorneys owe their clients a fiduciary duty to accept judgments and move on.

They also owe it to their clients to modify their courtroom tactics so juries have no cause to go “nuclear.” “Nuclear punitives” will probably not stop all bad actors, but they should give companies pause to rethink litigation strategies and even consider settling when it makes sense.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Jonathan LaCour is the founder and managing attorney of Employees First Labor Law. He represents plaintiffs in labor law matters, handling claims for wrongful termination, sexual harassment, unpaid overtime and unpaid wages, FMLA violations, and workplace discrimination.