The Supreme Court of the United States in Exxon Shipping Co. v. Baker, No. 07-2007 (2008), recently reduced punitive damages against Exxon from U.S. $2.5 billion to U.S. $507.5 million in a case stemming from the massive oil spill of the supertanker Exxon Valdez in 1989. This is the latest chapter of a consolidated case of more than 32,000 plaintiffs that has circulated through various courts since the Exxon Valdez grounded and spilled 11 million gallons of oil off the Alaskan coast after the ship’s captain, Joseph J. Hazelwood, allegedly an alcoholic, left the bridge at a crucial moment. Initially, the jury awarded $5 billion in punitive damages against Exxon, which the Court of Appeals for the Ninth Circuit later reduced to $2.5 billion.
Punitive damages in the torts context are generally limited to cases where the conduct is outrageous, grossly negligent, willful, wanton, and committed with reckless indifference to the rights of others. The court noted that in cases where punitive damages are awarded, the median ratio of punitive to compensatory awards is less than 1:1. The court went on to explain that the problem with punitive awards is their unpredictability, lacking the fairness of consistency. According to the court, penalties should be reasonably predictable in severity and not excessive in light of the harm caused.
The court settled on the ratio of punitive to compensatory damages formula, noting that it would eliminate questions of inflation, (as would be inherent in a damages cap scheme), and leave the result to assessment of the value of actual loss by the judge or jury. As a 1:1 ratio is above the median award, the court considered this the fair upper limit. The result here was to limit punitive damages to $507.5 million, the amount of relevant compensatory damages in the case.
Prior to this case, the court had addressed punitive damages in the constitutional context, determining that due process generally requires a punitive to compensatory damages ratio of no more than 9:1. As this decision is in the context of federal maritime common law, it remains to be seen what effect its reasoning will have in future cases regarding punitive damages in the constitutional context.
The court also found that the water pollution penalties imposed by the Clean Water Act do not foreclose the possibility of punitive damages in maritime spill cases. The court noted a lack of clear congressional intent that the Act cover all remedies for pollution, and pointed out that punitive damages were unlikely to frustrate the remedial scheme of the Act. Additionally, the court split on the question of whether there was corporate liability for acts of subordinates in regards to punitive damages in maritime cases, leaving intact the Ninth Circuit’s opinion supporting such liability.