Having spent a good deal of time over the past several years studying all the various nuances of punitive damages law [John J. Kircher & Christine M. Wiseman, Punitive Damages: Law & Practice (2000 & Supp 2008)], questions still remain unanswered: How can a legal fiction like a corporation engage in egregious conduct so as to justify imposition of punitive damages against it? How does one punish and deter a corporate entity.
Most jurisdictions do allow punitive damages to be awarded against business entities for the wrongful conduct of their employees or agents. Some are very liberal, allowing punitives to be awarded against the business simply if the agent’s conduct was sufficient to make the business liable for the compensatory damages occasioned by the act. In others additional proof is required. The principal must direct the agent to perform the egregious act; the principal must subsequently approve that act; or, the agent who performed the act must have been in a “managerial capacity” at the time that act was performed. Obviously, with a corporation, the one doing any of those three things must be a human being.
Imposing punitive damages upon a corporation does not punish or deter the human being who engaged in the egregious conduct, it merely renders such a person anonymous. It is akin to requiring a liability insurer to pay the punitive damages resulting from the wrongful conduct of its insured. But some jurisdictions allow that as well. The life of the law is certainly not logic!
My colleague Ralph Anzivino has a helpful new article that explores the fine line between contract law and tort law: The Economic Loss Doctrine: Distinguishing Economic Loss from Non-Economic Loss, 91 Marq. L. Rev. 1081 (2008). As developed by Wisconsin and many other states, the economic loss doctrine indicates that purely economic losses are recoverable in contract, while non-economic losses are recoverable in tort. The difficulty lies in distinguishing economic from non-economic, particularly with respect to property damage resulting from product failure. (Imagine, for instance, a defective garage door opener that causes a garage door to close on the owner’s car.)