PUNITIVE DAMAGES ARE A UNIQUE FEATURE OF THE American tort system. Punitive damages are not intended to be compensatory but rather, are imposed to advance societal interests by punishing reprehensible conduct and deterring its future occurrence. Continental European countries reject any form of punitive damages, and British tort law allows them sparingly. This distinctive difference between the American and English legal systems has been attributed to the use of contingent fee financing of tort litigation in the United States and to the American rule, which provides that each side pays its own attorney.

Punitive damages have come to play a prominent role in “regulation through litigation” and are a hotly contested issue in the tort reform wars, especially the question of whether such awards have a deterrent effect. For any award of damages to be a deterrent, those to be deterred must be aware that they will face a penalty if they act or fail to act in a certain way. Critics claim, however, that punitive damages awards are randomly assessed and lack predictability. Hence, they do little to promote investment in safer products. W. Kip Viscusi compared the incidents of risky behavior as measured by toxic accidents, toxic chemical releases, accident fatality rates, and insurance premium levels in states with punitive damages to four states that prohibit punitive damages.