Punitive Damages Awards Get Harsh Criticism by Texas Body

PUNITIVE damage awards ``carpet-bomb'' the economy of Texas instead of striking surgically at wrongdoers, according to a study by the Texas Public Policy Foundation (TPPF).

But the trial lawyers who help plaintiffs win such damages call the report an exaggeration. Punitive damages benefit society by forcing businesses to alter unsafe practices and products, they add.

Rick Freeman, president of the Texas Trial Lawyers Association, says juries more commonly award punitive damages to punish and discourage egregious business practices like fraud.

Texas is one of the most popular places for plaintiffs to sue businesses because juries here tend to award huge sums.

The study comes after a February case in which the Texas Supreme Court questioned whether state legal procedures prevent punitive awards that are ``grossly out of proportion to the severity of the offense.'' The court issued a ruling that will make it more difficult for plaintiffs to win punitive damages.

``But we still have far to go in bringing sanity back into a process that's driven more by greed than justice,'' says TPPF president John Andrews. The pro-business TPPF has crusaded for tort reform. In particular, many Texas businesses want a cap put on punitive damage awards.

The study found that punitive damage claims are on the rise. For the five-year periods ending in 1986 and 1992, such cases increased from 21 percent of all civil cases to 30 percent in Houston and from 33 percent to 43 percent in Dallas.

Damage awards have soared, the study found. For the three-year periods ending in 1981 and 1992, the average award rose from $280,000 to $2.1 million in Houston. For Dallas, the figures were $59,000 and $1.1 million.

Written by professors of finance and insurance at the University of Texas at Austin and California State University at Northridge, the study also found an enormous increase in the variability of award size, which is a factor in calculating risk charges for insurance. The increased variability caused the dramatic increase in insurance costs.

As a result of this ``dice-roll atmosphere,'' the authors write, Texas businesses spend more to manage risk and to buy insurance, and less on new product design. The study did not quantify the costs associated with punitive damage awards, but said their impact is felt by customers, employees, creditors, vendors, and other policyholders.

Mr. Freeman says that the state Department of Insurance found that only 19 cases out of a total of 12,610 cases in 1992 covered by insurance resulted in punitive damages paid.