Punitive damages are an award of money in a private law proceeding that are assessed when the award of compensatory damages and legal costs to the innocent party is an insufficient remedy to ensure that justice has been done. They are often awarded when:
- The guilty party has engaged in a general course of similar conduct that has caused injury to parties other than the party to the lawsuit when the other innocent parties may not have been in a position to bring a lawsuit.
- The guilty party has attempted to defend a lawsuit which it had no chance of winning on the assumption that the worst possible outcome was having to pay amounts of money that were lawfully owed.
- The guilty party has engaged in a course of conduct during the litigation designed to frustrate and delay the lawful claims of the innocent party in an attempt to force the innocent party to settle for a lesser amount than that which they are entitled.
Case law is not settled on the appropriate ratio of punitive damages to compensatory damages. In the United States, the Supreme Court of the United States has decided in recent cases that there must be some rational basis between the punitive damages awarded and the compensatory damages awarded, alhtough it has declined to set an upper limit. In Canada, the Supreme Court of Canada case of Whiten v. Pilot Insurance set a new upper limit for punitive damage awards and ruled that a ratio of 3 to 1 was not unreasonable in the circumstances.