Punitive damages "are not compensation for injury. Instead, they are private fines levied by civil juries to punish reprehensible conduct and to deter its future occurrence."(Gertz v. Robert Welch, Inc., 418 U.S. 323, 350, 94 S.Ct. 2997, 41 L.Ed.2d 789 (1974).) The Supreme Court explained that "[p]erhaps the most important indicum of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant’s conduct."(BMW, 517 U.S. at 575, 116 S.Ct. 1589.) “[E]xemplary damages should reflect the enormity of [the defendant’s] offense,” ( Id. (citing Day v. Woodworth, 13 How. 363, 371, 14 L.Ed. 181 (1852)).) and "punitive damages may not be grossly out of proportion to the severity of the offense."( Id. (citing TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443, 453, 113 S.Ct. 2711, 125 L.Ed.2d 366 (1993)).)

The cleanup expenses Exxon paid should be considered as part of the deterrent already imposed. Depending on the circumstances, a firm might reasonably, were there no punishment, be deterred, in some cases but not all, by its actual expenses. For example, a person painting his trim may not carefully mask window glass, because it is cheaper and easier to scrape the paint off the glass than to mask it carefully. But if a person ruined a $10,000 rug by spilling a $5 bottle of ink, he would be exceedingly careful never to spill ink on the rug again, even if it cost him "only" $10,005 and he was not otherwise punished.

Whether cost of cleanup and compensatory damages, damage to the vessel, and lost oil deters bad future acts depends on whether it greatly exceeds the expense of avoiding such accidents, not whether the amounts are compensatory or punitive. A company hauling a cargo worth around $25.7 million has a large incentive to avoid a $3.4 billion expense for the trip. This case is like the ink on the rug example, not the paint on the window example. Just the expense, without any punishment, is too large for a prudent transporter to take much of a chance, given the low cost of making sure alcoholics do not command their oil tankers.

IN RE: the EXXON VALDEZ, United States Court of Appeals, Ninth Circuit. Nos. 97-35191 to 97-35193 and 97-35235. Decided: November 7, 2001.

See also Damages