Exxon v. Baker: The United States Supreme Court Limits Punitive Damage Awards Under Maritime Law


On 25 June 2008, the United States Supreme Court issued its opinion in Exxon Shipping Co. v. Baker, concerning the limits of punitive damages which may be assessed under federal maritime law. The Court held that under federal general maritime law governing maritime cases, an award of punitive damages may not be greater than a 1:1 ratio as compared with compensatory damages. The Supreme Court reduced the prior $2.5 billion punitive damages award to $500 million.


What This Means for London Market Insurers

First, marine insurance cases fall within the ambit of the federal maritime common law. Because Exxon announces a rule of federal maritime common law, it appears that the 1:1 ratio between punitive and compensatory damages applies to marine insurance cases. This issue will be litigated over the coming months and years, and will bear close watching.

Second, although the Court was careful to state that the rule in Exxon was limited to maritime common law cases, the Court’s reasoning and some of its language suggests that it may begin imposing stricter constitutional limits on punitive damages in cases across the board. Currently, the constitutional boundaries applicable to non-maritime punitive damage awards rely on a multi-factor balancing test of the kind rejected by Exxon. The Court’s imposition of a strict 1:1 ratio may reflect frustration with the seeming inability of such amorphous tests to curtail excessive outlying punitive awards. Nor is the problem of “unpredictability” limited to the maritime context. Exxon may, therefore, signal a shift toward greater controls on punitive damages for all cases in the future.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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