Exxon Valdez award slashed

Nearly 20 years after the Exxon Valdez spilled some 11 million gallons of oil, the litigation lingers on as the courts continue to try to determine what the punitive damages should be.

This June, the U.S. Supreme Court provided some closure with a give-and-take ruling that sustained, but reduced, the punitive damage award against Exxon for the worst oil spill in U.S. history.

Although Exxon already paid some $3.4 billion in out-of-court settlements, criminal penalties, cleanup costs, and other expenses, the company initially faced $507.5 million in compensatory damages plus a staggering $5 billion in punitive damages. The original $5 billion was cut in half by the 9th Circuit Court of Appeals in 2006, but Exxon pressed on to the U.S. Supreme Court, hoping to have the punitive damages thrown out. In issuing its ruling, the Supreme Court prescribed new limits on punitive damages under maritime law.

While Exxon conceded that it was not statutorily protected from being answerable to the plaintiffs for compensatory damages, the company argued that any award of punitive damages was pre-empted by the Clean Water Act, under which it had already been sanctioned. The Supreme Court disagreed. The Act, the court said, said nothing about treating punitive damages any differently from compensatory damages.

But Exxon did score an important partial victory when the Supreme Court ruled that the punitive damage award would have to be reduced considerably in accordance with new, rather limited parameters on how punitive damages can be quantified in maritime cases. The Supreme Court dictated that punitive damages should not exceed the compensatory award. Justice Souter, who authored the court’s opinion, justified this judicially created formula as a means of providing a “reasonably predictable” penalty and correcting a defective approach that failed to offer reasonable limitations in the calculation of such awards.

The historic decision now defines the upper limits for punitive damage awards in maritime cases, and many legal scholars predict that the new approach will spill over into general common law as well. The case has now been sent back to the 9th Circuit to adjust the punitive damages.

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