In tort cases, our laws typically allow a plaintiff to recover damages to make him whole (actual damages) and damages to punish the wrongdoer (punitive damages). Actual damages can be broken into two categories: economic damages, which is the amount of money necessary to make the plaintiff financially whole, and non-economic damages, which includes compensation for things like pain and suffering, mental anguish and loss of relationships with family members.
Historically, Texas law varied in how it allocated responsibility for an injury, and thus, responsibility for paying the damages awarded in a civil case. These laws were harsh and unfair, and as they existed in Texas at various times in the past, created incentives for abusive litigation, yielding inconsistent results and jackpot recoveries in some cases. The unpredictability caused by these laws created a difficult environment for businesses and professionals in Texas. The inconsistency in outcomes made the civil justice system seem arbitrary and unfair to both plaintiffs and defendants.
The Texas Legislature has worked over the years to rebalance the system to ensure that those who have been injured are appropriately compensated, to bring predictability in judgments and to ensure that wrongdoers are held responsible for their conduct:
1995, 2003: Allocating Responsibility to Pay Damages in a Civil Case
For many years, the part of Texas common law governing the recovery and payment of damages was founded on two harsh rules: first, if the jury found that a plaintiff contributed to his own injury to any extent, the plaintiff could not recover from anyone for that injury, no matter how negligently the other person acted. Second, if the jury found that more than one defendant contributed to a plaintiff’s injury and one of those defendants was forced to pay the entire judgment, that defendant could not get reimbursed by any of the other defendants, even if the paying defendant’s responsibility was comparatively modest.
The first of these old common law rules persisted until 1973. The second was changed in 1917 when Texas adopted a statute allowing a defendant who paid an entire judgment to obtain reimbursement (called “contribution”) from the other responsible defendants. The other defendants were required to reimburse the paying defendant on a per capita basis, meaning the amount each defendant was required to pay was determined by dividing the judgment equally among all of the responsible defendants.
In 1973, the Texas Legislature introduced a new concept into the system for allocating responsibility among parties in negligence cases. Instead of deciding which of the parties caused an injury, a jury would be required to allocate fault among all of the parties on a percentage basis. This system for allocation of responsibility was called “comparative negligence.” The 1973 statute contained the following provisions:
- The rule barring recovery by a plaintiff whose negligence contributed to his own injury was eliminated. Instead, after 1973 a plaintiff was barred from recovery only if his negligence was 51 percent or greater. If the plaintiff’s negligence was below 51 percent, his recovery was reduced by his percentage of negligence.
- Because responsibility for a plaintiff’s injuries was divided among the defendants on a percentage basis, reimbursement rights among defendants were also based on that percentage allocation. The allocation of damages to defendants on a per capita basis was eliminated.
- A defendant could be required to pay the full amount of damages awarded to a plaintiff only if his percentage of negligence was less than the plaintiff’s. Before 1973, any defendant who had any culpability could be required to pay the entire judgment.
The Texas Legislature revised the law further in 1987, creating what it called “comparative responsibility” to cover most tort cases, not just negligence cases. Under the 1987 law, a plaintiff couldn’t recover damages if he was more than 50 percent responsible in a negligence case or more than 60 percent responsible in a strict tort liability case (like product liability). The new statute also ended the provision making any defendant whose percentage of responsibility was greater than the plaintiff’s liable for the entire amount of the judgment. Under the new statute, a defendant would be liable for the entire amount of the judgment if:
- his percentage of responsibility was greater than 20 percent and, in negligence lawsuits, was also greater than the plaintiff’s percentage of responsibility;
- his percentage of responsibility was greater than 10 percent and the plaintiff bore no percentage of responsibility;
- the plaintiff’s injury was caused by discharging hazardous materials into the environment; or
- the plaintiff’s injury resulted from a “toxic tort,” which includes things that make people sick, like asbestos.
Under the 1987 law, in an ordinary negligence case, a defendant found to be more than 20 percent at fault might have to pay 100 percent of the judgment. In a toxic tort case, any defendant found to be at fault to any degree was subject to paying all of the judgment. This created an incentive for plaintiffs to name deep-pocketed defendants in hopes that a jury might allocate some responsibility for the plaintiff’s injury, forcing that defendant to pay the entire judgment.
During TLR’s first legislative session in 1995, the Legislature amended the law again, changing from “comparative responsibility” to “proportionate responsibility.” The law enacted by Senate Bill 28 provides that a defendant is liable only for her own percentage of fault, unless she is more than 50 percent responsible, in which case she can be required to pay the entire judgment and seek appropriate contributions from less responsible defendants. It further provides that a plaintiff who is found to be more than 50 percent responsible for his own injury is barred from recovery in all cases. The 1995 statute applies these rules to all tort cases, without exceptions. The jury is permitted to mix negligence, strict liability, fraud or any kind of misconduct when allocating fault in its decision.
In 2003, the Texas Legislature further adjusted the proportionate responsibility statute. The 1995 law had included a provision allowing the jury to allocate fault to a person who was not a party to the case (like an unknown criminal), but those provisions were ambiguous and cumbersome in practice. As part of House Bill 4, the Legislature tightened these “responsible third-party” provisions, allowing the jury to assign percentages of fault to all potentially responsible people, whether actually a party to the lawsuit or not. Therefore, percentages of fault may be assigned to any party who actually shares the blame, such as those who have settled, bankrupts, fugitive criminals, private and governmental entities entitled to immunity, employers covered by workers’ compensation and people beyond the court’s jurisdiction.
1995, 2003, 2015: Rules for Recovering Punitive Damages
Punitive damages (also called exemplary damages) are awarded to the plaintiff in a civil case to punish the defendant for wrongful conduct. Before 1987, there were no statutory standards for awarding punitive damages in Texas and no limits on the amount that could be awarded by a judge or jury, creating unpredictability in the legal system.
In 1987, the Texas Legislature passed Senate Bill 5, creating standards for awarding punitive damages and providing that the amount awarded could not exceed the greater of four times the amount of actual damages or $200,000, unless the plaintiff’s injury resulted from malicious or intentional conduct by the defendant, in which case punitive damages were not capped.
In 1995, the Texas Legislature substantially revised Texas’ punitive damages statutes. Among other things, Senate Bill 25:
- Provided that a plaintiff would have to satisfy the statutory elements to recover punitive damages by clear and convincing evidence, a higher standard than the preponderance of the evidence standard typical in civil cases.
- Deleted multiple exceptions that made the punitive damages caps inapplicable in many civil cases.
- Provided that punitive damages could not be imposed on a defendant based on the criminal conduct of an unrelated person.
- Using the following formula, capped punitive damages to an amount not to exceed the greater of: (1) two times the amount of economic damages plus up to $750,000 of non-economic damages, or (2) $200,000 in a case in which the actual damage award is relatively modest. Defendants may be responsible for punitive damages in addition to economic and non-economic damages.
- Created a list of criminal acts that, if committed by the defendant, would prevent application of the damage caps.
- Created a right to have a bifurcated trial, where the jury would decide in the first phase of trial liability for compensatory and punitive damages, and decide in the second phase of trial the amount of punitive damages to award.
- Provided a list of evidence a jury could consider in determining the amount of punitive damages to award, including: the nature of the wrong, the character of the conduct involved, the defendant’s degree of culpability, the situation and sensibilities of the parties concerned, the extent to which the defendant’s conduct offends a public sense of justice and propriety, and the defendant’s net worth.
In 2003 in House Bill 4, the Texas Legislature amended the punitive damages statutes to require a unanimous jury verdict in order to award punitive damages.
In 2015, the Texas Legislature addressed what had become a persistent problem with regard to proving the right to recover punitive damages. As noted above, the 1995 reforms specifically provided that the plaintiff could introduce evidence about the defendant’s net worth to help establish the amount of punitive damages that might be assessed against that defendant. However, at the same time, punitive damage awards were subject to limits that had nothing to do with the defendant’s net worth.
In practice, if a plaintiff pleaded a right to recover punitive damages, he would seek to discover information about the defendant’s net worth through depositions and requests for documents. Plaintiffs regularly attempted to obtain punitive damages even if they did not have a realistic chance of recovering them under the facts of the case. In those cases, this amounted to an unnecessary and harassing intrusion into their private and confidential financial affairs.
Senate Bill 735, passed by the Texas Legislature in 2015, protects private financial information from disclosure in litigation by allowing pre-trial discovery of a defendant’s net worth to support a claim for punitive damages only if the plaintiff convinces the trial court that she has a substantial likelihood of succeeding on the punitive damage claim. Discovery of financial information is no longer permitted based on the simple act of pleading a claim for punitive damages. When discovery of financial information is allowed, the statute requires the plaintiff to use the least restrictive means available to obtain that information.
2003: Rules for Recovering Actual Damages
Because of the way our healthcare system works, most physicians and hospitals contract with government and private insurers to provide services at a specified rate. These rates seldom match the rate the physician or hospital states as owed in a bill for services. As a result, the amount billed is rarely the amount the physician or hospital actually will be paid for their services. The difference between the amount billed and the amount actually paid for medical services can be substantial, but under Texas law, it is not owed by the plaintiff or anyone else.
As noted above, actual damages cover the amount that is required to make a plaintiff whole. However, it had become commonplace in civil litigation for injured plaintiffs to submit to the jury as their “actual damages” the amount billed for medical services, not the amount the physician or hospital actually accepted in payment for those services. As a result, plaintiffs were often awarded “actual damages” that reflected phantom amounts not actually paid or owed by anyone for the plaintiff’s medical care.
House Bill 4, 2003’s major civil justice reform bill, included a provision limiting the recovery of damages for healthcare expenses to those actually incurred by the plaintiff or actually still owed by the plaintiff, not the amount billed by the care provider that is not owed and will never be paid by anyone.
House Bill 4 also provides the following:
- A jury may consider a plaintiff’s income taxes when awarding lost future income. (An award for lost wages or profits is taxable, while an award for non-economic damages, like pain and suffering, is not.)
- At the request of a party in a healthcare liability case in which the value of future damages equals or exceeds $100,000, the trial court must order that the amount awarded for future medical, healthcare or custodial services be paid in a specified number of periodic payments of a specified amount, rather than by a single lump sum payment.
2003: Rules Regarding Award of Judgment Interest
Most judgments awarded in a civil case in Texas accrue interest to compensate the plaintiff for her loss of the use of her money. The interest awarded in a judgment comes in two varieties: pre-judgment interest and post-judgment interest. As a general rule, pre-judgment begins to accrue on the day the lawsuit is filed and ends on the day the judgment is signed. Post-judgment interest starts to accrue on the day after the judgment is signed and continues to accrue until the judgment is paid. The law distinguishes between these two time periods because, in some cases, the parties will have a contract that specifies an interest rate, in which case that interest rate is used to calculate pre-judgment interest. In the absence of a contract specifying a rate, pre- and post-judgment interest accrue at the same rate, which is set by statute. The awarding of judgment interest is subject to the following reforms:
- In 1987, the Texas Legislature passed a bill providing that pre-judgment interest could not be awarded on the amount of punitive damages to be assessed in a case.
- House Bill 4 in 2003 prohibited the assessment of pre-judgment interest on an award of future damages.
- HB 4 also adjusted the statutory pre- and post-judgment interest rates to float to match the market rates, but not below 5 percent or above 15 percent.
See also Lawsuit Procedures, Medical Liability, Personal Injury, Product Liability
