D. "pure Economic Loss" and the "economic Loss Doctrine"

• Library: The South Carolina Law of Torts (SCBar) (2023 Ed.)

D. "Pure Economic Loss" and the "Economic Loss Doctrine"

South Carolina "has long recognized tort actions when the damages are purely economic."²⁷⁸ However, there are policy reasons for limiting the types of situations where a plaintiff may recover for losses that are "purely economic," and courts often hold that no tort duty exists in such situations.²⁷⁹

In determining whether there is a duty in tort, courts occasionally refer to "pure economic loss" or to the "economic loss" rule or doctrine. However, in addressing this duty issue, "[t]he question is not whether the damages are physical or economic. Rather the question of whether the plaintiff may maintain an action in tort for purely economic loss turns on the determination of the source of the duty plaintiff claims the defendant owed."²⁸⁰ "The purpose of the economic loss rule is to define the line between recovery in tort and recovery in contract," and "bars recovery in tort for loss of the expected bargain from the base transaction or for damage to the property purchased."²⁸¹ Since the basic issue is the nature or source of duty, rather than damages, the reader is referred to parts of this book addressing duty where only economic loss has been incurred.²⁸²

E. Punitive Damages

Whether punitive damages will be awarded and the amount of such award are determined in South Carolina on the basis of common law, statute, and a substantive due process framework adopted by the United States Supreme Court.²⁸³ This section begins with a subsection on the purposes underlying punitive awards. Subsection 2 discusses the requirements for the grant of an award, and subsection 3 addresses the framework for determining the amount of the award. Subsections 4 and 5 address the issues of taxability and insurability of punitive damages.²⁸⁴

1. Purposes of Punitive Award

As a part of its substantive due process framework, the United States Supreme Court observed that compensatory damages address the need to redress the harm a plaintiff suffers,²⁸⁵ while punitive damages serve the purposes of deterrence and retribution.²⁸⁶ Consequently, a court should instruct the jury that punitive damages are imposed for these purposes, not for compensation.²⁸⁷

In addition, a punitive award that grossly exceeds the amount necessary to serve these purposes violates due process.²⁸⁸ Retribution appears to have a greater role than deterrence in the framework because the Court has stressed that the amount of punitive damages "should fit the crime" and that "punitive damages should be 'commensurate to the nature of the offence.'"²⁸⁹ As a result, a court may impose a substantial punitive damages award—even if a lesser punishment would be sufficient to achieve "efficient" or "economically optimal" deterrence—if the punishment imposed constitutes just desert²⁹⁰ for particularly reprehensible conduct.²⁹¹

The South Carolina cases also indicate that punitive awards are designed to serve the purposes of deterrence and retribution. A punitive award serves a vindicative or retributive role in condemning wrongdoing, reasserting rights, and in making wrongdoers suffer. "Exemplary damages have relation to the injured party in only one respective, to vindicate his right, recklessly, willfully, maliciously, or wantonly invaded."²⁹² This vindicative purpose underlies the rule that a plaintiff is entitled to punitive damages where reckless or willful misconduct is involved.²⁹³

Punitive awards also deter wrongdoing. "One of the chief purposes in awarding damages of this class is to punish the wrongdoer, not only to prevent by him a recurrence of the wrongful act, but to deter others from conduct of the same or similar kind."²⁹⁴ Some cases speak in terms of three purposes. For example, Clark v. Cantrell notes that "punitive damages serve at least three important purposes: punishment . . .; deterrence, . . .; and compensation for the reckless or willful invasion of the plaintiff's private rights."²⁹⁵

Other authorities have noted that punitive awards can also serve additional purposes. For example, the Federal District Court for South Carolina has noted: "Punitive damages also serve to compensate the victim for his attorneys' fees, which are normally taken out of his compensatory damage verdict, and for other expenses for which the jury does not award compensatories."²⁹⁶

2. Requirements for Award

Currently, punitive damages are based on a "clear and convincing"²⁹⁷ showing that the defendant's violation of plaintiff's rights was reckless, willful, wanton, or malicious.²⁹⁸ The Civil Justice Act of 2011 codified this standard in the following language: "Punitive damages may be awarded only if the plaintiff proves by clear and convincing evidence that his harm was the result of the defendant's wilful, wanton, or reckless conduct."²⁹⁹ This approach satisfies the United States Supreme Court's substantive due process scheme.³⁰⁰ Absent sufficient evidence to support an inference of such egregious conduct, an award of punitive damages will not be sustained;³⁰¹ punitive damages are not awarded for negligence, whether simple or "gross."³⁰²

In South Carolina, the jury must award at least some punitive damages where the defendant engaged in reckless or willful misconduct.³⁰³ The court must submit the issue of punitive damages to the jury if more than one reasonable inference can be drawn from the evidence as to whether the defendant's behavior was reckless, willful, or wanton.³⁰⁴

The cases take two views concerning the definition of "recklessness." Some cases indicate that it requires some conscious awareness of negligence or other wrongdoing.³⁰⁵ Other cases indicate that the test is more objective and that recklessness exists if a reasonable person would regard the conduct as reckless.³⁰⁶ In cases adopting the first view, the reasonable person standard of the second approach can be used to support an inference of conscious indifference or wrongdoing.³⁰⁷

Where the defendant's breach of an applicable safety statute or regulation has caused the injury, this breach, by itself, will support a finding of recklessness and an award of punitive damages in state courts, but max not in federal courts.³⁰⁸ Pleading breach of such a statute will also provide a basis for a jury charge on recklessness even if the complaint does not explicitly allege recklessness.³⁰⁹ The 2011 Act may have changed this approach to pleadings.³¹⁰

A plaintiff may recover a punitive award for a wide range of torts so long as the wrongdoing is reckless or willful. For example, punitive damages have been awarded for willful misconduct in personal injury actions,³¹¹ property damage actions,³¹² fraud actions,³¹³ conversion actions,³¹⁴ and trespass actions.³¹⁵ However, punitive damages have been denied in cases in which defendant's liability for actual damages is based solely on statutory strict liability in tort, presumably even if plaintiff can prove a wanton, willful or malicious violation of its rights.³¹⁶

Under the common law approach, a master who is liable under respondeat superior for actual damages for his servant's tort is also liable for punitive damages if the servant's conduct justifies such an award.³¹⁷ The 2011 Act follows this approach.³¹⁸ However, the Act also places a lower limit on the amount of punitive damages in situations where the employee lacks managerial authority than it does when certain conduct by an employee was known or approved by a person with managerial authority.³¹⁹

For punitive damages to be awarded, there must be either an award of actual damages for injury proximately caused by the wrongful conduct involved³²⁰ or an award of nominal or presumed damages.³²¹ The 2011 Act did not change this approach.³²² A suit for punitive damages may not proceed once the cause of action for actual damages has been extinguished (as by satisfaction of a judgment).³²³ Punitive damages may not be recovered in an equity suit.³²⁴ South Carolina's procedures for a default damages hearing may be applied in a case in which punitive damages are sought.³²⁵ Where a verdict for compensatory damages has been held to be excessive or inadequate, courts tend to grant a new trial on punitive damages as well.³²⁶ Such an approach may be required under the 2011 Act.³²⁷

Under the common law, where punitive damages were at issue, the court could bifurcate the trial.³²⁸ Where this was done, the jury was given an interrogatory or special verdict form addressing the issue of whether the defendant's misconduct was intentional, willful, wanton, or reckless. If the answer was "yes," the second phase of the trial would address the amount of punitive damages.

Under the 2011 Act, if any defendant against whom punitive damages are sought requests bifurcation, actions involving punitive damages must be conducted in a bifurcated manner before the same jury.³²⁹ As to the conduct of the bifurcated trial, the Act provides:

. . .
(B) In the first stage of a bifurcated trial, the jury shall determine liability for compensatory damages and the amount of compensatory or nominal damages. Evidence relevant only to the issues of punitive damages is not admissible at this stage.
(C) Punitive damages may be considered if compensatory or nominal damages have been awarded in the first stage of the trial.
(D) Punitive damages may be awarded only if the plaintiff proves by clear and convincing evidence that his harm was the result of the defendant's willful, wanton, or reckless conduct.
(E) In the second stage of a bifurcated trial, the jury shall determine if a defendant is liable for punitive damages and, if determined to be liable, the amount of punitive damages.³³⁰

3. Determining the Amount of the Award

a. Statutes

(1) Multiplication of Damages

To encourage proceedings under certain statutes and to implement public policy, some statutes provide for punitive damages in the form of a multiplier of the compensatory damages award.³³¹ For example, purchasers injured by violations of the...