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A woman spills hot McDonald's coffer in her lap and receives a multi-million dollar judgment from McDonald's. Does this judgment seem outrageous? Of course it does if you are given only these facts. But there is more to the story than this. McDonald's consistently ignored complaints that its coffee was too hot. It knew of at least 700 similar scalding burn injuries caused by their coffee, yet it did nothing to minimize the danger. In fact, McDonald's had even ignored a court order to lower the temperature of its coffee. Because McDonald's knew that its coffee was dangerous and failed to correct the problem, the woman was awarded punitive damages.

Punitive damages comprised the bulk of the award in the McDonald's case. The function of punitive damages is to punish and deter the defendant and to serve as a deterrence to others in the industry. In order to truly punish and deter, the punitive damage award must correspond to the wealth of the company. For example, a multi-billion dollar corporation will hardly feel the pinch if it is given a $100,000 fine. In contrast, a $100,000 fine might send a small company into bankruptcy. Because McDonald's is such a big corporation, the punitive damage award had to be high in order to truly punish and deter McDonald's for its conduct.

The lesson to learn from the McDonald's case is not that one should sue a paper company for getting a paper cut or sue a pizza parlor for burning his mouth on the hot cheese. The public is under this misconception that these are the types of situations for which people can recover millions of dollars. This is not so. Because punitive damages are awarded for only the most egregious conduct, it is awarded in less than 5% of all verdicts. Thus, it is wrong to think that anyone getting injured will be entitled to a multi-million dollar verdict.

Finally, the judge in the McDonald's case lowered the amount of the punitive damage award to $480,000, thus serving as a check on juries who may award excessive punitive damage awards.