Miércoles, 26 Junio 2019

Punitive damages in third-party liability. How much is a coffee?

VolverIn mid-May, the agrochemical company Monsanto, manufacturer of the herbicide Roundup (Glyphosate), received a sentence of billions of dollars, which was widely covered in the media all around the world.

According to the proven facts, the Pilliod couple used the mentioned herbicide for 35 years, and in 2011 and 2015, they developed a non-Hodgkin's lymphoma. The jury considers proved the causal connection between the use of the herbicide and developing a cancerous pathology and considers that the agrochemical company has neither meet the expected safety and quality standards, nor warned properly to potential users of the risks of using Roundup.

The compensation of billions of dollars is divided in three distinct parts: non-economic loss, economic loss and punitive damages. The non-economic loss amounts to 52 million dollars, the economic loss totals 251,420.48 dollars and the punitive damages amount strikingly to 2 billion dollars.

The case Pilliod et al. v. Monsanto et al. is not unique in history, many multinational companies have been penalised to pay a huge punitive damages compensation; in the case Stella Liebeck v. McDonald’s, the food giant was penalised to pay 2.7 million dollars for serving, intentionally, coffee at 80 degrees Celsius; subsequently, the punitive damages compensation was reduced to 480,000 dollars.

Punitive damages are a problem both for TPL insurance and for its taking out by entities from countries where laws, customs or law system allow a compensation for punitive damages.

In the scope of the Spanish TPL insurance, punitive damages are usually excluded from coverage. Apart of this long-standing exclusion, there are sub-ceilings per victim, claim and aggregate limit.

Beyond the long-standing doctrinal dispute around insuring fines and sanctions, in the Spanish system of damages compensation, neither punitive damages nor exemplary penalties have a place. The principle on which the third-party liability is based is the full compensation of the damage suffered, or full indemnity, excluding, in any event, the enrichment of the harmed party.

Both in the administrative and third party spheres (1), the key concept on which the compensation system is built is damage or injury (including pecuniary or economic loss) which is different from the punitive damages setting. Despite of what its very name indicates, punitive damages are not stricto sensu a “damage” but, as doctrine rightly states, a “compensation” or a “civil money penalty”.

Meanwhile, Supreme Court's case law (2) has made clear that punitive damages have no place in the Spanish legal system: “therefore, damages caused are compensated and the so-called punitive damages are not recognised in our legislation, nor the compensation is a private penalty or a civil penalty (…)”

Although the Spanish damages compensation system is based on the full compensation of the damage suffered, that does not remove the fact that there are resorts, within the legal system, that may allow applying some sort of “civil penalty” in certain specific cases.

The Spanish legal system has not succeeded in resist the Community trends, and the influence of political positions that seek to punish certain behaviours that have a special disvalue for society: the use of laws as a tool of social transformation.

I. Trends from Europe

In this sense, the first item opening the door to punitive damages in Spain are the different rulings by the European Court of Justice (ECJ), which provide for the possibility of entering exemplary penalties in certain fields. However, the ECJ warns that punitive damages compensation is only applicable if, and only if, the national laws provide for it that way.

Thus, in the in the field of discrimination based on sex (3), the ECJ had to make clear that article 25 of Directive 2006/54 does not provide for the penalization of paying punitive damages to the person who committed the discriminatory behaviour.

Meanwhile, in the field of intellectual property (4), the ECJ has highlighted that, provided that the national laws set it forth, both compensation system for damages suffered and the deterrent sentence or civil penalty are compatible with the Community legal system.

In short, the alignment of European legislation (and case-law) is one of the ways of opening the Spanish legal system to punitive damages.

II. Law as a tool of social transformation

The second item that facilitates implementing punitive damages in Spanish law is the use of the legal system as a tool of social transformation, which is submitted to two requirements: (i) the existence of an “enabling” legal provision to impose a “deterrent fine” and (ii) the determination, by law, of the calculation system/compensation bracket.

The thing is that punitive damages, in Spanish Law, hardly match with the non-arbitrariness principle, enshrined in Article 9.3 of the Spanish Constitution. As dogmatically defined, the amount of punitive damages is fixed at a flat rate by the Judge. There is no standard or scale from which punitive damages may be calculated.

In the well-known case of the boiling McDonald’s coffee, it was suggested to use as a calculation system for the punitive damages the food chain’s earnings from coffee sales all over the United States (1.35 million USD)

The Spanish legal system prohibits arbitrariness and is based on principle of legality. When combining these two principles there is a possibility to include some sort of punitive damages in the Spanish Law

Firstly, there should be a legal provision for this kind of exemplary compensations (e.g. benefits surcharge) in accordance with the principle of legality.

Secondly, the regulation should provide for the calculation system or the bracket from where calculations may be made for total amount of punitive damages at the risk of the Judge being arbitrary, which our legal system forbids.

It is true that, currently, when determining non-economic loss compensations, a wise judicial decision changes extraordinarily the economic amount where subjective criteria are introduced such as lack of diligence, recklessness or wilful intent. However, it is important to highlight that the courts are subjected to the judicial review of potential mistaken, unjust or arbitrary evaluations, as the Supreme Court has reminded ad nauseam.

In conclusion, Spanish Law is not isolated and is subjected to different strains to include, in certain fields, legal entities that are not a part of its tradition and custom. Such is the case with punitive damages, triple damages (triple the amount of the compensatory damages), exemplary penalties…

At the BELZUZ ABOGADOS S.L.P Insurance Law Department, we are aware of the peculiarities of the system of damages compensation and what it implies in TPL insurance and its future. Maybe, in the future, answering to “How much is a coffee?” will not be so easy.

(1) For brevity, the (increasing) issue of exemplary penalties in the criminal field and the potential impact in the TPL insurance in fields such as environment, medicines and health products, etc.

(2) Supreme Court’s ruling, civil division, of 30 September 2009 (EDJ 2009/245287).

(3) ECJ’s ruling of 17 December 2015 (C-407/14, Arjona Camacho vs. Securitas Seguridad España, S.A.).

(4) ECJ’s ruling of 25 January 2017 (C-367/15, Olawska Telewizja Kablowa vs. Filmowców Polskich).

Ian Pérez López  Ian Pérez López

Departamento de Derecho del Seguro | Madrid (España)


Belzuz Abogados SLP

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