Limitations on punitive damages?

PRO: This risk of punitive damages makes parties more likely to avoid the conduct subject to the extra damage award. Punitive damages typically are a good idea for activities that society always wants to dissuade: conduct done in bad faith or conduct that could have easily been avoided (e.g. premeditated murder, drunk driving).

CON: The increased risk of a costly legal settlement will dissuade parties from engaging in the activities that led them to have to pay punitive damages. Some off these activities are productive and on the whole beneficial to society, even accounting for the accidents and losses that sometimes happen as a result (e.g. surgery, air transport). Punitive damages for mere accidents and misunderstandings might make people too risk averse and lead them to either stop providing the services altogether or to increase the prices they charge to cover the potential cost of punitive damages (reflected most likely in the cost of insurance). Typically, simply awarding remedial damages to an injured party injured by a productive activity will compensate them fully for their losses, while making the defendant aware of the external costs of her conduct.

Punitive damages are a category of possible damages in a tort situation. Most torts involve some kind of compensatory damages, in which the defendant pays the plaintiff for injury caused. But if the court feels that the conduct was particularly outrageous and antisocial, it may impose punitive, or "exemplary" damages in an attempt to discourage both that particular defendant and others to not engage in that kind of behavior.

The arguments for this are largely based on deterrence. Slapping hefty fines is one way of making sure it doesn't happen again.

The arguments against punitive damages have to do with the nature of civil proceedings. In general, criminal proceedings are designed to punish, but provide no compensation for victims. The opposite is true of civil proceedings. On a theoretical level, civil courts aren't really interested in "blameworthiness" or moral culpability as much as they are in equitable relief. Criminal proceedings deal in moral categories and bring moral stigma in ways that civil proceedings do not. By imposing punitive damages in a civil case, the courts blur the line between criminal and tortious conduct.

On a more practical level, defendants have more rights in criminal proceedings than in civil proceedings. The burden of proof is higher, and the due process requirements are stricter. So allowing punitive damages without these protections is, in a sense, an attempt at making an end run around the protections our legal system provides.

Many courts don't like this, but the majority view is that there are certain situations in which punitive damages are appropriate. The biggest debates are over what kind of situations merit punitive damages, not whether or not they should be imposed at all.