Exemplary Damages in Texas: Conduct, Caps, and Proof

Exemplary damages in Texas are the state’s version of punitive damages, and they are available only when a plaintiff proves by clear and convincing evidence that the defendant acted with fraud, malice, or gross negligence. Most awards are then limited by a statutory cap tied to the plaintiff’s economic and non-economic damages, with a short list of felony-level offenses that remove the cap entirely. On top of the state cap, federal due process puts its own ceiling on how large an award can be.

What Conduct Qualifies

Chapter 41 of the Civil Practice and Remedies Code limits exemplary damages to three categories of misconduct: fraud, malice, or gross negligence.¹ Each term has a tight statutory meaning. Fraud means actual fraud, not constructive fraud. Malice requires a specific intent to cause substantial injury. Gross negligence has two parts: viewed objectively, the conduct must involve an extreme degree of risk; and the defendant must have been subjectively aware of that risk and gone forward with conscious indifference to the rights, safety, or welfare of others.²

Gross negligence is the ground plaintiffs rely on most. The Texas Supreme Court set the two-part framework in Transportation Insurance Co. v. Moriel, holding that the objective risk and the defendant’s actual awareness must each be proven, and that ordinary carelessness isn’t enough for either element.³ A company that unknowingly sold a defective product sits in a very different posture than one that received safety complaints and kept shipping. The statute also makes clear that evidence of ordinary negligence, bad faith, or a deceptive trade practice does not satisfy the exemplary damages standard.¹

The Clear and Convincing Standard

A plaintiff must prove the qualifying conduct by clear and convincing evidence, which the statute defines as proof that produces a firm belief or conviction in the factfinder’s mind.² That is a higher bar than the preponderance standard used for most civil claims, and the burden cannot be shifted to the defendant.¹

The jury must also be unanimous. Every juror has to agree both that exemplary damages are warranted and on the dollar amount, and the trial court must give an instruction stating the unanimity requirement.¹ A single holdout on either question defeats the award. On appeal, Texas courts review whether the evidence was legally sufficient to support each element, and an insufficient record can lead the appellate court to modify or overturn the award.

How Much a Plaintiff Can Recover

Section 41.008 caps most exemplary awards. The ceiling is the greater of two numbers:

Two times the plaintiff’s economic damages, plus non-economic damages up to $750,000; or
$200,000.

Whichever formula yields the larger figure controls.⁴ Take a jury that awards $500,000 in economic damages and $1 million in non-economic damages. Formula one produces $1.75 million: $500,000 doubled, plus the $750,000 non-economic cap. Formula two produces $200,000. The ceiling is $1.75 million. When economic damages are small or zero, the $200,000 floor keeps some punitive recovery available. If the jury’s number exceeds the cap, the court must reduce it; there is no judicial discretion to go higher.

When the Cap Does Not Apply

Section 41.008(c) lifts the cap when the conduct amounts to certain felonies, including murder, aggravated assault, sexual assault, aggravated kidnapping, human trafficking, injury to a child or elderly person, intoxication assault, intoxication manslaughter, and several fraud-related felonies such as forgery, commercial bribery, and misapplication of fiduciary property. For most of these offenses, the plaintiff has to show the defendant acted knowingly or intentionally. Intoxication assault and intoxication manslaughter are exceptions and do not require proof of knowing or intentional conduct to remove the cap. Damages arising from the manufacture of methamphetamine are also uncapped.⁴

The Constitutional Ceiling

Even an award that fits inside the Texas cap can still be too large under the Fourteenth Amendment. In BMW of North America, Inc. v. Gore, the U.S. Supreme Court set out three guideposts for whether a punitive award is grossly excessive:

Reprehensibility of the defendant’s conduct, which is the most important factor;
The ratio between the punitive award and the actual harm the plaintiff suffered; and
How the award compares to civil or criminal penalties for similar conduct.⁵

The Court tightened the ratio analysis in State Farm Mutual Automobile Insurance Co. v. Campbell, saying few awards above a single-digit ratio of punitive to compensatory damages will satisfy due process, and that where compensatory damages are already substantial, even a 1:1 ratio can approach the limit.⁶ A defendant can raise this constitutional challenge even when the award sits within the statutory formula.

How Exemplary Damages Move Through a Case

A plaintiff has to plead exemplary damages in the original petition. Texas Rule of Civil Procedure 47 requires a short statement of the claim and a statement placing damages within specified monetary ranges. Defendants often move early to strike exemplary damage allegations that don’t plausibly support fraud, malice, or gross negligence.

Discovery looks like any other civil case with one key exception. To reach the defendant’s financial records, the plaintiff must file a motion and show a substantial likelihood of success on the exemplary damages claim before the court will authorize net worth discovery, and the court’s order can only permit the least burdensome method.⁷ Asking for that discovery carries a tradeoff: the statute presumes the plaintiff has had enough time to develop the exemplary damages facts, which opens the door for the defendant to seek summary judgment on the claim.

If the defendant requests it, the court must bifurcate the trial.⁸ The request has to come before jury selection or by the time a pretrial order sets. Phase one covers liability and compensatory damages, along with the threshold finding that exemplary damages are warranted. Phase two, before the same jury, sets the exemplary amount, with the jury instructed on the statutory definition and purposes of exemplary damages before awarding.⁹ Splitting the trial keeps the defendant’s financial condition out of the liability phase.

After the Verdict

Expect a challenge. Defendants routinely file motions for new trial on sufficiency grounds, ask for remittitur, or appeal. Appellate courts check both statutory cap compliance and the Gore and State Farm guideposts, and some reduction along the way is more common than not. Once the judgment is final, collection runs like any Texas money judgment, through post-judgment discovery and writs of execution, wage garnishment, or property liens.

Taxes come off the top. Section 104 of the Internal Revenue Code excludes damages received on account of personal physical injuries, but it specifically carves out punitive damages. Even where the underlying compensatory recovery is tax-free, the punitive portion is taxed as ordinary income. A narrow federal exception covers wrongful death cases in states whose law, as of September 13, 1995, allowed only punitive damages in wrongful death actions. Texas isn’t in that group, so Texas punitive awards are taxable regardless of the underlying claim.¹⁰

Bankruptcy is the other collectibility question. Debts for willful and malicious injury to another person or their property are not dischargeable under 11 USC 523.¹¹ The federal “willful and malicious” test, though, is not the same as the Texas standard for malice or gross negligence. The U.S. Supreme Court has held that negligent or reckless conduct does not meet it; the debtor must have acted with actual intent to cause injury. A punitive award based on actual malice or intentional fraud is more likely to survive discharge than one based on gross negligence, and a plaintiff holding the judgment should expect to litigate dischargeability separately if the defendant files bankruptcy.

1
State of Texas. Texas Civil Practice and Remedies Code Section 41.003
2
State of Texas. Texas Civil Practice and Remedies Code Section 41.001
3
OpenCasebook. Transportation Insurance Co. v. Moriel
4
State of Texas. Texas Civil Practice and Remedies Code Section 41.008
5
Justia. BMW of North America, Inc. v. Gore
6
Cornell Law Institute. State Farm Mutual Automobile Insurance Co. v. Campbell
7
State of Texas. Texas Civil Practice and Remedies Code Section 41.0115
8
State of Texas. Texas Civil Practice and Remedies Code Section 41.009
9
State of Texas. Texas Civil Practice and Remedies Code Section 41.010
10
Office of the Law Revision Counsel. 26 USC 104 – Compensation for Injuries or Sickness
11
Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge