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On June 25, 2008, the United States Supreme Court decided an important case regarding punitive damages, stemming from the 1989 Exxon Valdez oil spill disaster in Alaska. Although the opinion is technically confined to maritime cases under federal common law, the Court's determination to limit punitive damages to the amount of compensatory damages awarded continues a trend of rulings generally hostile to large punitive damage awards.

At trial, the jury awarded several classes of plaintiffs a total of just over $500 million in compensatory damages, and $5 billion in punitive damages against Exxon. Although the Ninth Circuit Court of Appeal required the district court to reduce the punitive damages amount to $2.5 billion, Exxon challenged the ruling on two fronts, arguing against any punitive damage award at all, as well as contending that the amount awarded was excessive. Exxon first contended unsuccessfully that the jury was improperly instructed the corporation could be held liable for punitive damages under maritime law resulting from reckless conduct by its managerial employees. Exxon next argued, similarly to no avail, that the Clean Water Act's statutory scheme of penalties for water pollution violations tacitly preempted federal maritime punitive damage awards altogether. The Court rejected this argument, holding that Congress did not clearly indicate that common law punitive damages were to be eliminated, and common law causes of action still allow compensatory damages for economic loss.

Exxon had more success regarding the size of the punitive damage award. While distinguishing its common law maritime review from the constitutional substantive due process analysis by which the Supreme Court in other cases has previously reduced large punitive damage amounts awarded under state law, the Court nevertheless looked to the states to determine the empirical range of ratios usually found between compensatory damages and punitive damages. The Court deemed predictability of awards to be a crucial goal for the judicial system. Several reputable statistical studies showed that the median ratio historically has remained less than 1:1 between punitive and compensatory damages. Relying upon such quantitative results, as well as the Court's own constitutional rulings, the Supreme Court ordered the punitive damages award reduced to approximately $500 million, matching the compensatory damages award.

The importance of this ruling is to confirm that exceptional circumstances must be found by any court in order to uphold a jury's determination awarding punitive damages significantly exceeding the compensatory damage award upon which the punitive damages are based. In previous cases, the court has suggested that punitive damage awards should generally be no more than ten times larger than the compensatory damage award. As a result, the 1:1 ratio applied in Exxon is not yet an ironclad part of the constitutional substantive due process analysis. The trend, however, is unmistakably toward close judicial scrutiny of punitive damage awards significantly exceeding the compensatory damage amount. The fact that even a corporation as large as Exxon could not be punished more harshly bodes well for most defendants facing punitive damages.