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 harm resulted from fraud, malice, or gross negligence. State law caps most awards through a formula tied to the plaintiff’s other damages, though certain felony-level conduct removes the cap entirely. Even when the statutory cap allows a large number, federal due process and federal tax rules can shrink what a plaintiff actually takes home.
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.1State of Texas. Texas Civil Practice and Remedies Code Section 41.003 The statute defines each term narrowly. Fraud means actual fraud, not constructive fraud. Malice requires a specific intent to cause substantial injury. Gross negligence has two components: the conduct must involve an extreme degree of risk when viewed objectively, and the defendant must have been subjectively aware of that risk yet proceeded with conscious indifference to the safety or welfare of others.2State of Texas. Texas Civil Practice and Remedies Code Section 41.001
Gross negligence is where most exemplary damages litigation happens. In Transportation Insurance Co. v. Moriel (1994), the Texas Supreme Court held that both the objective risk and the defendant’s actual awareness must be proven separately, and that evidence of ordinary carelessness satisfies neither.3OpenCasebook. Transportation Insurance Co. v. Moriel A company that unknowingly sold a defective product faces a very different analysis than one that received safety complaints and kept shipping. Internal emails, prior complaints, and documentation of ignored warnings often decide the subjective-awareness question.
How Much You Can Recover
Section 41.008 caps most exemplary damage awards at the greater of two calculations:
- Two times the plaintiff’s economic damages, plus non-economic damages up to $750,000, or
- $200,000.
The court applies whichever formula produces the larger number.4State of Texas. Texas Civil Practice and Remedies Code Section 41.008
Consider a case with $500,000 in economic damages and $1 million in non-economic damages. The first formula gives $1.75 million: economic damages doubled to $1 million, plus the non-economic piece capped at $750,000. The second formula gives $200,000. The cap is $1.75 million. Where economic damages are small or zero, the $200,000 floor keeps some punitive recovery on the table.
If the jury awards more than the cap allows, the court reduces the number. Judges have no discretion to do otherwise.
When the Cap Comes Off
Section 41.008(c) lists offenses that remove the cap entirely. They include 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 including forgery, commercial bribery, and misapplication of fiduciary property. For most of these, the plaintiff must show the defendant acted knowingly or intentionally. Intoxication assault and intoxication manslaughter don’t carry that additional requirement. The cap also doesn’t apply to damages arising from the manufacture of methamphetamine.4State of Texas. Texas Civil Practice and Remedies Code Section 41.008
The Constitutional Ceiling
The statutory cap is not the only ceiling. The U.S. Supreme Court has held that grossly excessive punitive damages violate the Due Process Clause of the Fourteenth Amendment, and Texas courts apply those federal limits alongside the state cap.
In BMW of North America, Inc. v. Gore (1996), the Court set out three guideposts for evaluating whether a punitive award is constitutionally excessive: the reprehensibility of the defendant’s conduct (the most important factor), the ratio between punitive and actual harm, and how the award compares to civil or criminal penalties for similar conduct.5Justia. BMW of North America, Inc. v. Gore In State Farm Mutual Automobile Insurance Co. v. Campbell (2003), the Court added that few awards exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process, and that where compensatory damages are already substantial, even a 1:1 ratio can push against the constitutional limit.6Cornell Law Institute. State Farm Mutual Automobile Insurance Co. v. Campbell A defendant can raise this challenge even when the jury’s number falls inside the Texas statutory formula.
Proving the Claim
Exemplary damages require proof by clear and convincing evidence, which the statute defines as proof that produces a firm belief or conviction in the factfinder’s mind.2State of Texas. Texas Civil Practice and Remedies Code Section 41.001 That is a higher bar than the preponderance standard used in most civil claims. The statute also prohibits shifting this burden to the defendant, and it forbids using evidence of ordinary negligence, bad faith, or a deceptive trade practice to meet it.1State of Texas. Texas Civil Practice and Remedies Code Section 41.003
The jury must also be unanimous. Every juror has to agree both that exemplary damages are warranted and on the specific dollar amount, and the trial court must instruct the jury on that unanimity requirement.1State of Texas. Texas Civil Practice and Remedies Code Section 41.003 One holdout on either question defeats the award.
How the Trial Splits
If the defendant asks for it, the court must split the trial into two phases.7State of Texas. Texas Civil Practice and Remedies Code Section 41.009 The motion has to come before jury selection or by whatever deadline a pretrial order sets. In phase one, the jury decides liability for both compensatory and exemplary damages and sets the compensatory amount. If the jury finds exemplary damages are warranted, phase two follows, and the same jury sets the punitive number after considering the statutory definition and purposes of exemplary damages.8State of Texas. Texas Civil Practice and Remedies Code Section 41.010 Bifurcation keeps the defendant’s net worth and financial condition out of the liability phase, where it could prejudice the underlying decision.
What You Actually Keep
A large jury number is not the same as a large check. Two federal rules can eat into the recovery.
The first is tax. Punitive damages are taxable income. Section 104 of the Internal Revenue Code excludes damages received on account of personal physical injuries but specifically carves out punitive damages by saying “other than punitive damages.” So even when the underlying case involves a physical injury and the compensatory piece is tax-free, the punitive piece is taxed as ordinary income. A narrow exception exists for wrongful death actions in states where, as of September 13, 1995, the law permitted only punitive damages. Texas is not one of those states, because Texas wrongful death law allows compensatory damages, so exemplary damages awarded in Texas remain taxable regardless of the underlying claim.9Office of the Law Revision Counsel. 26 USC 104 – Compensation for Injuries or Sickness
The second is bankruptcy. A defendant who files Chapter 7 after a punitive judgment may try to discharge it. Under 11 U.S.C. ยง 523, debts for “willful and malicious injury” cannot be discharged.10Office of the Law Revision Counsel. 11 USC 523 – Exceptions to Discharge But the federal bankruptcy standard is not the Texas standard. The Supreme Court has held that negligent or reckless conduct doesn’t qualify as willful and malicious; the debtor must have acted with actual intent to cause injury. A Texas jury could award exemplary damages on gross negligence (conscious indifference to risk) and a bankruptcy court could still find that same conduct discharge-eligible under federal law. Awards grounded in actual malice or intentional fraud are more likely to survive. Anyone holding a punitive judgment against a defendant who then files bankruptcy should expect a separate fight in bankruptcy court over dischargeability.