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Punitive damages serve a specific purpose in the legal system, primarily focused on punishment and deterrence rather than mere compensation. They are awarded in cases where a defendant's conduct has been particularly egregious or malicious.

The rationale behind punitive damages is to penalize the wrongdoer for their harmful actions and to discourage similar behavior in the future, both by the perpetrator and by others. For example, in cases of gross negligence, willful misconduct, or actions taken with malicious intent, the court may impose punitive damages to reflect the severity of the defendant's behavior and promote societal standards of acceptable conduct.

This differentiates punitive damages from other types of compensation like loss of earnings or reimbursement for actual expenses, which aim to make the plaintiff whole rather than to punish the defendant. Additionally, funds set aside for future legal costs are not classified as punitive damages, as they relate to the costs of litigation rather than the outcomes related to wrongdoing.