Kolstad defense is a defense an employer can make in a civil rights case to defeat a claim for punitive damages. It is named after the case Kolstad v. ADA, 527 U.S. 526 (U.S. 1999) in which the defense was developed.
In Kolstad v. American Dental Ass'n, the Supreme Court recognized that punitive damages may be awarded for a Title VII violation "if the complaining party demonstrates that the respondent engaged in a discriminatory practice or discriminatory practices with malice or with reckless indifference to the federally protected rights of an aggrieved individual." The Court held, however, that an employer may not be held vicariously liable for punitive damages for the discriminatory employment decisions of managerial agents where these decisions are contrary to the employer's good-faith efforts to comply with Title VII. This exception to vicarious liability has come to be known as the "good faith" or "Kolstad" defense [Hardman v. Autozone, Inc., 214 Fed. Appx. 758, 760 (10th Cir. 2007)]