By a 5-3 vote, the high court ruled that the punitive damages award should be slashed to a maximum amount equal to the total relevant compensatory damages of $507.5 million.
The justices overturned a ruling by a U.S. Court of Appeals that had awarded the record punitive damages to about 32,000 commercial fishermen, Alaska natives, property owners and others harmed by the spill.
In the majority opinion, Justice David Souter concluded the $2.5 billion in punitive damages was excessive under federal maritime law, and should be cut to the amount of actual harm.
The Exxon Valdez supertanker ran aground in Alaska's Prince William Sound in March 1989, spilling about 11 million gallons of crude oil. The spill spread oil to more than 1,200 miles of coastline, closed fisheries and killed thousands of marine mammals and hundreds of thousands of sea birds.