Can punitive damages be awarded in a breach of contract?

Gavel and scales punitive damages

Last week, the Supreme Court of Ohio issued a ruling in an insurance case that called into question whether punitive damages can be awarded in a breach of contract claim.

The case, which involves an insurance agent and Nationwide Insurance, had the potential to change the landscape of not only the insurance industry, but businesses at large in Ohio.

In a 6-1 decision, the Court reversed a judgment of the Seventh District Court of Appeals, clarifying that punitive damages are not recoverable in a breach-of-contract lawsuit. The exception to this rule is if the breach involves a tort, among other clarifications the decision provides to Ohio contract law:

  • When a breach of contract involves conduct that also constitutes a tort, punitive damages may be awarded only for the tort, not for the breach, and any punitive damages awarded are subject to the statutory limitations on punitive damages imposed in R.C. 2315.21.
     

  • A party to a contract does not breach the implied duty of good faith and fair dealing by seeking to enforce the agreement as written or by acting in accordance with its express terms, nor can there be a breach of the implied duty unless a specific obligation imposed by the contract is not met.
     

  • An unconditional release of liability becomes effective upon execution and delivery and bars any claims encompassed within it, unless it was procured by fraud, duress, or other wrongful conduct.
     

  • A party seeking to avoid a release of liability on the basis that it was procured under duress is required to prove duress by clear and convincing evidence.
     

  • The prevention of performance doctrine, which states that a party who prevents another from performing a contractual obligation may not rely on that failure of performance to assert a claim for breach of contract, is not a defense to a release of liability and therefore cannot be asserted as a defense to a release.
     

  • A fraud claim cannot be predicated on predictions or projections relating to future performance or on misrepresentations made to third parties.

This is just one of many cases that showcase the important role of the Supreme Court of Ohio. With two of the seven justices up for election this November, you’ll want to pay close attention to this race. Learn why Supreme Court of Ohio races really do matter.

Read more about this ruling in Court News Ohio.
 

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