Gavin Howe
Punitive damages, also known as exemplary damages, are awarded in addition to actual damages to punish the defendant for outrageous conduct and to deter similar conduct in the future. They are generally not awarded for breach of contract, but there are rare instances where punitive damages are available in a contractual setting, such as when an independent tort is committed. The availability and amount of punitive damages vary across different jurisdictions, with some states imposing percentage limits on punitive damages in relation to the defendant's entire worth.
| Characteristics | Values |
|---|---|
| General rule | Punitive damages cannot be awarded for breach of contract |
| Exception | Punitive damages can be awarded for an independent tort committed in a contractual setting |
| Purpose | To punish the defendant for outrageous conduct and/or to deter similar conduct in the future |
| Plaintiff's award | The plaintiff will receive all or some of the punitive damages in the award |
| Conditions | Defendant must display actual intent to cause harm or act with reckless disregard for the lives and safety of others |
| State laws | Vary, with some states having a percentage limit on punitive damages |
| International laws | In Japan, punitive damages may result in prison time; in New Zealand, exemplary damages are not awarded for breach of contract |
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What You'll Learn
Punitive damages are generally not awarded for breach of contract
The law regarding punitive damages in contract law varies across different jurisdictions. For instance, in the United States, punitive damages are generally not awarded in breach of contract cases, but they may be available in certain situations, such as when there is a crossover with tort law or in cases of insurance bad faith violations. In New Zealand, it has been held that exemplary damages, a form of punitive damages, are not awarded for breach of contract, but the court has left open the possibility of such damages in cases where the breach of contract is also a tort.
The availability of punitive damages in contract law depends on the specific circumstances of each case and the applicable laws in the relevant jurisdiction. Punitive damages are typically awarded at the court's discretion when the defendant's behaviour is considered especially harmful or outrageous. The purpose of punitive damages is to punish the defendant and reform their behaviour, rather than to compensate the plaintiff for their losses, which are addressed through compensatory damages.
While punitive damages are generally not awarded for breach of contract, there may be rare instances where they are available. These instances often involve egregious conduct by the defendant, such as fraud or intentional torts. The courts will also consider the proportionality of punitive damages to the actual harm suffered and any other damages awarded, such as compensatory damages.
In summary, punitive damages are generally not awarded for breach of contract, but there may be exceptions in certain jurisdictions or in cases involving torts, egregious conduct, or insurance bad faith violations. The availability of punitive damages depends on the specific circumstances of each case and the applicable laws, with the ultimate decision often resting with the court's discretion.
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Punitive damages are awarded for outrageous conduct
Punitive damages, also known as exemplary damages, are awarded to the plaintiff to punish the defendant for outrageous conduct and to deter the defendant and others from engaging in similar conduct in the future. Punitive damages are awarded in addition to compensatory damages, which are paid to the plaintiff to cover their financial losses. Punitive damages are generally not awarded in contract disputes, except in insurance bad faith cases in the US.
Punitive damages are typically awarded in cases where the defendant's conduct is considered grossly negligent or intentional. For example, in the case of Liebeck v. McDonald's Restaurants (1994), 79-year-old Stella Liebeck suffered second and third-degree burns when a cup of coffee she purchased at a McDonald's drive-through spilled on her lap. The court awarded punitive damages to deter McDonald's from repeating the conduct that led to the incident.
In another case, National By-Products Inc. v. Searcy House Moving Co., the Arkansas Supreme Court found that awarding punitive damages requires evidence that the defendant proceeded intentionally with an unlawful action, knowing that the act was likely to cause injury. Punitive damages may also be awarded in cases where the defendant's actions are especially reprehensible, or the harm suffered by the plaintiff is greater than the punitive damages requested.
The amount of punitive damages awarded is typically determined by the court's discretion and may vary depending on the state or jurisdiction. In some cases, a high ratio between punitive and compensatory damages may be considered unconstitutional. For example, in TXO Production Corp. v. Alliance Resources Corp., the Supreme Court affirmed an award of $10 million in punitive damages, despite the compensatory damages being only $19,000, a ratio of more than 526-to-1.
Punitive damages are an important tool for courts to punish and deter outrageous conduct, but they must also be awarded fairly and proportionally to the harm suffered by the plaintiff.
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Tort and contract crossover issues
Tort law and contract law are distinct branches of civil law that govern different types of conduct and relationships. Tort law deals with the duty of care that individuals who have not entered into an agreement owe each other, while contract law governs the drafting and enforcement of agreements between parties.
Despite their differences, there is some crossover between tort and contract law. In certain cases, a single act can give rise to both a breach of contract and a tort claim. This typically occurs when the breaching party's actions not only violate the specific terms of a contract but also breach a duty of care imposed by law, such as through negligence or another tort. For example, if you hire a contractor to install electrical wiring in your home, and they knowingly use dangerously substandard materials in an effort to cut costs, this would constitute a clear breach of the written agreement. If this defective wiring later causes a fire that injures someone in your household, the contractor's conduct may also amount to negligence, exposing them to tort liability. In such cases, the breach of contract allows the non-breaching party to pursue contractual remedies like compensation for repairs or lost use of property, while the tort claim opens the door to personal injury damages.
The availability of punitive damages in contract and tort cases varies. Punitive damages, also known as exemplary damages, are generally not awarded in breach of contract cases. However, in rare instances, punitive damages may be available when an independent tort, such as fraud, is committed in a contractual setting, and the conduct is particularly egregious. On the other hand, punitive damages are more commonly associated with tort law, as they are intended to punish the defendant for outrageous conduct and deter similar behaviour in the future.
The distinction between tort and contract law can sometimes be blurred, as illustrated by the case of Brown v. R [1937] 3 All ER 520 (KB). In this case, it was proposed that breaches of contract could be considered tortious negligence, allowing for a multiplicity of actions. However, this approach was not widely adopted, and it is generally accepted that a breach of contract is not automatically a tort. Nonetheless, the concept of concurrent liability recognises that an individual or organisation can be held simultaneously responsible under both contract and tort law in certain circumstances.
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Insurance bad faith violations
Punitive damages are a type of compensation that is awarded to punish the defendant for their actions and to deter them and others from engaging in similar conduct in the future. Although punitive damages are meant to benefit the plaintiff, the primary purpose is not to compensate the plaintiff for their losses. In contract law, punitive damages are generally not awarded for a breach of contract. However, there are certain exceptions where punitive damages may be awarded in a contractual setting, such as in cases involving independent torts or certain industries.
First-party bad faith occurs when an individual's own insurance company acts in bad faith, such as unreasonably denying or delaying a claim. Third-party bad faith involves the at-fault party's insurance company failing to defend their insured or unreasonably refusing to settle, which exposes their insured to greater personal liability. In either case, the insurer's actions must be proven to be unreasonable or without proper cause.
State laws in the United States vary, but many have enacted specific legislation to address bad faith practices and protect consumers from unfair claims settlement practices. These laws outline prohibited actions by insurance companies and the remedies available to policyholders, which may include punitive damages in cases of egregious misconduct. Policyholders can consult with attorneys specialising in bad faith insurance to understand their rights and pursue legal action if necessary.
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Punitive damages are awarded at the court's discretion
Punitive damages, also referred to as exemplary damages, are awarded to the plaintiff in certain circumstances, in addition to actual damages. They are considered punishment for the defendant and are awarded at the court's discretion when the defendant's behaviour is found to be unacceptable or outrageous. The purpose of punitive damages is to deter the defendant and others from engaging in similar conduct in the future. Punitive damages are generally not awarded in cases of breach of contract, however, there are exceptions.
In the case of tort liability, punitive damages may be awarded if the defendant has committed an independent tort, such as fraud, and the conduct was particularly egregious. This is especially true if the tort portion of the case causes a bigger problem than the breach of contract. For example, in the case of National By-Products Inc. v. Searcy House Moving Co., the Arkansas Supreme Court awarded punitive damages as the defendant proceeded intentionally with an unlawful action, knowing that it was likely to cause injury.
In some industries, punitive damages may also be awarded in cases of breach of contract, such as in the insurance industry. Insurance Bad Faith Violations may result in punitive damages if an insurance company acts in bad faith against a policy owner, breaching the "covenant of good faith and fair dealing".
In New Zealand, it has been held that exemplary damages are not awarded for breach of contract, but the court left open the possibility that they might be available if the breach of contract is a tort. Similarly, in Australia, the New South Wales Court of Appeal held that punitive damages are not available for breach of contract, however, the court refrained from deciding whether punitive damages would be available for equitable wrongs analogous to torts.
The amount of punitive damages awarded may depend on the circumstances of the case, the statutes enacted in a particular state, and the other damages awarded. For example, the courts in California do not allow punitive damages to exceed 10% of the defendant's entire worth.
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Frequently asked questions
Punitive damages, also known as exemplary damages, are damages assessed to punish the defendant for outrageous conduct and to deter similar conduct in the future.
Punitive damages are generally not awarded for breach of contract. However, in rare instances, punitive damages may be awarded if an independent tort is committed in a contractual setting and the conduct was particularly egregious.
Punitive damages may be awarded in a contract lawsuit when the case involves insurance bad faith violations or when there are tort and contract crossover issues, where the tort portion causes a bigger problem.
The amount of punitive damages awarded varies depending on the circumstances of the case, the statutes enacted in a particular state, and the other damages awarded. Many states have a percentage limit on punitive damages, such as California, which limits punitive damages to 10% of the defendant's entire worth.
Yes, there are several other types of damages that may be awarded for breach of contract, including compensatory damages, incidental damages, and consequential damages. Compensatory damages aim to compensate the non-breaching party for financial losses suffered as a direct result of the breach. Incidental damages cover immediate costs incurred due to the breach, such as transportation or inspection costs for defective goods. Consequential damages refer to significant, situation-specific losses, such as lost profits or damaged reputation.
