Punitive damages are issued in order to punish the defendant, as well as to deter them and others from committing the same type of conduct again in the future.

These are additional damage amounts that are issued on top of the normal compensatory damages award for losses of profit. Punitive damages are usually decided according to individual states’ statutes, or sometimes by case law in an individual state.

In some cases, the punitive damages can be very high, especially if the defendant’s conduct was particularly terrible and purposeful. While there is no dollar amount set as a maximum for punitive damages, the U.S. Supreme Court has issued decisions which limit punitive damages amounts.

When one party to a contract does not perform according to the contracts terms, there is a breach of contract. In a breach of contract claim, normally, only compensatory (compensating for actual loss based on value of contract) damages are awarded, and punitive damages are generally not awarded at all.

This is because the court is assuming that the parties are entering into the agreement with “open eyes,” meaning that they are fully aware of the risks involved in the contract. There are, however, limited circumstances in which a punitive damages award may result in a contracts action.

When are Punitive Damages Issued in a Contract Claim?

Punitive damages can sometimes be issued in claims involving:

  • Insurance Bad Faith Violations: when an insurance company contracts for a policy, they are bound by the “Covenant of Good Faith and Fair Dealing.” The policy owner pays a premium, and they are entitled to the insurance company’s reasonable effort to act in good faith. If the company acts in bad faith, they may be liable for punitive damages.
  • Certain Cases Involving Tort/Contract Crossover Issues: if, in a contractual setting, an independent tort is committed with intent (as opposed to negligence) or recklessness, which results in harm, punitive damages may be awarded.
  • Certain Fraud Cases: it is always based on the facts of the case, but any situation where there is purposeful and “egregious” fraud,

In most cases, the defendant’s conduct needs to be so “severe and egregious” that it can be considered more of a tort case than a contract issue. That is, the contract and tort issues are usually intertwined in cases resulting in punitive damages.

How are Punitive Damages Measured?

The amount of punitive damages issued may depend on other damage awards, such as a compensatory damages award for losses.

The amount may vary depending on the case, and also depending on state law. Some punitive damages limits may be set by statutory regulation.

Should I Hire a Lawyer for Help with Punitive Damages and Other Contract Issues?

Dealing with contract damages can be quite difficult at times. This becomes even more complex if punitive damages and tort issues are also involved.

You may wish to hire a local business lawyer for representation on such issues as these. Your attorney can provide you with legal guidance on the matter, and can explain your rights under state and federal laws.