Punitive Damages for Breach of Contract

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 What are Punitive Damages for a Breach of Contract Claim?

In general, punitive damages are issued by a court when the defendant commits a wrong that is so outrageous that it requires more than the typical fine associated with that wrongdoing.

These types of damages are meant to both punish the defendant for their actions and to deter them, as well as others, from carrying out the same sorts of illegal activities again in the future.

Punitive damages are typically assigned to a defendant as a supplemental amount of fees that gets added to their normal compensatory damages that they are already required to pay to a successful plaintiff. Also, the amount of punitive damages is usually set by the individual statutes enacted by each state, or sometimes by the individual case law of a state.

In some instances, the amount of punitive damages the defendant has to pay can be very high. This is especially true in cases where the defendant’s conduct was particularly terrible and intentional.

While there is no actual dollar amount set out by the law that provides the maximum cost of punitive damages, the Supreme Court of the United States has issued decisions limiting punitive damages amounts.

The damages for a breach of contract case may vary for similar reasons as well. A breach of contract occurs when a party to the contract does not perform according to the terms of the parties’ agreement.

Specifically, in a breach of case, the plaintiff is normally only awarded compensatory damages (i.e., money damages for the actual loss suffered based on the value of the contract), and punitive damages are generally not awarded at all.

The reason for this is because the court assumes that the parties are entering into their agreement with “open eyes”, meaning that they are fully aware of the risk they are undertaking by entering into a contract with each other. There are some limited circumstances, however, for which punitive damages may be awarded as a result of a contracts action.

One final thing to note about punitive damages is that they are rarely ever awarded and they are extremely difficult to argue for as a plaintiff.

When are Punitive Damages Issued for a Contract Claim?

There are several instances where it may be appropriate for a court to issue punitive damages as part of a contract lawsuit. Some of these scenarios include when the claims involve the following issues:

  • Insurance Bad Faith Violations: When an insurance company contracts for a policy, they are bound by an implied promise that is known as the “covenant of good faith and fair dealing.”
    • This means that the policy owner is required to pay a premium, which will entitle them to receive the insurance company’s reasonable efforts to act in good faith. If the company acts in bad faith against the policy owner, then they may be held liable for punitive damages.
  • Some Cases Involving Tort and Contract Crossover Issues: If during a situation that involves contracts, a party intentionally commits an independent tort (as opposed to negligently or recklessly committing a tort) and that tort leads to an injury or other harm to a party, then punitive damages may be awarded.
  • Cases Relating to Certain Fraud Claims: Although this type of scenario will always depend on the facts of an individual case, if there is a situation that involves both contracts and purposeful or “egregious” fraud, then punitive damages may be awarded as well.

In most cases that result in punitive damages, the defendant’s conduct needs to be so “severe and egregious” that their actions would amount to more of a tort case rather than a contract issue.

In other words, where contract and tort issues are so intermingled and the tort portion causes a bigger problem, the outcome of the case will most likely involve punitive damages.

How are Punitive Damages Measured?

As discussed above, the amount of punitive damages issued may depend on the circumstances of the case as well as the statutes enacted in a particular state. The amount might also be contingent on the other damages awards, such as the amount of compensatory or monetary damages.

In addition to the limits set out by the decisions issued by the U.S. Supreme Court, there may also be local or state regulations that place certain limits on the amount of punitive damages that can be awarded.

Many states have a percentage limit, for example, the courts in California find that punitive damages cannot be more than 10% of the defendant’s entire worth (considering debt and assets). Other states have actual laws in place that limit the maximum amount of punitive damages. Before you request punitive damages, make sure that you check with a lawyer to find out the maximum amount allowed by law.

Do I Need to Hire a Lawyer for Help with Punitive Damages and Other Contract Issues?

Whether you are the defendant who has to pay or the plaintiff requesting the award, handling the portion of a contracts case that deals with damages can sometimes pose particular challenges. A matter might become even more complex when punitive damages and tort issues are involved.

Thus, if you are a party to a contract case that involves punitive damages, then you should consider hiring a local contract lawyer for further assistance with such issues.

An experienced contract lawyer can provide legal guidance throughout the different stages of your case and can also ensure that you are receiving the proper damages you deserve, or if you are the defendant, are asserting any defenses that you may have available.


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