The Supreme Court of Ohio recently held that punitive damages are not recoverable in a breach-of-contract lawsuit unless (1) the breach involves an independent tort, such as fraud and/or duress; and (2) the conduct that serves as the basis for the punitive award is limited to the harm attributable to the tort, which must be separate and distinct from the harm caused by the breach of contract.
In Lucarell v. Nationwide Mut. Ins. Co., Slip Opinion No. 2018-Ohio-15, a majority of the Court held that:
- Courts may not award punitive damages for a breach of contract.
- Seeking to enforce a contract as written or acting in accordance with a contract’s express terms is not a breach of the implied duty of good faith and fair dealing.
- A breach of the implied duty will only be found if a specific obligation imposed by the contract is breached.
- A fraud claim cannot be supported by predictions or projections that relate to future performance or that are made to third parties.
The Lucarell decision concerns an action filed by a former Nationwide Insurance agent claiming that Nationwide breached the independent contractor agreement between the parties. In recruiting Lucarell, Nationwide used a business projection model showing that she could earn commissions of $200,000 per year. Relying upon the representations made by Nationwide, Lucarell obtained a $200,000 loan from Nationwide to open her insurance agency.
After resigning, Lucarell sued Nationwide alleging both breach of contract and various torts including fraudulent misrepresentation, invasion of privacy, constructive discharge and retaliation. Supporting her breach of contract claim, Lucarell argued that Nationwide induced her to sign various agency agreements by misrepresenting sales data and promising her mergers with other agencies. She also claimed that she had “no choice” but to sign the agreements because Nationwide would have terminated her and made her loan due in full. The case went to trial where a jury found in favor of Lucarell and awarded punitive damages against Nationwide.
In reversing the punitive damage award, the Supreme Court reiterated that punitive damages could not be awarded on Lucarell’s breach of contract claim. The Court also concluded that Lucarell’s fraud claim was properly dismissed. The Court observed that in the absence of a viable underlying tort and damages solely related to the tort, punitive damages could not be awarded.
The Supreme Court of Ohio has long held that punitive damages are not recoverable in a breach of contract case. But over the years, some Ohio appellate courts have suggested that when the breach is accompanied by a separate but independent tort, punitive damages may be recoverable. In Lucarell, the Court clarified the law, finding that punitive damages may be available if the conduct constituting a breach of contract also constitutes a tort. Any punitive damages awarded as a result of this conduct, however, is limited to the harm attributable to the tort and must be separate from the harm caused by the breach of contract.
Lucarell is a valuable reminder that punitive damages are not available in a breach of contract claim. Only in those cases where the conduct constituting the breach of contract also constitutes a separate tort and the litigant can prove damages solely attributable to the independent tort, will punitive damages be recoverable. In defending such actions, practitioners are reminded to be mindful of the limited circumstances in which punitive damages are available and develop appropriate evidence to reduce the potential for a punitive damage award.
If you have any questions regarding the decision, the applicability of punitive damages in Ohio, or the rights and liabilities flowing from contractual relationships of any kind, please call one of our General Liability Practice Group Members.
This has been prepared for informational purposes only. It does not contain legal advice or legal opinion and should not be relied upon for individual situations. Nothing herein creates an attorney-client relationship between the Reader and Reminger. The information in this document is subject to change and the Reader should not rely on the statements in this document without first consulting legal counsel.
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