Ohio Supreme Court Rules That Punitive Damages Are Not Recoverable In Breach of Contract Lawsuits 

Timothy P. Heather, Esq.

On January 4, 2018, the Ohio Supreme Court issued its decision in Lucarell v. Nationwide, Slip Opinion No. 2018-Ohio-15. In that case, Lucarell sued Nationwide for breach of contract, fraudulent misrepresentation, invasion of privacy, retaliation, and constructive discharge, claiming that Nationwide had fraudulently and in bad faith induced her to open a new insurance agency when it intended to terminate her after she generated a profitable book of business.  Lucarell’s case proceeded to trial, and at the close of her case-in-chief, the trial court directed a verdict in favor of Nationwide on the fraud claim. However, the jury returned verdicts in Lucarell’s favor in excess of $42,000,000.00 in compensatory and punitive damages, holding that Nationwide had breached its contract with her, invaded her privacy, retaliated against her, and constructively discharged her.  The trial court applied the statutorily-mandated damages caps, and then entered judgment against Nationwide for more than $14,000,000.00 in compensatory and punitive damages.  Both sides appealed. 

In a majority decision authored by Justice Terrence O’Donnell, the Ohio Supreme Court reversed a judgment of the Seventh District Court of Appeals and clarified several provisions in the law regarding breach of contract lawsuits in which tort claims, such as fraud and duress, are alleged.  Specifically, the Syllabus of the Court, which becomes binding Ohio law, states verbatim: 

1.      Punitive damages are not recoverable in an action for breach of contract. (Ketcham v. Miller, 104 Ohio St. 372, 136 N.E. 145 (1922), paragraph two of the syllabus, approved and followed.)

2.      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.

3.      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.

4.      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.

5.      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.

6.      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.

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

The Court’s ruling vacates the judgment originally awarded by the Mahoning County Court of Common Pleas to Lucarell.  Now, her case goes back to the appeals court for further proceedings, consistent with the Court’s opinion.  The decision in this case will be an important guidepost for any bad faith claims filed against insurance companies arising out of an insurance company’s alleged breach of contract, such as an insurance policy. 

Timothy P. Heather, Esq., 300 Pike Street, Suite 500, Cincinnati, Ohio 45202 (513) 721-5672. www.byhlaw.com