Punitive Damages in Contract Law: Everything You Need to Know
Punitive damages are also referred to as exemplary damages and are only one type of award given to the plaintiff. 3 min read
2. Examples of Punitive Damages
3. Other Factors Used to Determine Punitive Damages
Punitive Damages in Contract Law
Punitive damages in contract law are monetary damages awarded to a plaintiff to punish the defendant and prevent him from engaging in the same conduct at any point in the future. Punitive damages are also referred to as exemplary damages and are only one type of award given to the plaintiff. An additional damage could include compensatory damages for the damage done by the defendant to the plaintiff.
Punitive damages are generally awarded on top of the compensatory or other types of damages; this could ultimately increase the plaintiff’s reward significantly. However, with that said, there are some rules in place for such damages. The judge can’t simply award any amount of punitive damages that she sees fit. Punitive damages are generally awarded if:
- The compensatory damages are inadequate
- The defendant’s conduct was egregious
As an example, a breach of contract claim will not usually award punitive damages. The reason for this is because the court is assuming that both parties are entering into the contract fully aware of the risks. With that said, if a plaintiff brings a legal suit against an insurance company and can prove that the defendant breached its requirement of good faith and fair dealing, then the plaintiff might be awarded punitive damages in this type of breach of contract claim.
The court might also award punitive damages if no actual damages are available to the plaintiff. Generally, you’ll see these damages awarded in tort cases, i.e. personal injury, assault, product liability, etc.
While such damages are common in these types of cases, the damages will rarely be in the millions of dollars. According to research conducted by the U.S. Department of Justice, roughly 2% of tort cases involve punitive damages, and the average amount awarded is $50,000.
Examples of Punitive Damages
A prime example of when punitive damages might be awarded involves a contract between a customer and manufacturer. Let’s assume that the manufacturer of a dietary pill promises that the pill is a safe method of losing weight. A customer chooses to purchase a bottle of the pills, and after taking the pills or a week, suddenly becomes ill. Her doctor has indicated that an ingredient in the pill reacts negatively with certain prescription medications, particularly one that the customer was currently prescribed.
Nowhere on the manufacturer’s website or the packaging does the company state that the ingredients in the weight loss pills interact with any other medication. The customer has incurred approximately $50,000 in medical bills, including a lengthy hospital stay. She brings a legal suit against the manufacturer to collect on the medical expenses, along with lost wages for being out of work for a number of weeks.
The argument here is that the manufacture knew or should have known that the ingredients in its weight loss pill could interact negatively with other medication, whether prescribed or over-the-counter. Thus, the company should have provided some sort of textual warning on its packaging and website. The judge then rules in the customer’s favor, awarding her compensatory damages for the medical bills and lost wages. While the compensatory damages cover her bills and lost wages, the court also awards her punitive damages totaling $200,000 to primarily serve as punishment for the manufacturer, ensuring the company will not continue selling the weight loss pills without providing a warning to potential consumers of such negative medical interactions.
Other Factors Used to Determine Punitive Damages
The court will use several factors when determining whether or not to award punitive damages, such as:
- How egregious the defendant’s actions were
- Whether similar legal suits ended in awarding punitive damages
- The difference in the plaintiff’s injuries and losses with the amount of damages being requested, i.e. will the compensatory damages cover such losses?
The court will also look at additional factors when, after determining punitive damages are appropriate, just how much should be awarded to the plaintiff. Such factors include:
- If it is difficult to place a value on the type of harm done to the plaintiff
- If the injuries are difficult to detect, or what type of continued medical care is necessary due to the defendant’s actions
- How offensive the defendant’s actions were against the plaintiff
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