Insurance Case May Have Major Implications on Punitive Damage Awards in Ohio

July 27, 2017
By Kandis Sargeant

A case pending before the Ohio Supreme Court calls into question whether it is possible for punitive damages to be awarded in a breach of contract claim. The case, which involves an insurance agent and Nationwide Insurance, has the potential to change the landscape of not only the insurance industry, but businesses at large in Ohio. Oral arguments have been heard by the Ohio Supreme Court and a decision is anticipated soon.

Background on the case:
Christine Lucarell contracted with Nationwide as an independent exclusive agent through their Agency Executive Program. Through this program, Lucarell received a $260,000 loan from an affiliate bank to help her start her own business. Nationwide would waive some or all of the loan so long as Lucarell maintained certain minimum sales requirements.

After some time, Lucarell struggled to maintain the minimum sales requirements and modified her agreement with Nationwide twice. The first modification extended her $50,000 as well as provided assistance with her business plan revision. The second modification extended the time Lucarell had to meet production requirements and loan payments as well as provided additional cash.

Under both modifications, Lucarell released her right to sue in exchange for the benefits. Nationwide claims that after the second modified agreement, Lucarell stopped paying her rent, loan and payroll taxes and instead spent money lavishly on herself. Lucarell contends that under the second modification, Nationwide failed to keep their promise to allow her to merge her agency with two existing ones and combine their premiums to meet her minimum sales requirements.

She claims that the rules for calculating her sales goals were changed and that Nationwide had unfairly withheld commission as well as financing that was required to operate her business. Lucarell sued for breach of contract as well as separate tort claims alleging fraud and invasion of privacy. Nationwide filed a counterclaim for Lucarell’s failure to repay the loan. Lucarell subsequently added claims of retaliation and constructive discharge on the basis that Nationwide had made it impossible to operate under the new calculation rules and essentially forced her to resign.

The jury awarded Lucarell $42.8 million, which was subsequently reduced by the trial court to $14.2 million, $10.5 million of which were punitive damages. A directed verdict was granted to Nationwide on the fraud claims because no misrepresentation was found. Both sides appealed this trial court verdict.

The Seventh Circuit Court of Appeals found in favor of Nationwide with respect to the constructive discharge and retaliation claims. It affirmed the breach of contract claims but reduced Lucarell’s award to $2.38 million.

The court also reversed the directed verdict granted to Nationwide because it believed Lucarell had presented enough evidence to allow the question of fraud to be presented to the jury. In a somewhat surprising turn of events, the court also held that the release agreement signed between Lucarell and Nationwide could be defeated by her asserted prevention of performance defense. This is surprising in part because it is unusual for a prevention of performance defense to be applied to releases. Nationwide appealed the Court of Appeals verdict and the Ohio Supreme Court granted review.

Nationwide argues that the breach of contract claim should never have even been considered since Lucarell failed to present a valid reason for breaking the agreement. However, if the jury were to determine a breach occurred, Nationwide further contends that Ohio does not award punitive damages in breach of contract cases.

While not awarding punitive damages for breach of contract claims has been the tradition in Ohio, Lucarell asserts that certain exceptions have been granted when the breach is accompanied by a connected but independent tort claim involving fraud, malice or oppression. Lucarell contends that Nationwide’s actions with respect to the modification were malicious and fraudulent, which resulted in her inability to make her payments. Further, Lucarell argues that Nationwide cannot yet make the argument to bar punitive damages since the fraud claim has not yet been decided.

Ultimately, Nationwide would like for the Ohio Supreme Court to reverse the Seventh Circuit’s decision with respect to the breach of contract claim, fraud claim and prevention of performance defense. Unless the Ohio Supreme Court makes a drastic change in precedent, it is likely that in order for Lucarell to be awarded punitive damages, she will have to prove the fraud claim so that there is an independent yet connected tort claim involved with the breach of contract claim.

Nationwide argues that Ohio law does not permit a fraud claim, which is based on future projections unless those future projections are based on facts which were known to be false at the time they were presented. If Lucarell’s fraud claim is maintained, this could affect future negotiations that take place in the normal course of business. Release of liability provisions are added in a contract to encourage the parties to settle rather than undergo expensive litigation. If the prevention of performance defense can be asserted to a release, which would allow a lawsuit to go forward, businesses could be subject to litigation which they intentionally contracted around. Ohio law historically favors settlement outside the courtroom through non-litigious forums such as arbitration. A ruling here in favor of Lucarell could upend that tradition.

An amicus curiae brief supporting Nationwide’s position has been submitted jointly by the Ohio Insurance Institute, the Ohio Chamber of Commerce, the Ohio Alliance for Civil Justice, the Ohio Manufacturers’ Association and the National Association of Mutual Insurance Companies. OIA is a member of the Ohio Alliance for Civil Justice.

Bottom line: This ruling has the potential to change the landscape of not only the insurance industry, but businesses at large. A verdict in favor of Lucarell would have a drastic impact on the existing contract laws here in Ohio and would open them up to significant regulatory reform. OIA will inform members of the Ohio Supreme Court’s decision in this case as soon as it becomes available.

Also see:
Watch oral arguments and view detailed case information

Can punitive damages be awarded for breach of contract claim 


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Ohio Insurance Agents Association, Inc.
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