Litigating Contract Damages
Counsel in a common law breach of contract action should understand the types of damages that may be available to a prevailing plaintiff and how the law or parties may limit the amount or type of damages that the plaintiff can recover.
Tom Witz, Practical Law
This is an excerpt, published on March 1, 2023.Access the complete, regularly updated version on Practical Law→
Damages are an essential part of any breach of contract claim. Understanding the monetary value of the client’s claim is just as important as understanding the elements or likelihood of success of that claim. This article explains the types of damages that may be available for a breach of contract and the limitations that may apply to the amount or type of damages a prevailing plaintiff can recover.
(For more on breach of contract damages, including calculating and proving damages, and additional types of monetary relief that may be available to a prevailing plaintiff in a breach of contract action, see Litigating Contract Damages on Practical Law.)
Types of Contract Damages
There are various types of damages that may be available in a common law breach of contract action. Courts may award:
- General (or direct) compensatory damages.
- Consequential (or special) damages.
- Liquidated damages.
- Tort-based damages.
- Nominal damages.
General (or Direct) Compensatory Damages
General (or direct) damages flow naturally and directly from, or are the natural and probable consequence of, a breach of contract. They arise from the usual course of events of the breach itself, meaning their occurrence is predictable enough at the time of contracting that the parties are deemed to have contemplated them. (Bi-Economy Mkt., Inc. v. Harleysville Ins. Co. of N.Y., 856 N.Y.S.2d 505, 508 (2008); Keystone Airpark Auth. v. Pipeline Contractors, Inc., 266 So.3d 1219, 1222 (Fla. 1st DCA 2019).)
General damages typically fall into one of three categories:
- Expectancy (or benefit-of-the-bargain) damages.
- Reliance (or out-of-pocket) damages.
- Restitution (or value of the benefit conferred). (Cal. Civ. Code § 3300; see Atrium Med. Ctr., LP v. Houston Red C LLC, 595 S.W.3d 188, 193 (Tex. 2020); Lewis Jorge Constr. Mgmt., Inc. v. Pomona Unified Sch. Dist., 34 Cal. 4th 960, 968 (2004).)
Understanding the monetary value of the client’s claim is just as important as understanding the elements or likelihood of success of that claim.
Expectancy damages, sometimes called expectation or benefit-of-the-bargain damages, give to the injured party the benefit of the negotiated bargain. Courts generally accomplish this by awarding money damages that put the plaintiff in the position it would have been if the parties had fully performed the contract. Expectancy damages capture the gain the plaintiff would have realized if the defendant had not breached. (See, for example, Leaf Invenergy Co. v. Invenergy Renewables LLC, 210 A.3d 688, 695 (Del. 2019); Goldstein Constr. Corp. v. City of New York, 590 N.Y.S.2d 425, 429 (1992); Anthony’s Pier Four, Inc. v. HBC Assocs., 583 N.E.2d 806, 823-24, 829 (Mass. 1991); Speirs v. BlueFire Ethanol Fuels, Inc., 243 Cal. App. 4th 969, 989 (2015); Powers v. Delnor Hosp., 135 Ill. App. 3d 317, 322 (1985); Restatement (Second) of Contracts § 347, cmt. a; 24 Williston on Contracts §§ 64:2-64:3 (4th ed.).)
Reliance damages, sometimes called out-of-pocket damages, seek to put the plaintiff in the position it would have been had the contract never existed (Summit Props. Int’l, LLC v. Ladies Prof’l Golf Ass’n, 2010 WL 4983179, at *5 (S.D.N.Y. Dec. 6, 2010); Atrium Med. Ctr., LP, 595 S.W.3d at 193; Shovel Transfer & Storage, Inc. v. Pa. Liquor Control Bd., 739 A.2d 133, 140 (Pa. 1999)). Courts do this by awarding damages that compensate the plaintiff for expenses incurred from relying on the defendant’s promises.
Reliance damages may include:
- Reasonable and foreseeable expenses the plaintiff incurred in partially performing the contract (see, for example, Summit Props. Int’l., LLC, 2010 WL 4983179, at *5; St. Lawrence Factory Stores v. Ogdensburg Bridge & Port Auth., 889 N.Y.S.2d 534, 535-36 (2009) (stating that reliance damages include expenditures made in performing the contract)).
- Expenditures the plaintiff made in preparing to perform the contract (see, for example, St. Lawrence Factory Stores, 889 N.Y.S.2d at 535-36 (holding that reliance damages include efforts to arrange financing and obtain tenants); Shovel Transfer & Storage, Inc., 739 A.2d at 140 (finding that reliance damages include money spent to purchase and renovate a warehouse to fulfill future contract obligations)).
- Losses resulting from missed opportunities (Copeland v. Baskin Robbins U.S.A., 96 Cal. App. 4th 1251, 1263-64 (2002)).
- Future lost wages or income (Toscano v. Greene Music, 124 Cal. App. 4th 685, 692-93 (2004)).
- Other efforts the plaintiff expended or changes in the plaintiff’s position made in reliance on the contract (Shovel Transfer & Storage, Inc., 739 A.2d at 140-41). (Restatement (Second) of Contracts § 349.)
A plaintiff often seeks reliance damages where proof of the plaintiff’s expectation interest is speculative, not reasonably certain, or unable to be measured (Brennan v. Carvel Corp., 929 F.2d 801, 810-11 (1st Cir. 1991) (applying Massachusetts law); Restatement (Second) of Contracts §§ 347, 349). This may occur where, for example, a seller breaches a real estate sales contract and the buyer cannot prove expectancy damages because the market value of the property (while likely to rise significantly in the future) did not exceed the contract price at the time of breach. In this situation, a plaintiff may not recover expectancy damages but may recover reliance damages for money spent in preparing to perform its contractual obligations, like money spent to arrange financing and obtain tenants. (Brennan, 929 F.2d at 811; see, for example, St. Lawrence Factory Stores, 889 N.Y.S.2d at 535-36.)
Restitution damages generally permit a plaintiff to recover the reasonable value of any benefit the plaintiff gave to the defendant because of the parties’ contract. Like reliance damages, restitution is designed to put the plaintiff back in the position it had been before the parties’ contract (Ocean Commc’ns, Inc. v. Bubeck, 956 So.2d 1222, 1225 (Fla. 4th DCA 2007)). However, restitution and reliance damages differ in that:
- Restitution generally requires the defendant to return money (such as a down payment) or other item of value that the plaintiff gave the defendant with the expectation that the defendant would perform its contractual obligations.
- Reliance damages compensate the plaintiff for expenditures (such as travel expenses) it incurred from relying on the defendant’s promises. Reliance damages are recoverable even where the plaintiff’s losses did not benefit the defendant. (See Raintree Homes, Inc. v. Vill. of Long Grove, 209 Ill. 2d 248, 257-58 (2004); Williston on Contracts § 64:5 (4th ed. 2020).)
Restitution may include, for example:
- The return of any payment made in consideration for a contract (Farman v. Deutsche Bank Nat’l Trust Co., 311 So.3d 191, 196 (Fla. 2d DCA 2020); Hart v. Arnold, 884 A.2d 316, 337 (Pa. Super. 2005)).
- The return of fees paid in excess of the agreed-on contract price (Beck v. Moishe’s Moving & Storage, Inc., 641 N.Y.S.2d 517, 520 (Sup. Ct. Cortland Co. 1995)).
- The return of a down payment made in support of an oral contract to purchase land that violates the statute of frauds (Wilson v. Parker, 227 A.3d 343, 354-55 (Pa. Super. 2020); Restatement (Second) of Contracts § 375).
Consequential (or Special) Damages
In certain situations, a plaintiff may recover consequential (or special) damages for breach of contract. Consequential damages are indirect damages that are not likely to occur in the usual course of events. They are derivative or secondary losses that arise not directly from the defendant’s breach, but from circumstances that are particular to the parties or their contract. To be recoverable, consequential damages must have been foreseen and reasonably within the parties’ contemplation as a probable result of a breach at the time they agreed to contract. (Bi-Economy Mkt., Inc., 856 N.Y.S.2d at 508; Lewis Jorge Constr. Mgmt., Inc., 34 Cal. 4th at 968-70; Keystone Airpark Auth., 266 So.3d at 1222-23.)
Consequential damages may include things like business interruption losses, lost customers, or losses resulting from the inability to fulfill a collateral contract with a third party (Bi-Economy Mkt., Inc., 856 N.Y.S.2d at 509; Certain Underwriters at Lloyd’s v. BioEnergy Dev. Grp. LLC, 115 N.Y.S.3d 240, 240-41 (1st Dep’t 2019); Keystone Airpark Auth., 266 So.3d at 1222-23). In cases where an insurer breaches an insurance contract, for example, consequential damages may include damages for the demise of a business resulting from the inability to reopen because of the insurer’s delay in timely investigating, adjusting, and paying a claim for business interruption loss coverage. The inability to reopen is a reasonably foreseeable consequence of an insurer’s failure to pay business interruption losses. (Bi-Economy Mkt., Inc., 856 N.Y.S.2d at 510-11.)
Consequential damages may include things like business interruption losses, lost customers, or losses resulting from the inability to fulfill a collateral contract with a third party.
Liquidated damages are a predetermined amount of money that the parties set out in their contract estimating the amount of damages likely to result if one party breaches (Truck Rent-A-Center, Inc. v. Puritan Farms 2nd, Inc., 393 N.Y.S.2d 365, 368 (1977); Vitatech Int’l, Inc. v. Sporn, 16 Cal. App. 5th 796, 805-06 (2017); Dotson v. Cogswell, 2010 WL 437983, at *3 (Mass. App. Div. Feb. 4, 2010)). Parties often include liquidated damages in their contracts where it is difficult, if not impossible, to calculate accurately the damages a nonbreaching party may incur in case of a breach.
Courts typically enforce liquidated damages clauses where:
- The harm likely to be caused by a breach is impossible or difficult to estimate.
- The amount set out in the clause is a reasonable forecast of just compensation in the event of a breach. If not, the clause may be considered a penalty, which is unenforceable under the law.
- The clause is not unconscionable or contrary to public policy. (Cal. Civ. Code §§ 1670.5 and 1671(b); Atrium Med. Ctr., LP, 595 S.W.3d at 192; NPS, LLC v. Minihane, 886 N.E.2d 670, 673 (Mass. 2008); JMD Holding Corp. v. Congress Fin. Corp., 795 N.Y.S.2d 502, 507 (2005).)
Some jurisdictions have different or additional elements for the enforcement of a liquidated damages clause. Illinois, for example, also requires a plaintiff to prove that the parties intended to agree in advance to the settlement of damages that may arise from a breach (GK Dev., Inc. v. Iowa Malls Fin. Corp., 2013 IL App (1st) 112802, ¶ 49).
Although it is rare, a plaintiff may sometimes obtain tort-based damages in a breach of contract case (Sommer v. Fed. Signal Corp., 583 N.Y.S.2d 957, 960-62 (1992); Acadia, Cal., Ltd. v. Herbert, 54 Cal. 2d 328, 336 (1960); but see Robinson Helicopter Co. v. Dana Corp., 34 Cal. 4th 979, 988 (2004); Elec. Waste Recycling Grp., Ltd. v. Andela Tool & Mach., Inc., 968 N.Y.S.2d 765, 767 (4th Dep’t 2013)).
Tort damages may be available in a breach of contract action where the defendant:
- Violates a legal duty completely independent of the contract, such as where:
- the defendant’s breach is accompanied by a common law tort, like fraud or conversion (Freeman & Mills, Inc. v. Belcher Oil Co., 11 Cal. 4th 85, 105 (1995) (concurring op.); for more information, see Asserting Fraud Claims in a Breach of Contract Case on Practical Law);
- the defendant fraudulently induces the plaintiff to agree to contract terms (Erlich v. Menezes, 21 Cal. 4th 543, 552 (1999)); or
- the defendant uses tortious means to breach the contract, like deceit or coercion (Freeman & Mills, Inc., 11 Cal. 4th at 105 (concurring op.)). (Erlich, 21 Cal. 4th at 551; Sommer, 583 N.Y.S.2d at 962.)
- Intentionally breaches the contract, often accompanied by willful, egregious, or abusive behavior, causing physical or mental harm to the plaintiff or harm to the plaintiff’s property (Erlich, 21 Cal. 4th at 551-52; Freeman & Mills, Inc, 11 Cal. 4th at 105 (concurring op.); Brown v. Gov’t Emps. Ins. Co., 66 N.Y.S.3d 733, 736 (3d Dep’t 2017); Elec. Waste Recycling Grp., Ltd., 968 N.Y.S.2d at 767).
- Violates a social policy that merits imposing tort remedies, such as where:
- there is a special relationship between the contracting parties, most often where an insurer breaches the contract or the implied duty of good faith and fair dealing (see, for example, Ash v. Cont’l Ins. Co., 593 Pa. 523, 535-36 (2007); Opperman v. Nationwide Mut. Fire Ins. Co., 515 So.2d 263, 266-67 (Fla. 5th DCA 1987)); or
- the plaintiff is wrongfully discharged in violation of fundamental public policy (Erlich, 21 Cal. 4th at 552). (Sommer, 583 N.Y.S.2d at 961.)
Several jurisdictions do not permit a plaintiff to recover both tort and contract damages for the same loss and therefore the plaintiff must elect to proceed under tort or contract (Acadia, Cal., Ltd., 54 Cal. 2d at 336-37). A benefit to electing tort-based damages over contract damages is that a plaintiff entitled to tort-based damages for breach of contract may recover damages that typically are not available in breach of contract cases, such as damages for emotional or mental distress and punitive damages (Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 581 (1973); Archdale v. Am. Int’l Specialty Lines Ins. Co., 154 Cal. App. 4th 449, 466-68 (2007); D’Ambrosio v. Pa. Nat’l Mut. Cas. Ins. Co., 396 A.2d 780, 784-85 (Pa. Super. 1978) (collecting cases from other jurisdictions)).
In certain cases, courts may award nominal damages to a prevailing plaintiff for breach of contract. Nominal damages are a trivial amount of money intended to vindicate the plaintiff’s contract rights where, for example:
- The defendant’s breach did not cause actual losses (Cal. Civ. Code § 3360; MBM Fin. Corp. v. Woodlands Operating Co., 292 S.W.3d 660, 664-65 (Tex. 2009); McWeeney v. Lambe, 30 N.Y.S.3d 189, 190 (2d Dep’t 2016)).
- The plaintiff proves a breach but cannot prove the extent or amount of its losses with reasonable certainty (MBM Fin. Corp., 292 S.W.3d at 665; Nappe v. Anschelewitz, Barr, Ansell & Bonello, 97 N.J. 37, 48 (1984); Freund v. Wash. Square Press, Inc., 357 N.Y.S.2d 857, 861-62 (1974); Wilson v. Univ. Cmty. Hosp., Inc., 101 So.3d 857, 858-59 (Fla. 2d DCA 2012)).
- The defendant committed a nonmaterial breach of the contract (Pacini v. Regopoulos, 281 Ill. App. 3d 274, 279 (1996); Metro. Nat’l Bank v. Adelphi Acad., 2009 WL 1477998, at *3 (Sup. Ct. Kings Co. May 27, 2009); 23 Williston on Contracts (4th ed.) § 63:3).
One dollar is the typical nominal damages award (MBM Fin. Corp., 292 S.W.3d at 665 (holding that $1,000 is not nominal damages); Page v. New England Tel. & Tel. Co., 418 N.E.2d 1217, 1218 (Mass. 1981) (holding that $10,000 is not nominal damages); McMahan v. McMahan, 38 N.Y.S.3d 728, 735 (Sup. Ct. Westchester Co. 2016) (awarding nominal damages of $1)).
A plaintiff may question whether it is worthwhile to bring a breach of contract claim where the only possible recovery is nominal damages. Depending on the circumstances, bringing the suit may be worthwhile because an award of nominal damages can vindicate contract rights, compel future performance, establish the plaintiff as the prevailing party, result in monetary awards for the costs incurred in resolving the dispute, and define the parties’ future contractual rights and obligations for the remainder of the contract term (see, for example, Loughlin v. Meghji, 132 N.Y.S.3d 65, 73-74 (2d Dep’t 2020); Belle Terre Ranch, Inc. v. Wilson, 232 Cal. App. 4th 1468, 1476 (2015); Jones v. Rempert, 2012 IL App (2d) 110208-U, ¶ 27).
Limitations on Contract Damages
The law or the parties may limit the amount or type of damages a plaintiff can recover in breach of contract actions. A plaintiff generally may not recover damages where, for example:
- The parties expressly agree in their contract to preclude or limit certain types of damages.
- The plaintiff fails to cover or mitigate the amount of its damages.
- The damages are speculative or not supported by the evidence.
- The damages award results in double or duplicative recoveries.
- The damages are punitive in nature.
Damages Precluded or Limited by Contract
Parties may contractually agree to disclaim liability for certain damages, such as consequential damages, reliance damages, or lost profits (see, for example, WeBoost Media S.R.L. v. LookSmart Ltd., 2014 WL 824297, at *6 (N.D. Cal. Feb. 28, 2014); Empire One Telecomms., Inc. v. Verizon N.Y., Inc., 888 N.Y.S.2d 714, 722-23 (Sup. Ct. Kings Co. 2009)).
Duty to Mitigate
A breach of contract plaintiff generally has a common law duty to mitigate its damages (also known as cover or the avoidable consequences doctrine) (Holy Props. Ltd. v. Kenneth Cole Prods., Inc., 637 N.Y.S.2d 964, 966 (1995); Healy v. Hagberg, 2020 WL 5734248, at *3 (Mass. App. Ct. Aug. 14, 2020); Mack-Cali Realty, L.P. v. Everfoam Insulation Sys., Inc., 972 N.Y.S.2d 310, 312 (2d Dep’t 2013); Forbes v. Prime Gen. Contractors, Inc., 255 So.3d 448, 452 (Fla. 2d DCA 2018)). This duty precludes a plaintiff from recovering damages that could reasonably have been avoided without undue risk, harm, or humiliation. A plaintiff must mitigate as soon as it has reason to know that the defendant intends not to perform the contract. (Royal Thrift & Loan Co. v. Cty. Escrow, Inc., 123 Cal. App. 4th 24, 33 (2004); Ingraham v. Trowbridge Builders, 297 N.J. Super. 72, 82-83 (App. Div. 1997); Grill v. Adams, 123 Ill. App. 3d 913, 921 (1st Dist. 1984); Restatement (Second) of Contracts § 350.)
- Be aware that failure to mitigate is typically raised as a defense.
- Understand what evidence the plaintiff can offer to defeat a failure to mitigate defense.
- Consider the interplay between mitigation and liquidated damages clauses.
Raised as a Defense
Failure to mitigate becomes an issue only where the defendant raises it as a defense, which a defendant typically does as an affirmative defense in an answer. The defendant therefore has the burden of proving a failure to mitigate (Cornell v. T.V. Dev. Corp., 268 N.Y.S.2d 29, 33 (1966); Agam v. Gavra, 236 Cal. App. 4th 91, 112 (2015); Mullins v. Corcoran, 2018 WL 2049365, at *2 (Mass. Super. Mar. 27, 2018)). Once the defendant raises the defense, it must prove facts supporting it. In some jurisdictions, for example, the defendant would have to show the extent to which the plaintiff’s efforts, had they been taken, would have reduced the damages. (LaSalle Bank Nat’l Ass’n v. Nomura Asset Cap. Corp., 846 N.Y.S.2d 95, 99 (1st Dep’t 2007).)
A defendant that proves failure to mitigate is entitled to offset any damages award by the amount the plaintiff could have saved if it had mitigated its losses (Ingraham, 297 N.J. Super. at 83; Washington Courte Condo. Ass’n — Four v. Washington — Golf Corp., 267 Ill. App. 3d 790, 822 (1st Dist. 1994); Juvenile Diabetes Rsch. Found. v. Rievman, 370 So.2d 33, 36-37 (Fla. 3d DCA 1979); Restatement (Second) of Contracts § 350).
Rebutting the Defense
A plaintiff can often defeat a failure to mitigate defense by offering evidence that, for example:
- The plaintiff took affirmative steps, within a reasonable time after the defendant’s breach, to ameliorate damages, by:
- stopping its own performance;
- attempting to convince the defendant to perform its obligations; or
- arranging or attempting to arrange a substitute transaction with a third party. (Ingraham, 297 N.J. Super. at 83; Restatement (Second) of Contracts § 350.)
- The defendant had an equal opportunity to reduce damages by the same acts it alleges the plaintiff failed to perform, but the defendant did not perform those acts (Korea Life Ins. Co. v. Morgan Guar. Trust Co. of N.Y., 2004 WL 1858314, at *8 (S.D.N.Y Aug. 20, 2004); Ingraham, 297 N.J. Super. at 83).
- The steps required to mitigate damages:
- were unreasonable, impractical, or beyond the plaintiff’s financial means to perform;
- were likely to result in other serious loss; or
- required expenditures disproportionate to the loss sought to be avoided. (Royal Thrift & Loan Co., 123 Cal. App. 4th at 33; Forbes, 255 So.3d at 452.)
- The plaintiff did not take action to mitigate because the defendant assured the plaintiff that its performance was forthcoming (Restatement (Second) of Contracts § 350, cmt. g).
Mitigation and Liquidated Damages Clauses
Most jurisdictions hold that mitigation is irrelevant and should not be considered when a liquidated damages clause applies. The rationale is that liquidated damages contemplate the parties’ inability to estimate the likely damages resulting from a breach and therefore the nonbreaching party cannot be expected to identify those damages and mitigate them. (See, for example, NPS, LLC, 886 N.E.2d at 675; Cady v. IMC Mortg. Co., 862 A.2d 202, 219 (R.I. 2004) (applying Florida law); Lake Ridge Acad. v. Carney, 613 N.E.2d 183, 190 (Ohio 1993); Forty Pine, LLC v. Country Bank for Sav., 2019 WL 1768949, at *5 (Mass. App. Ct. Apr. 22, 2019); Fed. Realty Ltd. P’ship v. Choices Women’s Med. Ctr., Inc., 735 N.Y.S.2d 159, 162 (2d Dep’t 2001); Musman v. Modern Deb, Inc., 377 N.Y.S.2d 17, 19 (1st Dep’t 1975).)
However, some jurisdictions consider mitigation efforts when deciding whether to enforce a liquidated damages clause. This situation most often arises when the party contesting enforcement claims that the amount set out in the clause is disproportionate to the actual damages suffered. (See, for example, Days Inn Worldwide, Inc. v. Sonia Invs., 2006 WL 3103912, at *7-8 (N.D. Tex. 2006); Atrium Med. Ctr., LP, 595 S.W.3d at 197; Wasserman’s Inc. v. Twp. of Middletown, 137 N.J. 238, 257-58 (1994).)
Courts in these jurisdictions adjust actual damages by the amount the plaintiff could have mitigated, and then compare them to the amount set out in the liquidated damages clause. For example, a court may find a liquidated damages clause unenforceable if the clause provides for $1 million in damages, but the plaintiff could have mitigated those losses to $1,000 and failed to do so. The contesting party in these jurisdictions should be prepared to offer evidence as to the specific dollar amount of actual damages suffered and the amount by which the plaintiff could have reduced them by mitigation. (Days Inn Worldwide, Inc., 2006 WL 3103912, at *7-8.)
Most jurisdictions hold that mitigation is irrelevant and should not be considered when a liquidated damages clause applies.
Courts generally determine the reasonableness of a liquidated damages clause as a matter of law. However, the amount of actual damages sustained and the amount by which the plaintiff could have mitigated them typically are fact questions that must be resolved before a court can determine the legal question. (Jacobson v. Prodel, 2019 WL 3720637, at *3-4 (Tex. App.—Texarkana Aug. 8, 2019); Garden Ridge, L.P. v. Advance Int’l, Inc., 403 S.W.3d 432, 438-39 (Tex. App.—Houston [14th Dist.] 2013).)
Breach of contract damages may not be based on speculation or surmise. Damages must be measured and based on known reliable factors and proven with reasonable certainty. (See, for example, E.J. Brooks Co. v. Cambridge Sec. Seals, 80 N.Y.S.3d 162, 168 (2018); Ashland Mgmt. Inc. v. Janien, 604 N.Y.S.2d 912, 915-16 (1993); Schroeder v. Auto Driveway Co., 11 Cal. 3d 908, 921 (1974); Devon Med., Inc. v. Ryvmed Med., Inc., 60 So.3d 1125, 1128-29 (Fla. 4th DCA 2011).)
Courts often find claims for lost profits to be speculative when they involve a new business or product with little to no profit or sales history. Without a history from which to draw proof, a lost profits claim generally is based only on assumptions and projections, which courts have held to be too remote and not reliable factors on which to base a claim (see, for example, TAS Distrib. Co. v. Cummins Engine Co., 491 F.3d 625, 632-37 (7th Cir. 2007); Kenford Co. v. Cnty. of Erie, 67 N.Y.2d 257, 260-63 (1986)).
Double or Duplicative Damages
A plaintiff may not recover damages twice for the same loss. The amount awarded must make the plaintiff whole, neither more nor less. The plaintiff may not recover more from a breach than it would have received if the defendant had fully performed. (Contempo Design, Inc. v. Chi. & N.E. Il. Dist. Council of Carpenters, 226 F.3d 535, 553-54 (7th Cir. 2000); Freund, 357 N.Y.S.2d at 859-60; Devon Med., Inc., 60 So.3d at 1128.)
Double-recovery issues can manifest themselves in several different ways. For example, a plaintiff may not:
- Recover two or more distinct types of damages for the same exact loss (Yeng v. Zou, 407 S.W.3d 485, 491 (Tex. App.—Houston [14th Dist.] 2013); Fed. Realty Ltd. P’ship, 735 N.Y.S.2d at 161).
- Recover damages on two or more alternative contract-based theories of liability for the same loss (Gamesa Energy USA, LLC v. Ten Penn Ctr. Assocs., L.P., 217 A.3d 1227, 1234-35, 1238-39 (Pa. 2019); Dipizio Constr. Co. v. Niagara Frontier Transp. Auth., 968 N.Y.S.2d 288, 290 (4th Dep’t 2013)).
- Recover damages in tort and contract for the same loss (Island Travel & Tours, Ltd. v. MYR Indep., Inc., 2020 WL 1451990, at *3 (Fla. 3d DCA Mar. 25, 2020); eToll, Inc. v. Elias/Savion Advert., Inc., 811 A.2d 10, 14 (Pa. Super. 2002)).
- Recover damages that have already been recouped from another source, such as an insurer or another settling defendant (Inchaustegui v. 666 5th Ave. Ltd. P’ship, 725 N.Y.S.2d 627, 630-31 (2001); El Escorial Owners’ Ass’n v. DLC Plastering, Inc., 154 Cal. App. 4th 1337, 1359 (2007); City of Miami Beach v. Carner, 579 So.2d 248, 253-54 (Fla. 3d DCA 1991)).
However, certain damages awards would not constitute double recovery, such as where a plaintiff shows that:
- The two losses are based on different facts or conduct. A damages award for fraud is not duplicative of an award for breach of contract if, for example, the fraud award is based solely on the defendant’s extra-contractual conduct and the breach of contract award is based solely on the defendant’s failure to perform its express contractual obligations (D.K. Prop., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 92 N.Y.S.3d 231, 233-34 (1st Dep’t 2019)).
- The relief or damages sought for each theory of liability is different. Damages may not be duplicative where, for example, a court awards money damages for fraud and awards equitable relief (such as rescission or specific performance) for breach of contract (see, for example, Tavaglione v. Billings, 4 Cal. 4th 1150, 1158-59 (1993); D.K. Prop., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 74 N.Y.S.3d 469, 472-73 (Sup. Ct. New York Co. 2018), overruled on other grounds, 92 N.Y.S.3d 231 (1st Dep’t 2019); for more on equitable relief, see Equitable Remedies for Contract Actions on Practical Law).
A plaintiff generally may not recover punitive damages in a breach of contract action (Rocanova v. Equitable Life Assur. Soc., 612 N.Y.S.2d 339, 342-43 (1994); Ginsberg v. Gamson, 205 Cal. App. 4th 873, 896 (2012)). However, some jurisdictions permit the recovery of punitive damages for breach of contract where:
- The conduct constituting the breach is also an intentional tort (see, for example, Cmty. Consol. Sch. Dist. No. 169 v. Meneley Constr. Co., 86 Ill. App. 3d 1101, 1104 (4th Dist. 1980); Restatement (Second) of Contracts § 355).
- The plaintiff establishes that the defendant engaged in morally culpable conduct in violation of public policy, which the court determines must be deterred (Rocanova, 612 N.Y.S.2d at 342-43; Nicholas v. Miami Burglar Alarm Co., 339 So.2d 175, 178 (Fla. 1976); Desai v. Blue Shield of Ne. N.Y. Inc., 577 N.Y.S.2d 932, 934 (3d Dep’t 1991)).
Punitive damages also may be available where the conduct constituting the defendant’s breach rises to the level of gross negligence, recklessness, or other intentional wrong aimed at the public generally. For example, an insurance carrier may be subject to punitive damages where it breaches the contract and also:
- Threatens to pursue unjustified litigation, rather than pay under the policy, and inflict substantial costs on the public and parties.
- Misleads its insured about the insured’s legal rights.
- Has inadequate procedures to prevent its employees from making false and unsupported assertions.
- Dismisses its insured’s requests for further information and clarification about the costs and procedures of litigation as “not our problem.”
- Admits that it has no policy or standard operating procedure to resolve the plaintiff’s claim without litigation and was simply dedicated to stopping its insured from complaining. (Lindenberg v. Jackson Nat’l Life Ins. Co., 912 F.3d 348, 362 (6th Cir. 2018) (applying Tennessee law).)
Tom Witz joined Practical Law from Wilson Elser Moskowitz Edelman & Dicker LLP, where he was a litigation partner representing clients on product liability, professional liability, medical and dental malpractice, and commercial litigation matters at the trial and appellate levels. Previously he was an associate at Thorn Gershon Tymann & Bonanni, LLP and assistant counsel with the New York State Division of Parole.