Ohio Supreme Court Accepts Jurisdiction to Decide Punitive Damages and Prevention of Performance Issues in Nationwide Mut. Ins. Co. v. Lucarell

On July 27, 2016, the Ohio Supreme Court accepted for review an appeal filed by Nationwide Mutual Insurance Company (“Nationwide”) from a Seventh District Court of Appeals decision that it contends “fundamentally alters the law of contracts, fraud, and punitive damages in Ohio, affecting nearly every business transaction in the state.”[1] 

The underlying case transpired following the end of a business relationship between Nationwide and its former agent, Christine Lucarell (“Lucarell”). A Mahoning County Court of Common Pleas jury ultimately sided with Lucarell, awarding in excess of $40 million in compensatory and punitive damages, plus attorneys’ fees and costs. The trial court judge subsequently reduced the award to just over $14 million.  On appeal, the Seventh District reduced the monetary award further, to $2.3 million. Nationwide urged the Ohio Supreme Court to review the case to decide several fundamental issues raised in the appellate court decision. 

The Ohio Supreme Court is expected to clarify two critical issues that may affect future business transactions around the state, including:

• Availability of Punitive Damages For A Breach of Contract Claim: The Seventh District held the trial court improperly prevented the jury from determining whether Lucarell was entitled to receive punitive damages for her breach of contract claim.  The Seventh District’s opinion noted, “[h]ad the court allowed the fraud claim to go to the jury and had the jury returned a verdict in Lucarell’s favor, then the jury may have also awarded punitive damages on the breach of contract claims because she would be entitled to present her claim for punitive damages.”[2]
• In its petition to the Ohio Supreme Court, Nationwide asserted that the Seventh District’s holding – that punitive damages may be awarded on a breach of contract claim in addition to any punitive damages awarded for a tort – conflicts with almost 100 years of Ohio Supreme Court precedent, the Tort-Reform Act, and a host of other appellate districts’ decisions.[3]  Nationwide argues that “the opinion will create a sea change in Ohio law,” as it could potentially open the door to recovery of punitive damages for both an independent tort and a breach of contract claim. 
• Application of “Prevention of Performance” As A Defense To Executed Releases of Liability: Nationwide introduced two documents, a Memorandum of Understanding and a Modified AE Agreement, that were executed by Lucarell and which contained releases of liability against Nationwide. Nevertheless, in its decision, the Seventh District determined that Lucarell could assert that the prevention of performance doctrine as a defense that excused her performance of those written, executed releases. Nationwide urged the Ohio Supreme Court to accept jurisdiction “to make clear that absent some nonperformance-related defense—duress, lack of capacity etc.—a fully executed release is not unenforceable for ‘prevention of performance.’”[4]
• Nationwide argues that the defense is inapplicable when a releasing party executes a release, admits to having done so, and thereafter releases—and receives the benefits of—the release. Nationwide cautions that recognizing prevention of performance as a viable defense to a fully executed release would disrupt well-settled release law and leave released parties uncertain as to whether the release will later be subject to challenge.

The Association of Ohio Life Insurance Companies, National Association of Mutual Insurance Companies, Ohio Alliance for Civil Justice, Ohio Chamber of Commerce, Ohio Insurance Institute, and Ohio Manufacturers' Association all filed amicus curiae briefs urging the Ohio Supreme Court to accept jurisdiction and provide “clarity and consistency to Ohio law so that Ohio businesses can continue to go about their business to bring economic growth to the state of Ohio.”[5] Having accepted jurisdiction, the Ohio Supreme Court now must grapple with the availability of punitive damages in the context of a breach of contract claim and application of the prevention of performance doctrine to signed legal releases. Depending on the outcome, the allocation of business and contract risks throughout Ohio could drastically change. 

For more information on how this may affect your business, please contact a member of the Frantz Ward Litigation Practice Group.

[1] The case is Nationwide Mut. Ins. Co. v. Lucarell, Ohio Supreme Court Case No. 2016-0585, Mahoning App. Nos. 2013 MA 00074 and 2013 MA 00133. 

[2] Lucarell v. Nationwide Mutual Insurance Company, 7^th Dist. Nos. 13 MA 74, 13 MA 133, 2015-Ohio-5286, ¶ 178 (emphasis added).

[3] Nationwide Memo. in Support of Jurisdiction at 5.

[4] Nationwide Memo. in Support of Jurisdiction at 10.

[5] Memorandum In Support Of Jurisdiction Of Amici Curiae Ohio Alliance For Civil Justice, Ohio Chamber Of Commerce, And Ohio Manufacturers’ Association at 11.