What is Punitive Damages? Plain English Explanation
Definition
Punitive damages are awarded to punish particularly bad behavior, not to compensate for actual losses. They go beyond making the injured party whole and serve as a deterrent against egregious conduct.
Why It Matters in Contracts
Some contracts include waivers of punitive damages, which means even if the other party acts in bad faith or with gross negligence, you cannot seek punishment beyond your actual losses. This reduces the deterrent against extremely bad behavior.
Real-World Example
A company knowingly sells a defective product that causes injury. Normally, punitive damages could be awarded to punish the company. But if the contract includes a punitive damages waiver, the injured party can only recover actual medical costs.
What to Watch For
- 🔴Waivers of punitive damages buried in boilerplate
- 🔴Waivers that cover intentional misconduct or fraud
- 🔴Combined with limitation of liability clauses for maximum protection of the other party
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Disclaimer: This glossary entry is for educational purposes only and does not constitute legal advice. Consult a qualified attorney for guidance on your specific situation.