Are Waivers of Punitive Damages Enforceable?

Originally published by Gerald De Leon.

Parties—and their attorneys—should think carefully about how to draft, enforce, and avoid punitive damages waivers in their contractual arrangements.

In Bombardier Aerospace Corp. v. SPEP Aircraft Holdings, LLC, the Texas Supreme Court recently enforced a contractual wavier of punitive damages to invalidate a jury’s award of such damages in connection with related claim for fraud.

The Court began by recognizing that there are certain instances in which a pre-injury contractual waiver of another’s liability may be void against public policy, as in the case of an advance waiver for gross negligence in the personal injury context. However, the Court explained that: “Under our strongly held principles of freedom to contract, we hold that the limitation-of-liability clauses”—such as a more narrowly tailored punitive damages waiver—“are valid limited warranties that were the basis of the parties’ bargain . . . [T]he parties bargained to limit punitive damages, and we must hold them to that bargain.”

The Court enforced the punitive damages waiver in the case before it, but acknowledged there may be limited circumstances in which such a waiver may not preclude a punitive damages award. The Court observed but did not decide that a claim for breach of fiduciary duty could affect the validity of a limitation-of-liability clause for public policy reasons.
The ruling highlights that parties injured by both a breach of contract and breach of fiduciary duty should carefully consider which claim to assert depending on the type and amount of damages sought. Also, parties seeking to limit certain damages in their contractual arrangements must be aware that waivers are not bullet proof in all circumstances.

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