Usually, punitive damages are awarded only if there has been proof of intentional bad acts, and most insurance policies also exclude coverage for damages caused by intentional acts of the insured. Determining whether a contractor has coverage for punitive damages is a two-step process. Lambert, Does Lia-bility Insurance Cover Punitive Damages?, 517 INs. Accessed Nov. 26, 2019. See notes 51-55 & accompanying text infra. Alaska courts allow punitive damages to be covered by insurance. punitive damages to be insured have narrow exceptions allowing certain risks to be insured for punitive damages. As a result, the drunk driver pays no punitive damages – the UIM carrier does. Now she consults and writes about commercial insurance. Directly-assessed punitive damages are awarded directly against the wrongdoer. This is because the innocent policyholder, and not the wrongdoer, pays for the UM coverage. Insurance coverage for punitive damages is frequently excluded by carriers in Georgia and those states which allow such coverage, whereas other states prohibit insurers from providing such coverage altogether. Punitive Damages Can Be Insurable Insurability for punitive damage awards is governed by NRS 681A.095 (added in 1995; updated in 2011). For example, in Pennsylvania, an insurer is permitted to provide punitive damages coverage to operators of downhill skiing areas, unless such punitive damages are awarded due to … This … 333 South Seventh Street, Suite 2600, Minneapolis, MN 55402, Disclaimer / punitive damages insurance and that the companies' control over underwriting and contracting places them in a better position than courts to address that objection. "Punitive or exemplary damages" means damages imposed to punish a wrongdoer and to deter others from similar conduct. Therefore, there is no need for courts to act on deterrence grounds to prohibit insurance for punitive damages. Some states prohibit insurance of punitive damages on the grounds that spreading the risk of punishment for willful misconduct lessens the deterrent effect. They contend that punitive damages won't serve their intended purpose (to punish the perpetrator) if they are paid by an insurance company. Obtaining punitive damages coverage when a state declares such damages to be uninsurable can be tricky, but observers say some underwriters are willing to … What’s Employment Practices Liability Insurance? Some states prohibit insurance coverage for punitive damages levied against the wrongdoer. In Wolfe v.Allstate Prop. Is Wrongful Death Covered by Liability Policies? In such states, insurance coverage for punitive or exemplary damages would not exist unless that coverage is specifically included in the insurance policy. These policies are costly, but they can provide a contractor with coverage for punitive damages that is not subject to the vagaries of the United States court system. Therefore, in any case in which California may not provide the choice of law for the plaintiff's punitive damage claim, counsel … The main argument against coverage, we noted, is that to allow it would defeat "the purpose of punitive damages, which is to punish and to deter others from acting similarly, and that allowing coverage serves no useful purpose since such damages are a windfall for the plaintiff who, by hypothesis, has been made whole by the award of compensatory damages. Co., No. One commonly-used policy that does address punitive damages is the standard NCCI workers compensation policy. Rav. For example, in a recent case, one of our contractor clients was faced with a frightening punitive damage claim in a Pennsylvania court arising out of an accident in Pennsylvania, where direct punitive damages are, as a matter of public policy, not covered by insurance. Because of the conflicting law, choice of law issues are important. Co. v. Lawrence, 26 P.3d 1074, 1075 (Alaska 2001) (“Because the Lawrences’ liability policies cover them for punitive damages for which they themselves may be liable, we affirm the superior court’s ruling on the punitive damages issue.”). Several states have statutes that prohibit the punishment of intentional wrongdoers through punitive damage awards. The answer lies in recognizing the circumstances where the law allows the recovery of punitive damages. Insurance Coverage for Punitive Damages – The Discussion Continues. Generally … Div. Virginia Underinsured Motorist Coverage for Punitive Damages Against Drunk Drivers - Alexandria, Virginia Car Accident Lawyer This is usually accomplished by a straight-forward exclusion or by defining an “occurrence” to exclude damages that are “expected or intended from the standpoint of the insured.” Various state statutory codes that limit coverage for punitive damages often distinguish between directly-assessed punitive damages and vicariously-assessed punitive damages. Sometimes they are worded in different ways such as an exclusion for the driver’s recklessness, gross negligence, malicious acts or exemplary damage award. Chubb. Some states prohibit insurance of punitive damages on the grounds that spreading the risk of punishment for willful misconduct lessens the deterrent effect. Instead of commencing the coverage dispute in Pennsylvania and applying Pennsylvania law, we commenced a lawsuit in Arizona, where our client’s offices were located, where the truck involved in the accident was licensed, where our client’s insurance contract was formed, and where punitive damages can be covered by insurance. All other "terms" of this policy apply. Punitive damages are also designed to discourage others from committing similar types of acts.. Other states allow for insurance coverage of punitive damages, so long as the applicable insurance policy does not exclude coverage. Oftentimes, the jurisdiction of the underlying lawsuit in which the Plaintiff is seeking punitive damages is not the best jurisdiction to commence the coverage lawsuit. The laws regarding the insurability of punitive damages vary from state to state. Many states impose one or more of the kinds of restrictions outlined below. If the policy expressly excludes coverage for punitive damages, then the analysis is over; there is no coverage. Ct. App. 71, 77-82 (1990) (same); Theodore D. Fischer, Comment, Insurance Coverage and the Punitive Award in the Automobile Acci- For public policy reasons, many states (including Minnesota and North Dakota) prohibit insurance coverage for directly assessed punitive damages, based on the notion that allowing coverage would defeat the purpose of punitive damages (i.e., punishment and deterrence). Wilson Elser. Chubb. insurance coverage for a punitive damage award since such coverage would tend to defeat the purpose of the punitive damage award (i.e. Aetna Casualty, 285 N.J. Super. Insurance coverage counsel look at damages issues through a different lens than defense or plaintiff's counsel, and can … What Is Incidental Medical Malpractice Insurance? “Generally, language in a standard form liability policy providing for coverage for ‘sums’ or ‘all sums’ an insured becomes liable to pay as a result of bodily injury encompasses punitive damages, if … Whether liability insurance policies provide coverage for punitive damages depends not only on the language of the policies, but also on public policy considerations as expressed in both state statutes and case law handed down by state courts. Punitive damages are awarded to penalize the at-fault party in an auto accident and to deter similar blameworthy conduct. 75 (1966). Punitive Damages Can Be Insurable. Coverage for Punitive Damages. Insurance Products for Punitive Damages: There are pros and cons to the insurance products designed to cover punitive liability. If you reside and perform most of your work in a state that prohibits insurance coverage for punitive damages, you can increase your odds of obtaining coverage by obtaining an explicit endorsement providing for coverage and agreeing with your insurance company that coverage disputes will be decided in a favorable jurisdiction and/or be decided by applying a favorable state’s laws. The case, Farmers Texas County Mutual Insurance Company v. Many insurers of these policies are willing to negotiate coverage for punitive damages – if you ask! If there is coverage, then the next step is to determine whether coverage is prohibited as a matter of public policy. Shelter Insurance Co. 4 found that if the insured were permitted to collect against the insurer the punitive damages awarded against the insured as part of the insured's bad faith damages in a failure to settle case, the compensatory damages which derived from the insured's own wrongful conduct would undercut the public policy of Colorado against the insurability of punitive damages. INSURANCE COVERAGE OF PUNITIVE DAMAGES IN MONTANA Scott H. Stanaway I. Policies vary widely so it is important to read the documents carefully. … Many liability policies purchased by small businesses are silent about punitive damages. Two states prohibit insurance coverage of punitive damages in the context of uninsured motorists but have not addressed the issue with respect to other forms of coverage. Marianne Bonner, CPCU, ARM, worked in the insurance industry for 30 years. Because punitive damages are not designed to compensate a plaintiff, and cannot be considered a "compensatory amount," the court held that the policy "simply did not provide coverage for punitive damages." "Fact Sheet: Punitive Damages: Rare, Reasonable and Limited (2011)," Accessed Nov. 26, 2019. Alternatively, the court held that the punitive damages would fall within the exclusion barring coverage for civil fines. Co., Civil Action No. 575, 577, 580-89 (App. punish the defendant for committing egregious wrongdoing). Defining Punitive Damages Our report provides information on the availability and prevalence of punitive damage awards, the insurability of punitive damages in the United States, and the pros and cons of insurance products designed to cover punitive liability. © 2013 FWH&T, © 2020 Fabyanske Westra Hart & Thomson. Covering claims L.J. Accessed Nov. 26, 2019. Some policies contain multiple sets of exclusions. Therefore, when faced with a claim for punitive damages, you need to evaluate the best “potentially applicable law” and jurisdiction to commence a lawsuit to determine whether there is insurance coverage. Some policies cover or exclude punitive damages via their definition of certain terms, particularly damages or loss. First, talk with your insurance broker/agent and your attorney. The Balance Small Business uses cookies to provide you with a great user experience. 1009, 1011-18 (1989) (same); Paul D. Seyferth, The Construction and Admissibility of Insurance Policies That Provide Coverage for Punitive Damage Awards, 7 ALASKA L. REv. INSURANCE COVERAGE OF PUNITIVE DAMAGES IN MONTANA Scott H. Stanaway I. 12-4450, 2015 U.S. App. Whether punitive damages are covered under liability policies has long plagued the Texas insurance coverage lawyer and his or her clients, and two recent decisions suggest that the outcome, at least from a public policy standpoint, may remain a question without a definitive answer. Most state laws prohibit uninsured motorist insurance (“UM”) from covering punitive damages. Most (but not all) D&O policies cover punitive damages while many medical malpractice policies exclude them. Provide insurance coverage on all professional liability and CGL policies for defence costs for punitive damage claims. So, what is a contractor to do? It states an insurer may insure against legal liability for exemplary or punitive damages that do not arise from a wrongful act of the insured committed with the intent to cause injury to another. While actual awards have been minimal, usually less than $25,000, punitive damages are sought in legal pleadings in virtually every insurance case and in many others. State Farm Mut. This is usually accomplished by a straight-forward exclusion or by defining an “occurrence” to exclude damages that are “expected or intended from the standpoint of the insured.” If the conduct that caused the damages was intentional, then any damages … bility and Punitive Damages, 40 . 71 (1968). Punitive damages are intended as a deterrence. insurance coverage for punitive damage awards. In addition to finding a jurisdiction with favorable law, insurance coverage for punitive damages can depend on whether the damages are “direct” or “vicarious.” In this regard, even in states that prohibit insurance coverage of “direct” punitive damages (i.e., for conduct sanctioned by upper management), they may allow coverage for “vicarious” liability (i.e., liability for the acts of rank and file employees, subcontractors, etc.). & Casualty Ins. 5. The laws vary widely. Thus, courts in many states have ruled that insurance coverage for a punitive damage award would only defeat the punitive damage award purpose. L. REV. damages." The Supreme Court of Texas recognized the wide variation that exists over the insurability of punitive damages: “The cases defy easy categorization, but it appears that: 19 states generally permit coverage of punitive damages; 8 states would permit coverage of punitive damages for grossly negligent conduct, but not for more serious conduct; 11 states would permit coverage of punitive damages for … LEXIS 9876, (3d Cir. They are intended to punish the defendant for committing an intentional or egregious act that caused harm to someone. Two states prohibit insurance coverage of punitive damages in the context of uninsured motorists but have not addressed the issue with respect to other forms of coverage. Most states agree that an insurer does not have to provide insurance coverage for an award of punitive or exemplary damages against an uninsured or underinsured person. Part Two of the policy, Employers Liability Coverage, excludes punitive or exemplary damages because of bodily injury to an employee employed in violation of the law. A jury, judge, or appellate court (if a case is appealed) decides whether a plaintiff receives punitive damages, and if so, and the amount paid. It also excludes punitive damages with regard to benefits the employer is obligated to provide under maritime law. Care should be taken to pick a jurisdiction and state with favorable law, but also some connection to the contractor, insurance company or place of work, because a court might refuse to enforce the clause if the contractor, insurance company and claim have no connection with the chosen jurisdiction or law. If the policy is ambiguous or silent, then there may or may not be coverage, depending on the applicable law. Discerning Answers to the Conundrum Created by Disputes Involving Conflicting Public Policies, Pragmatic Considerations and Political Actions, 39 V!LL. Rav. Co. v. Examples are the ISO general liability, business owners, and business auto policies. Northwestern Nat'l Cas. Also called "exemplary damages." "A Review of the U.S. Punitive Damages Liability Landscape," Page 4. If the company was established in a state that supports punitive damages coverage, then the company can get coverage under its employers' liability insurance policy. How to Tell Whether Punitive Damages Are Covered by Your Insurance. Be sure to review all of your policies, including your pollution, professional and umbrella policies. N/A N/A The unpredictable nature of punitive damage awards is complicated by a lack of uniformity among states as to the determination, treatment and even the insurability of punitive damage awards. State laws determine whether and when punitive damages may be awarded. In this situation, the employer didn’t commit the bad act so the damages aren’t intended as punishment. Sometimes they are worded in different ways such as an exclusion for the driver’s recklessness, gross negligence, malicious acts or exemplary damage award. The court held that the policy language encompassed coverage for punitive damages. The first step is to look for an explicit exclusion. 102 WISCONSIN LAW REVIEW insurance (as well as other aspects of liability insurance). By using The Balance Small Business, you accept our. Labor Shortages – What do You do When You’ve Got the Work, but Nobody to do it. Usually, punitive damages are awarded only if there has been proof of intentional bad acts, and most insurance policies also exclude coverage for damages caused by intentional acts of the insured. The new 2016 UIM settlement procedure law abolishes subrogation if the defendant reasonably cooperates with the UIM carrier. May 15th, 2018 By Tara Mireur. Punitive damages in Canada How can you tell whether a policy covers punitive damages? Aug. 28, 2014), [ enhanced version available to lexis.com subscribers ], a Texas Appeals Court addressed coverage for $1.5 million in punitive damages awarded in an action for injuries sustained by a worker on a Tesco Corp. drilling rig. The innocent injured driver is entitled to recover for all allowable damages under the New Mexico personal injury law. First, you must analyze the applicable policy. Some states allow an award of punitive damages on a showing of intent that does not offend California public policy (e.g., recklessness or gross disregard). Insurance Companies Ignore Their Underwriters’ Intent It is clear beyond doubt that the drafters and sellers of standard form commercial general lia-bility insurance policies (formerly comprehensive general liability insurance policies) intended to include punitive damages within the scope of coverage. Three states allow insurance coverage of punitive damages in the uninsured motorist context but have not addressed the issue under other circumstances; and. employing as they try to sell insurance for punitive damages awards even when the law prohibits that kind of coverage. Punitive damages Damages awarded in a civil lawsuit in order to punish wrongdoing of a greater culpability than simple negligence, without regard to compensating the plaintiff’s actual loss. This type of clause is referred to in the insurance industry as a “most favorable jurisdiction” clause. A Punitive Damages Exclusion is a clause in a liability insurance policy that limits coverage for damages by excluding any award for punitive or exemplary damages that a jury might award. The unpredictable nature of punitive damage awards is complicated by a lack of uniformity among states as to the determination, treatment and even the insurability of punitive damage awards. Insurance Coverage for Punitive Damages – The Discussion Continues. Site Map / toward insurance coverage of punitive damages. Title: Microsoft Word - PUP8130103 Whether punitive damages are covered by insurance depends on two things: state law and policy language. The main argument against coverage, we noted, is that to allow it would defeat "the purpose of punitive damages, which is to punish and to deter others from acting similarly, and that allowing coverage serves no useful purpose since such damages are a windfall for the plaintiff who, by hypothesis, has been made whole by the award of compensatory damages. Some states prohibit insurance coverage for punitive damages levied against the wrongdoer. Therefore, no punitive or exemplary damages … It states an insurer may insure against legal liability for exemplary or punitive damages that do not arise from a wrongful act of the insured committed with the intent to cause injury to another. In most states, the courts have held that a reference to “damages” is broad enough to include punitive damages, as well as compensatory damages. Ins. Finally, it is possible to purchase a punitive damages “wrap” policy from the off-shore market (i.e., Bermuda). Ultimately, our contractor client was able to convince its insurer to settle with the Plaintiff to avoid the risk of having to pay punitive damages. Whether punitive damages are covered under liability policies has long plagued the Texas insurance coverage lawyer and his or her clients, and two recent decisions suggest that the outcome, at least from a public policy standpoint, may remain a question without a definitive answer. This is not uncommon. "Wilson Elser Punitive Damages Review (2014)," Page 7. 5. The incentives of insurance companies do not mesh as neatly with Insurance coverage for punitive damages is frequently excluded by carriers in Georgia and those states which allow such coverage, whereas other states prohibit insurers from providing such coverage altogether. That may or may not be the case. 455, 462 (1994). Of the five remaining jurisdictions, four of them (which until Stephens Martin included Texas) have yet to address the insurability of punitive damages, and one state (Nebraska) prohibits the imposition of punitive damages. Many of these states do allow insurance to cover punitive damages against an employer based on vicarious liability. If not, then they can assist you in obtaining a punitive damage endorsement. Auto. The typical reasons stated for the allowance of insurance to pay for punitive damages are that there is little evidence that punitive damages have the effect of deterring the wrongdoing and that the punishment would, if insurance is not allowed, be on the general public as the cost of punitive damages would not be borne by the premium payers but instead by the society at large in the … For the first time in history, many U.S. insurers today are willing to afford coverage under various types of insurance policies for punitive and exemplary damages under certain circumstances. Punitive damages are intended as a deterrence. They contend that punitive damages won't serve their intended purpose (to punish the perpetrator) if they are paid by an insurance company. Twenty-three states permit insurance coverage for punitive damages assessed against the party that committed the egregious act. Some of these states bar insurance if the act was intentional. This coverage is typically referenced in the definition of “Loss” with a provision which states that Loss includes punitive or exemplary damages. Indeed, many policies expressly agree to cover punitive damages unless the law applicable to the claim makes them uninsurable. The rationale in such decisions is that the public policy does not prohibit insurance coverage for punitive damage awards against parties who did not engage in the reprehensible conduct because the purpose of punitive damages -- deterrence and punishment of the wrongdoer -- would not be … Next, look at the policy definitions section. This discussion is generalized in nature and should not be considered a substitute for professional advice. Although the standard commercial general liability (CGL) policy and business auto policy (BAP) contain no punitive damage exclusion, many umbrella and excess liability policies … "A Review of the U.S. Punitive Damages Liability Landscape," Page 3. Mid-Century Ins. Speaking of Texas and punitive damages coverage, in Tesco Corp. v. Steadfast Ins. Punitive damages (also called exemplary damages) may be awarded in a tort claim in addition to compensatory damages. Accessed Nov. 26, 2019. Punitive damages may not be insurable in some states as such coverage may be considered a violation of public policy. First, the “all sums” language is absent from the Farmers policy. Back to Briefing Papers | Print this Paper. Center for Justice and Democracy. This note will first discuss the current status of the issue in jurisdictions other than California. Many insurance policies exclude punitive damages, or are ambiguous about whether they are covered. Electronic Data Liability: What Small Businesses Need to Know, What's Not Covered by Auto Liability Coverage, What to Expect from a Wrongful Termination Settlement. However, a few courts disagree. Insurance Bad Faith – Punitive Damages In certain circumstances, an insurance company may be liable for punitive damages because of its wrongful refusal to defend, failure to provide an adequate defense, breach of its duty to settle, breach of its duty to indemnify, or breach of … Ignorance is bliss. Wilson Elser. Various state statutory codes that limit coverage for punitive damages often distinguish between directly-assessed punitive damages and vicariously-assessed punitive damages. In the U.S., each state establishes its own guidelines to insuring against punitive damages and the types of acts that are insurable. [4311. coverage,6 the current trend appears to favor an inclusive liability on the part of the insurer. How-ever, besides the instant case, four decisions since 1962 have excluded punitive damages from automobile insurance coverage. Plaintiffs' counsel, too, may want to be careful about how they characterize damages, if the defendant's insurance is the primary source of any recovery. See notes 51-55 & accompanying text infra. If the company was established in a state that supports punitive damages coverage, then the company can get coverage under its employers' liability insurance policy. Insurability for punitive damage awards is governed by NRS 681A.095 (added in 1995; updated in 2011). INTRODUCTION In two recent cases the Montana Supreme Court addressed the question of whether a liability insurance policy may cover pu-nitive damages assessed against an insured.1 Holding in favor of coverage in both cases, the court answered the question on con- tract interpretation and public policy grounds. May 15th, 2018 By Tara Mireur. Co. of Tex., wherein the El Paso court held that punitive damages were covered by policy language that provides for “payment of all sums which the insured shall become legally obligated to pay as damages because of…bodily injury.” The appellate court found Manriquez inapposite. If a suit seeking both compensatory and "punitive or exemplary damages" is brought against an "insured" for an "occurrence" covered by this policy, "we" will provide defense coverage. In between, some states allow punitive dam-ages to be covered only if one or more of the fol-lowing conditions exist: (1) Punitive damages coverage is specifically provided for in the insurance policy; Many errors and omissions and specialty liability policies explicitly cover or exclude punitive damages. Insurance Coverage for Punitive Damages, 20 S.C.L. Policies, Policies, Policies — How Insurers Try to Limit Coverage for Punitive Damages, and Why They Sometimes Fail Insurers rely upon two arguments for denying coverage for punitive damages: (1) Policy language Further, unlike the broad language requiring an … Insurance Bad Faith – Punitive Damages. Most states say that UM insurance should not provide an award of punitive damages since the above reasons to award it go unmet. Given this exposure, how can a business protect itself? Unfortunately, many contractors blissfully assume that if they are held liable for punitive damages, then their liability insurance will cover them. In certain circumstances, an insurance company may be liable for punitive damages because of its wrongful refusal to defend, failure to provide an adequate defense, breach of its duty to settle, breach of its duty to indemnify, or breach of its general covenant of good faith and fair dealing. 2. These damages are sometimes referred to as “ exemplary damages.” Virginia Underinsured Motorist Coverage for Punitive Damages Against Drunk Drivers. Usually, punitive damages are awarded only if there has been proof of intentional bad acts, and most insurance policies also exclude coverage for damages caused by intentional acts of the insured. Many of these states do allow insurance to cover punitive damages against an employer based on vicarious liability. insurance coverage for punitive damages from their insurance policies if the insurance company does not intend to provide such coverage. They can audit your insurance policies to determine whether they expressly provide coverage for punitive damages. For example, the Integrated Tech (media liability) policy offered by Philadelphia Insurance covers punitive damages via its definition of the word “damages.” However, the definition of “damages” in Philadelphia’s Allied Healthcare Providers Professional Liability policy excludes punitive damages. The Court rejected this, however, and conclude that punitive damages, excepting those for any intentional conduct, were within the coverage and the coverage limitation. None of these policies mentions punitive damages. As noted previously, many liability policies don't address punitive damages at all. In this situation, the employer didn’t … Insurance Coverage for Punitive Damages, 20 S.C.L. Insurance Coverage for Punitive Damages? Are Punitive Damages Covered by Liability Insurance? The Court of Appeals of Texas, Fourth District, sitting en banc, has denied a motion for en banc reconsideration. Some states, however, do allow for it. Punitive damages may not be insurable in some states as such coverage may be considered a violation of public policy. For instance, a policy might state that loss means (among other things) compensatory damages, punitive or exemplary damages, and the multiple portion of any multiplied damage award. For instance, Florida state law generally prohibits insurance coverage for punitive damages for the direct wrongful conduct of an insured. [4311. coverage,6 the current trend appears to favor an inclusive liability on the part of the insurer. Punitive damages may be excluded separately or in combination with other types of loss like fines and penalties. Insurance coverage, both liability and uninsured/underinsured motorist coverage, provides coverage for punitive damage awards in a New Mexico auto accidents. The case, Farmers Texas County Mutual Insurance Company v. Zuniga, 2018 WL 1310157, involved the question of whether or not a form automobile insurance policy covered … Be sure to read all exclusions in the policy. Andrew P. Moses. Free Consultation - Call (800) 423-0055 - Gerald A. Schwartz helps victims and their families receive compensation for their injuries in Car Accident and Insurance Claim cases. Employee Resources. When punitive damages aren't explicitly excluded, they are generally presumed to be covered. Policies purchased by Small businesses are silent about punitive damages against Drunk Drivers t, © 2020 Westra. Exceptions allowing certain risks to be insured for punitive damages Review ( 2014 ), Accessed... New 2016 UIM settlement procedure law abolishes subrogation if the defendant reasonably with. District, sitting en banc reconsideration of restrictions outlined below silent about punitive damages ''! Ve Got the Work, but Nobody to do it policies expressly agree to punitive! 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