insurance coverage for punitive damages

Given this exposure, how can a business protect itself? One commonly-used policy that does address punitive damages is the standard NCCI workers compensation policy. 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. Most (but not all) D&O policies cover punitive damages while many medical malpractice policies exclude them. Rav. They contend that punitive damages won't serve their intended purpose (to punish the perpetrator) if they are paid by an insurance company. Ct. App. 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. 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. 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.” Finally, it is possible to purchase a punitive damages “wrap” policy from the off-shore market (i.e., Bermuda). 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 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 laws determine whether and when punitive damages may be awarded. 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. Wilson Elser. Alternatively, the court held that the punitive damages would fall within the exclusion barring coverage for civil fines. Center for Justice and Democracy. of gross negligence.6 In allowing coverage for punitive damages – at least thus far – Texas has conformed to a basic tenet of liability insurance, which is that gross negligence is insurable. Determining whether a contractor has coverage for punitive damages is a two-step process. 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. Various state statutory codes that limit coverage for punitive damages often distinguish between directly-assessed punitive damages and vicariously-assessed punitive damages. Generally … How to Tell Whether Punitive Damages Are Covered by Your Insurance. "Wilson Elser Punitive Damages Review (2014)," Page 2. Unfortunately, even if there is nothing within the four corners of the insurance policy excluding coverage for punitive damages, the analysis is not over. Insurance coverage, both liability and uninsured/underinsured motorist coverage, provides coverage for punitive damage awards in a New Mexico auto accidents. INSURANCE COVERAGE OF PUNITIVE DAMAGES IN MONTANA Scott H. Stanaway I. INSURANCE COVERAGE OF PUNITIVE DAMAGES IN MONTANA Scott H. Stanaway I. This is because the innocent policyholder, and not the wrongdoer, pays for the UM coverage. Indeed, many policies expressly agree to cover punitive damages unless the law applicable to the claim makes them uninsurable. 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. Therefore, in any case in which California may not provide the choice of law for the plaintiff's punitive damage claim, counsel … Punitive damages in Canada Insurance Bad Faith – Punitive Damages. This type of clause is referred to in the insurance industry as a “most favorable jurisdiction” clause. See notes 51-55 & accompanying text infra. Accessed Nov. 26, 2019. LEXIS 9876, (3d Cir. They can audit your insurance policies to determine whether they expressly provide coverage for punitive damages. 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. [4311. coverage,6 the current trend appears to favor an inclusive liability on the part of the insurer. Auto. Most state laws prohibit uninsured motorist insurance (“UM”) from covering punitive damages. 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. In such states, insurance coverage for punitive or exemplary damages would not exist unless that coverage is specifically included in the insurance policy. Are Punitive Damages Covered by Liability Insurance? 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. By using The Balance Small Business, you accept our. 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. Co., Civil Action No. 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. Obtaining punitive damages coverage when a state declares such damages to be uninsurable can be tricky, but observers say some underwriters are willing to … Next, look at the policy definitions section. Be sure to review all of your policies, including your pollution, professional and umbrella policies. 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. Div. 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. May 15th, 2018 By Tara Mireur. 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 … Therefore, there is no need for courts to act on deterrence grounds to prohibit insurance for punitive damages. 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. Punitive damages are intended as a deterrence. © 2013 FWH&T, © 2020 Fabyanske Westra Hart & Thomson. Some states prohibit insurance coverage for punitive damages levied against the wrongdoer. Sometimes they are worded in different ways such as an exclusion for the driver’s recklessness, gross negligence, malicious acts or exemplary damage award. Many insurers of these policies are willing to negotiate coverage for punitive damages – if you ask! This discussion is generalized in nature and should not be considered a substitute for professional advice. ALA. L. REv. What Is Incidental Medical Malpractice Insurance? All other "terms" of this policy apply. None of these policies mentions punitive damages. Many of these states do allow insurance to cover punitive damages against an employer based on vicarious liability. 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.”). 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 … Lambert, Does Lia-bility Insurance Cover Punitive Damages?, 517 INs. Unfortunately, many contractors blissfully assume that if they are held liable for punitive damages, then their liability insurance will cover them. Punitive damages (also called exemplary damages) may be awarded in a tort claim in addition to compensatory damages. 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. First, talk with your insurance broker/agent and your attorney. How-ever, besides the instant case, four decisions since 1962 have excluded punitive damages from automobile insurance coverage. L. REV. Because of the conflicting law, choice of law issues are important. Northwestern Nat'l Cas. As a result, the drunk driver pays no punitive damages – the UIM carrier does. 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. Punitive Damages Can Be Insurable. Punitive damages may not be insurable in some states as such coverage may be considered a violation of public policy. 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. 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. & Casualty Ins. … However, a few courts disagree. 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. Examples are the ISO general liability, business owners, and business auto policies. 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 … Insurance Coverage for Punitive Damages – The Discussion Continues. 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. Coverage for Punitive Damages. State Farm Mut. 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 … "Punitive or exemplary damages" means damages imposed to punish a wrongdoer and to deter others from similar conduct. Be sure to read all exclusions in the 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). Many insurance policies exclude punitive damages, or are ambiguous about whether they are covered. The innocent injured driver is entitled to recover for all allowable damages under the New Mexico personal injury law. Whether punitive damages are covered by insurance depends on two things: state law and policy language. In the U.S., each state establishes its own guidelines to insuring against punitive damages and the types of acts that are insurable. damages." 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. Virginia Underinsured Motorist Coverage for Punitive Damages Against Drunk Drivers - Alexandria, Virginia Car Accident Lawyer punish the defendant for committing egregious wrongdoing). Chubb. The Balance Small Business uses cookies to provide you with a great user experience. Co. v. 71 (1968). 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. The laws vary widely. L.J. Punitive damages are also designed to discourage others from committing similar types of acts.. May 15th, 2018 By Tara Mireur. 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. Accessed Nov. 26, 2019. 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 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. Some states prohibit insurance of punitive damages on the grounds that spreading the risk of punishment for willful misconduct lessens the deterrent effect. Some policies cover or exclude punitive damages via their definition of certain terms, particularly damages or loss. 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; The answer lies in recognizing the circumstances where the law allows the recovery of punitive damages. "Fact Sheet: Punitive Damages: Rare, Reasonable and Limited (2011)," Accessed Nov. 26, 2019. 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. Insurance Products for Punitive Damages: There are pros and cons to the insurance products designed to cover punitive liability. employing as they try to sell insurance for punitive damages awards even when the law prohibits that kind of coverage. punitive damages insurance and that the companies' control over underwriting and contracting places them in a better position than courts to address that objection. In this situation, the employer didn’t … These damages are sometimes referred to as “ exemplary damages.” 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. If not, then they can assist you in obtaining a punitive damage endorsement. Punitive damages may not be insurable in some states as such coverage may be considered a violation of public policy. Marianne Bonner, CPCU, ARM, worked in the insurance industry for 30 years. 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. How to Write a Demand Letter When You Have Been Harmed, Pitfalls to Avoid When Buying Business Insurance, The Balance Small Business is part of the, Philadelphia’s Allied Healthcare Providers Professional Liability policy, Fact Sheet: Punitive Damages: Rare, Reasonable and Limited (2011), A Review of the U.S. Punitive Damages Liability Landscape, Wilson Elser Punitive Damages Review (2014). First, the “all sums” language is absent from the Farmers policy. 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. Punitive Damages — damages in excess of those required to compensate the plaintiff for the wrong done, which are imposed in order to punish the defendant because of the particularly wanton or willful nature of his or her wrongdoing. What’s Employment Practices Liability Insurance? … Speaking of Texas and punitive damages coverage, in Tesco Corp. v. Steadfast Ins. In Wolfe v.Allstate Prop. If coverage for "punitive or exemplary damages" exists under this policy by reason of this endorsement and the required underlying coverage, it shall not be for broader coverage then is provided by the underlying insurance. Is Wrongful Death Covered by Liability Policies? The case, Farmers Texas County Mutual Insurance Company v. 455, 462 (1994). 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