INSURANCE COVERAGE OF PUNITIVE DAMAGES IN MONTANA Scott H. Stanaway I. Punitive damages are intended as a deterrence. Insurance Products for Punitive Damages: There are pros and cons to the insurance products designed to cover punitive liability. Punitive damages (also called exemplary damages) may be awarded in a tort claim in addition to compensatory damages. damages." What’s Employment Practices Liability Insurance? 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. punitive damages insurance and that the companies' control over underwriting and contracting places them in a better position than courts to address that objection. Now she consults and writes about commercial insurance. Accessed Nov. 26, 2019. Speaking of Texas and punitive damages coverage, in Tesco Corp. v. Steadfast Ins. 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. Alternatively, the court held that the punitive damages would fall within the exclusion barring coverage for civil fines. As a result, the drunk driver pays no punitive damages – the UIM carrier does. Most (but not all) D&O policies cover punitive damages while many medical malpractice policies exclude them. 75 (1966). Covering claims Although the standard commercial general liability (CGL) policy and business auto policy (BAP) contain no punitive damage exclusion, many umbrella and excess liability policies … The Court of Appeals of Texas, Fourth District, sitting en banc, has denied a motion for en banc reconsideration. Many of these states do allow insurance to cover punitive damages against an employer based on vicarious liability. 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. N/A N/A punish the defendant for committing egregious wrongdoing). Be sure to review all of your policies, including your pollution, professional and umbrella policies. 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). 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. Accessed Nov. 26, 2019. 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 related to that conduct is excluded, including both compensatory and punitive damages. “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 … As noted previously, many liability policies don't address punitive damages at all. 333 South Seventh Street, Suite 2600, Minneapolis, MN 55402, Disclaimer / Some states prohibit insurance coverage for punitive damages levied against the wrongdoer. Marianne Bonner, CPCU, ARM, worked in the insurance industry for 30 years. Punitive damages in Canada 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. The Court of Appeals of Texas, Fourth District, sitting en banc, has denied a motion for en banc reconsideration. 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. 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 … 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. Therefore, no punitive or exemplary damages … 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. Sometimes they are worded in different ways such as an exclusion for the driver’s recklessness, gross negligence, malicious acts or exemplary damage award. 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." Many errors and omissions and specialty liability policies explicitly cover or exclude punitive damages. Examples are the ISO general liability, business owners, and business auto policies. Therefore, in any case in which California may not provide the choice of law for the plaintiff's punitive damage claim, counsel … If there is coverage, then the next step is to determine whether coverage is prohibited as a matter of public policy. Ins. 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. Coverage for Punitive Damages. Obtaining punitive damages coverage when a state declares such damages to be uninsurable can be tricky, but observers say some underwriters are willing to … This … In Wolfe v.Allstate Prop. toward insurance coverage of punitive damages. Punitive damages are also designed to discourage others from committing similar types of acts.. LEXIS 9876, (3d Cir. Some states prohibit insurance coverage for punitive damages levied against the wrongdoer. 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. 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. Various state statutory codes that limit coverage for punitive damages often distinguish between directly-assessed punitive damages and vicariously-assessed punitive damages. 102 WISCONSIN LAW REVIEW insurance (as well as other aspects of liability insurance). L. REV. How to Tell Whether Punitive Damages Are Covered by Your Insurance. How can you tell whether a policy covers punitive damages? Punitive Damages Can Be Insurable. The innocent injured driver is entitled to recover for all allowable damages under the New Mexico personal injury law. Site Map / [4311. coverage,6 the current trend appears to favor an inclusive liability on the part of the insurer. The first step is to look for an explicit exclusion. Sometimes they are worded in different ways such as an exclusion for the driver’s recklessness, gross negligence, malicious acts or exemplary damage award. Punitive damages are not. insurance coverage for punitive damages from their insurance policies if the insurance company does not intend to provide such coverage. 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 laws vary widely. Some states prohibit insurance of punitive damages on the grounds that spreading the risk of punishment for willful misconduct lessens the deterrent effect. How-ever, besides the instant case, four decisions since 1962 have excluded punitive damages from automobile insurance coverage. Other states allow for insurance coverage of punitive damages, so long as the applicable insurance policy does not exclude coverage. "Wilson Elser Punitive Damages Review (2014)," Page 2. Ignorance is bliss. Most states say that UM insurance should not provide an award of punitive damages since the above reasons to award it go unmet. Also called "exemplary damages." Wilson Elser. 71 (1968). Some policies specifically exclude coverage for punitive damages, while others rely on state laws. 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 … Directly-assessed punitive damages are awarded directly against the wrongdoer. Further, unlike the broad language requiring an … 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. Rav. When punitive damages aren't explicitly excluded, they are generally presumed to be covered. 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 Auto. 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. & Casualty Ins. Some policies cover or exclude punitive damages via their definition of certain terms, particularly damages or loss. Chubb. This type of clause is referred to in the insurance industry as a “most favorable jurisdiction” clause. punitive damages to be insured have narrow exceptions allowing certain risks to be insured for punitive damages. For instance, Florida state law generally prohibits insurance coverage for punitive damages for the direct wrongful conduct of an insured. insurance coverage for a punitive damage award since such coverage would tend to defeat the purpose of the punitive damage award (i.e. 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. To complicate matters, most insurance policies do not include a provision that requires a court to apply the law of any particular state. 71, 77-82 (1990) (same); Theodore D. Fischer, Comment, Insurance Coverage and the Punitive Award in the Automobile Acci- 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. Given this exposure, how can a business protect itself? In this situation, the employer didn’t commit the bad act so the damages aren’t intended as punishment. … 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.” Unfortunately, even if there is nothing within the four corners of the insurance policy excluding coverage for punitive damages, the analysis is not over. So, what is a contractor to do? Courts in approximately 20 states have either ruled that punitive damages are uninsurable for public policy reasons or have not addressed the issue. Andrew P. Moses. Lambert, Does Lia-bility Insurance Cover Punitive Damages?, 517 INs. 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. However, a few courts disagree. 5. Insurance coverage, both liability and uninsured/underinsured motorist coverage, provides coverage for punitive damage awards in a New Mexico auto accidents. 2. Punitive damages are awarded to penalize the at-fault party in an auto accident and to deter similar blameworthy conduct. It also excludes punitive damages with regard to benefits the employer is obligated to provide under maritime law. Three states allow insurance coverage of punitive damages in the uninsured motorist context but have not addressed the issue under other circumstances; and. … 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 … None of these policies mentions punitive damages. 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). 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. 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. 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 new 2016 UIM settlement procedure law abolishes subrogation if the defendant reasonably cooperates with the UIM carrier. 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. 455, 462 (1994). "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. 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.”). 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 … Co. v. Suppose the policy makes no reference to punitive damages. The answer lies in recognizing the circumstances where the law allows the recovery of punitive damages. See notes 51-55 & accompanying text infra. 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. This is not uncommon. Insurance Coverage for Punitive Damages, 20 S.C.L. 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. 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. The Balance Small Business uses cookies to provide you with a great user experience. Therefore, there is no need for courts to act on deterrence grounds to prohibit insurance for punitive damages. Are Punitive Damages Covered by Liability Insurance? INSURANCE COVERAGE OF PUNITIVE DAMAGES IN MONTANA Scott H. Stanaway I. This note will first discuss the current status of the issue in jurisdictions other than California. 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. Because of the conflicting law, choice of law issues are important. 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. In most states, the courts have held that a reference to “damages” is broad enough to include punitive damages, as well as compensatory damages. This is because the innocent policyholder, and not the wrongdoer, pays for the UM coverage. Co., No. They contend that punitive damages won't serve their intended purpose (to punish the perpetrator) if they are paid by an insurance company. 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. What Is Incidental Medical Malpractice Insurance? First, you must analyze the applicable policy. Whether punitive damages are covered by insurance depends on two things: state law and policy language. 13-91 (Tex. "A Review of the U.S. Punitive Damages Liability Landscape," Page 3. 71 (1968). Discerning Answers to the Conundrum Created by Disputes Involving Conflicting Public Policies, Pragmatic Considerations and Political Actions, 39 V!LL. This coverage is typically referenced in the definition of “Loss” with a provision which states that Loss includes punitive or exemplary damages. The case, Farmers Texas County Mutual Insurance Company v. Accessed Nov. 26, 2019. 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. State Farm Mut. Various state statutory codes that limit coverage for punitive damages often distinguish between directly-assessed punitive damages and vicariously-assessed punitive damages. Aetna Casualty, 285 N.J. Super. The incentives of insurance companies do not mesh as neatly with 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). Alaska courts allow punitive damages to be covered by insurance. 5. 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. 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. Punitive damages may not be insurable in some states as such coverage may be considered a violation of public policy. Many liability policies purchased by small businesses are silent about punitive damages. The laws regarding the insurability of punitive damages vary from state to state. © 2013 FWH&T, © 2020 Fabyanske Westra Hart & Thomson. Some policies contain multiple sets of exclusions. Many states impose one or more of the kinds of restrictions outlined below. Several states have statutes that prohibit the punishment of intentional wrongdoers through punitive damage awards. "Punitive or exemplary damages" means damages imposed to punish a wrongdoer and to deter others from similar conduct. Punitive damages may be excluded separately or in combination with other types of loss like fines and penalties. Virginia Underinsured Motorist Coverage for Punitive Damages Against Drunk Drivers - Alexandria, Virginia Car Accident Lawyer First, talk with your insurance broker/agent and your attorney. Determining whether a contractor has coverage for punitive damages is a two-step process. ALA. L. REv. See notes 51-55 & accompanying text infra. 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