WHAT KINDS OF PUNITIVE DAMAGES CAN BE INSURED?
An insurer and its assured negotiating punitive damages as a covered item in an insurance policy must consider first the kind of damages or risk to be underwritten. This may impact the insurability of punitive damages in a given state. For example, 29 states allow some form of insurability for directly-assessed punitive damages. (Attachment 1.) These are damages imposed directly upon a company as punishment for actions performed by its employees, directors or officers, or at its instruction. An example would be the GM case, in which a “smoking gun” memorandum linked the allegedly intentional implementation of a safety defect to management. In contrast, vicariously imposed punitive damages can be imposed statutorily or strictly, and are not directly linked to the actions of the company. An example of vicariously imposed punitive damage would be joint and several tort feasors, or intentional conduct of an employee, unknown to the company. Vicariously imposed punitive damages are insurabl
