Does Your Business Need to Insure Punitive Damages?
Depending on the situation, compensatory damages can look relatively minute when compared to possible punitive damages. While compensatory damages are meant to cover the loss of a plaintiff, punitive damages are based on wrongdoing by the defendant and can end up costing a company a great deal more. For instance, in a recent court ruling, a jury issued an award against a large pharmaceuticals corporation for $5.1 million in compensatory damages, while the punitive damages in the suit totaled more than $500 million. Regardless of your company’s size, facing a judgment with large punitive damages can be detrimental to your organization.
Purpose of Punitive Damages
Punitive damages are awarded for the following purposes:
· To right a wrong that has been committed against a victim.
· They serve as punishment that will impact an offender’s bottom line.
· To deter others who would consider engaging in similar conduct as the offender in the future.
Coverage Considerations
Insuring punitive damages has been a source of debate for some time. Though most states do allow such coverage, a number of states do not because it detracts from the purpose of awarding damages in the first place—to right a wrong. Additionally, the states that do not allow coverage for punitive damages believe that offenders should not be able to shift the burden of payment onto an insurer versus taking the punishment themselves.
Each state establishes its own guidelines regarding insuring punitive damages and the types of acts that are insurable. In addition, each state has made distinctions between directly assessed damages, wrongful actions made by the insured, and vicariously assessed damages, wrongful actions of others where the insured is legally liable.
State courts are continuing to award large punitive damages that could send most companies into turmoil, both financially and otherwise. This exposure should be addressed head-on to protect your organization and its assets.
Contact Shields Insurance Agency today to learn more about your options. We can also conduct an annual coverage analysis, update you on changing laws and provide you with trends in the current coverage market. By taking proactive steps today, you can safeguard your company’s financial future tomorrow.
Senior Vice President at HUB International Limited
7 年Hi Greg, Thanks for commenting. Some umbrella policies cover punitive damages but some do not. Also, if your umbrella is simply an excess policy, rather than a true umbrella policy, it would not drop down anyway unless the underlying General Liability, Professional or Business Auto liability policies covered Punitive Damages. Many Umbrella policies are really just "follow form" excess policies, so that really just opens a whole new set of questions. All the more reason why it's important to have a good insurance broker you can work with.