When And Where Punitive Damages Are Insurable: Part 1

Law360, New York (February 14, 2017, 9:32 AM EST) -- Punitive damages are assessed against a liable party in especially egregious circumstances as a form of punishment and as a means of deterrence, as opposed to compensatory damages, which serve the purpose of restitution. As such, the amount awarded for punitive damages may greatly exceed the amount of actual loss suffered by a plaintiff. When punitive damages are awarded against an insured, the questions that naturally arise are whether those punitive damages are covered and whether they were even insurable in the first place. In other words, will the insurance company be on the hook for their insured's punitive damages? What arguments can the insurers make to rid themselves of the liability of the insured's punitive damages? These questions often depend on the underlying facts that resulted in the assessment of punitive damages, the law of the applicable jurisdiction and the language of the relevant insurance policies. Therefore, it is imperative that insurance companies work closely with counsel not only to develop an effective litigation strategy after punitive damages have been awarded, but in drafting the insurance policies and relevant documents at the outset....

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