Punitive damages, actual damages, vindictive damages, exemplary damages. Any of these terms may be used in a liability policy, and they all mean the same thing: damages intended to set an example for others by severely punishing gross and harmful negligence.

The intent of punitive damage is in its name, penalizing or punishing a defendant’s actions. Juries may consider:

• malicious or negligent actions of the defendant
• severity of bodily injuries or property damage
• class actions suits where many people were hurt or damaged

Punitive damages are often in the news. From the last few months, these companies were ordered to pay:

1. PacificCorp – almost $90 million additional due to role in 2020 wildfires in Oregon
2. Los Angeles Dodgers – $100,000 to a fan beaten by stadium security
3. New York City Subway franchisee – $10,000 to employee fired during Department of Labor investigation
4. ConsumerDirect – $4 million due to misrepresentation of trademarks

The other type of damages is compensatory, covered by all liability policies. The meaning of compensatory damages is again implied by its name, compensating a victim for specific and general damages.
Special / specific / economic damages include those specifically identifiable expenses such as medical, lost wages, property damage.
General / noneconomic damages are harder to calculate, such as pain and suffering, loss of companionship, defamation.

According to a law firm’s recent survey, less than a handful of states do not allow punitive damages to be applied. Of more importance to the insurance industry then, is the many states that use punitive damages, and that do not allow punitive damages to be covered by insurance. These states are of the opinion that the insurability of punitive damages is against public policy.

A vigilant agent reads non-ISO forms to know whether punitive damages are covered. Many lines use their own proprietary forms, such as surplus, product, professional. The insurers include in the policy language whether punitive damages are covered or excluded. Communicate this information to prospects in writing. Insuring punitive damages is preferred. Even if the policyholder’s own state prohibits the coverage, a lawsuit may be brought in a state where coverage is both allowed by law, and insurable.