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Insurance Law

Punitive Damages: Insurable In 38 States – The Sometimes Oversimplified Issue

It is a question that is uttered by claims professionals and coverage counsel on a regular basis: Are punitive damages insurable in such and such state? In essence, what the questioner is often asking is whether the particular state’s public policy permits a tortfeasor to insure against punitive damages that he or she may be legally obligated to pay. The answer provided is often one word: yes or no. While one of those two answers may be the right one generally, the issue is oftentimes much more complex than can be adequately answered with a single word. In fact, when all of the variations of the issue are considered, there may be as many as a dozen possible answers to the question whether punitive damages insurable.

The Supreme Court of Texas recognized the wide variation that exists over the insurability of punitive damages: “The cases defy easy categorization, but it appears that: 19 states generally permit coverage of punitive damages; 8 states would permit coverage of punitive damages for grossly negligent conduct, but not for more serious conduct; 11 states would permit coverage of punitive damages for vicariously-assessed liability, but not directly-assessed liability; 7 states generally prohibit an insured from indemnifying himself against punitive damages; and the remainder have silent, unclear, or otherwise inapplicable law. States may fall into more than one category.” Fairfield Ins. Co. v. Stephens Martin Paving, L.P., 246 S.W.3d 653, 688 (Tex. 2008) (Hecht, J., concurring), [enhanced version available to subscribers].

As the Texas high court demonstrated, the question of the insurability of punitive damages does not want for case law. The issue has been considered in every state, including, most of the time, by its highest court. Coverage for punitive damages has also been addressed in a few instances by state legislatures. The issue is a mature one and has well-defined battle lines. And as is often the case when an issue may turn on public policy considerations, judges are not shy about their feelings. Authors of opinions are frequently passionate in their views and dissenting opinions are not uncommon.

As Justice Hecht’s scorecard makes clear, providing a one word answer to the question of the insurability of punitive damages may not be telling the whole story.

Another conclusion revealed by Justice Hecht’s scorecard is that punitive damages, in some way, shape or form, are insurable in the great majority of states. By Justice Hecht’s count in 2008, 38 states permit coverage for punitive damages under some circumstances. Only seven states prohibit it. In my experience, punitive damages are often-times discussed the other way around – with assertions made that the great majority of states prohibit coverage, with the permissibility of coverage being the exception.

That there is sometimes more than meets the eye when it comes to coverage for punitive damages was recently on display in Auto-Owners Insurance Co. v. Lake Erie Land Company, No. 12-184 (N.D. Ind. May 6, 2014), [enhanced version available to subscribers]. At issue was coverage for punitive damages awarded by a jury in an unexplained underlying case. All we know is that a jury returned a verdict in favor of B&B LLC, and against Lake Erie Land, for $1.46 million in punitive damages. We are also told that the jury was instructed that it could award punitive damages if “B&B proved by clear and convincing evidence that LEL acted with willful and wanton misconduct, maliciously, fraudulently, oppressively, or with gross negligence.”

So the Northern District of Indiana was now confronted with the question whether LEL’s insurers were obligated to provide coverage for the punitive damage award. At the outset, the issue to be addressed was determining the theory under which the jury awarded punitive damages. In an attempt to establish a lack of coverage, the insurers sought to portray the award as demonstrating that LEL “exhibited willful and wanton misconduct, which justified punitive damages.” LEL saw it differently, arguing, in support of coverage, that the punitive damage award was because of its non-intentional conduct -- gross negligence. The court stated its belief that “both parties overstate the clarity with which the theory under which the jury awarded punitive damages can be determined. However, at the very least, it appears to the Court that the jury’s award could be consistent with the jury having found LEL to be grossly negligent.”

Equally lacking, the court noted, were decisions from any court addressing Indiana’s public policy on the insurability of punitive damages based on gross negligence, as distinguished from intentional conduct. Rather, at most, there are federal decisions that have “attempted to predict how the Indiana Supreme Court would interpret Indiana’s public policy with respect to the insurability of punitive damages,” as well as decisions from other states that distinguish, “as a matter of public policy, the insurability of punitive damages awarded on a theory of intentional action versus punitive damages awarded on a theory of gross negligence.”

The Lake Erie Land court concluded that, “[g]iven the lack of certainty in this area and the public importance of the question, the Court believes this question may be appropriate for certification to the Indiana Supreme Court.” Before doing so, however, the court ordered the parties to file briefs covering any supplemental authority “predicting how the Indiana Supreme Court would determine whether Indiana’s public policy prohibits the insurability of an award of punitive damages assessed directly against a corporation on a theory of gross negligence and (2) the parties’ position as to whether the question should be certified to the Indiana Supreme Court.”

Thus, whether punitive damages are insurable in Indiana may not be a yes or no question. Like so many other states, the issue may be more complex and less clear than it is sometimes portrayed.

Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit

The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.

    Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

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