Just in time for the American Law Institute's Principles of Liability Insurance Law Project, which is meeting in Philadelphia today and tomorrow, a new judicial decision underscores the importance of addressing the insurability of punitive damages.
The ALI Project is considering a draft proposal that would make it the default position that punitive damages are insurable. It is important to take that position carefully, and it is important to be equally careful in drafting language authorizing policy exclusions from liability coverage for punitive damages.
When the starting point in a coverage inquiry is that punitive damages are insurable, then some will press the view that even if certain damages are "punitive in nature" they are not necessarily going to be excluded as "punitive damages". See Williams v. SIF Consultants of Louisiana, Inc., 2014 WL 718060 *5-*6 (La. Ct. App., 3d Cir., February 26, 2014)(holding that an exclusion of coverage for "punitive damages" and similar types of damages, quoted at length below, did not exclude coverage for damages sought in the case at bar because the exclusion did not specifically exclude "a damage punitive in nature.").
This is not to say that making punitive damages insurable ought not to be the default position of liability insurance. Nor is it to say that if that result happened regardless of policy language, i.e., that punitive damages are insurable and not excluded, that it would be the first time that a result was reached regardless of the language of the insurance policy.
Rather, it is to say that when the chosen policy position is that punitive damages are insurable, care must be taken in saying exactly what that means. And the care that should be taken is not only in drafting the default position that, in this instance, punitive damages are insurable. Care should be taken further, and it should be taken in the drafting of principles which authorize liability insurance companies to exclude coverage for punitive damages under their policies.
Even if in some cases the results seem predetermined.
In the case of Williams v. SIF Consultants of Louisiana, Inc., 2014 WL 718060 *5 (La. Ct. App., 3d Cir., February 26, 2014), the insurance carrier's subject exclusion listed "'fines, penalties, taxes, and punitive, exemplary or multiplied damages.'" [Emphasis added.] The underlying plaintiffs' claims were all for damages under a Louisiana statute which subjected the policyholder "'to damages payable to the provider of double the fair market value of the medical services provided, but in no event less than'" $50.00 per day or $2,000.00. Williams v. SIF Consultants of Louisiana, Inc., 2014 WL 718060 *5 (La. Ct. App., 3d Cir., February 26, 2014), quoting La. R.S. 40:2203.1(G). [Emphasis added.]
The appellate court in this case held that the exclusion did not apply here. Two of the judges on the three-judge panel joined in an opinion that expressed the panel's ruling in these words:
While there are exclusions listed thereafter, those exclusions do not include a monetary amount that is a statutory damage or a damage punitive in nature.
Williams v. SIF Consultants of Louisiana, Inc., 2014 WL 718060 *6 (La. Ct. App., 3d Cir., February 26, 2014).
Other than quoting the policy exclusion including the language which excludes coverage for "multiplied damages," the opinion never referred to that policy language.
After quoting the statute's provision on damages which only describes one form of recoverable damages under that statute, namely, multiplied damages, the opinion never referred to that statutory language again.
The third judge on the panel in this case did not join in the opinion of the other two judges, but instead concurred in the result.
Before concurring in the result, and certainly before concurring in any opinion, to say again care should be taken in how punitive damages are declared insurable, and how they are declared excludable from coverage.
© 2014 by Dennis J. Wall. All rights reserved. No claim to original U.S. Government works.
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