by E Sneneh, Chicago Auto Insurance Agent
When an individual starts a products liability lawsuit, he/ she is usually seeking compensatory damages to restore or compensate for his/ her loss. In some scenarios, injured parties have succeeded in recovering punitive damages in addition to compensatory damages. Punitive damages are provided to punish a guilty party, the defendant, for his or her outrageous, wrongful conduct and to deter this defendant and others from engaging in similar wrongful conducts. In jurisdictions that allow a punitive damages recovery in a products liability case, it must generally be established that the seller recklessly disregarded the safety of product users.
Any time punitive damages are awarded, the issue arises as to whether an insured may collect for such costs pursuant to its products liability insurance. This issue has been confirmed both positively and negatively by courts of law. In reaching a conclusion about this issue, the legal systems have been called upon to infer the insurance policy to verify whether punitive damage rulings are within the provided coverage. In making such determination, it is necessary to look to the specific policy language in question:
1. In some instances, the legal systems have been called upon to make interpretation of an insurance policy which provides coverage for damages awarded 'because of bodily injury' or 'because of property damage.' This language has been interpreted to exclude punitive damages.
2. On the other hand, where the insurance policy provides coverage for 'all sums for which the insured is legally liable ... as damages,' it can be argued that punitive damages are included in the term 'all sums.' Accordingly, this language has been construed to provide coverage to the insured for punitive damages.
Rationales of Punitive Damages Awards.
Legal rulings in favor of punitive damages are based on several rationales, which include:
Punishment of a wrongdoers and deterrence of others from engaging in similar conduct. This rationale may be undermined by permitting a wrongdoer to pass off the assessed punishment to its insurance company. For that reason, even when punitive damages arguably fall within the coverage of an insurance policy, a court may not permit an insured to recover such loss from the insurer on the ground of public policy.
In some instances, however, public policy may not be offended by permitting an insured to recover from its insurer for a punitive damage award. For example, a business may be held liable for punitive damages for an act done by one of its employees. Where the business did not take part in the wrongdoing and is only vicariously liable, neither the 'punishment' nor 'deterrence' purpose of awarding punitive damages is affected by permitting insurance coverage.
In the most recent days and as punitive damage rulings began to go up in frequency and size, some insurance companies endorsed punitive damages off the risk, specifically excluding them from insurance coverage.
As a result of that, although a manufacturer gets product liability insurance, he or she should not anticipate all damages affiliated with his or her product to be covered by the insurance policy. The best insurance policy against punitive damage awards may better risk and marketing management.