Reevaluating the Insurability of Punitive Damages Awards

For example, South Carolina permits parties to contract for coverage of punitive damages. In Carroway v. Johnson, 245 S.C. 200 (1965), the Supreme Court of South Carolina held that punitive damages are covered under an insurance policy unless the insurer includes specific language restricting liability or coverage. In Carroway, the insured sought coverage for damages arising from an automobile collision. The high court found that the “all sums” language contained in the insurance policy did not limit recovery to actual or compensatory damages. Id. at 204. Accordingly, the court held that coverage for punitive damages was included within the policy. Id. at 205.

Two decades later, the South Carolina Supreme Court reconsidered its position on coverage for punitive damages and reached the same conclusion ' that it is not against public policy for insureds to obtain insurance coverage for punitive damages. In S.C. State Budget & Control Board v. Prince, 304 S.C. 241 (1991), the policyholder sought coverage for punitive damages that had been awarded in a defamation action. The insurer argued that public policy precluded coverage for intentional acts committed with malice. The court affirmed the lower court's ruling for the insured and held, “The [insurer] should not be permitted to deny coverage in the name of the public policy when the language of its own policy specifically provides such coverage.” Id. at 249.

Insurability of Punitive Damages Depends on Nature Of Claim

In many jurisdictions, policyholders may obtain coverage for punitive damages awards only in certain circumstances. The insurability of punitive damages largely depends on the nature of the claim that led to the punitive damages award and whether the damages are assessed directly or vicariously.

For example, in Ohio, it is against public policy to provide insurance coverage for an insured's malicious conduct. This prohibition generally includes any damages stemming from the action. Wedge Prods., Inc. v. Hartford Equity Sales Co., 31 Ohio St. 3d 65, 67 (1987). Because the purpose of punitive damages under Ohio law is “to punish an offender for the wanton, reckless, malicious or oppressive character of the act committed and to deter others from committing similar acts,” there is a strong public policy interest against allowing offenders to transfer responsibility to their insurance company. Casey v. Calhoun, 40 Ohio App. 3d 83, 84 (Ohio Ct. App. 1987).

Nonetheless, Ohio courts have shown a willingness to allow coverage for punitive damages in cases where such damages are imposed by statute and the insured does not exhibit malice or ill will. For example, in The Corinthian v. Hartford Fire Insurance Company, 143 Ohio App. 3d 392 (Ohio Ct. App. 2001), an Ohio Court of Appeals analyzed the insurability of punitive damages in a wrongful death suit. In that case, the policyholder sought insurance coverage for compensatory and punitive damages arising from allegations of negligent care to the deceased while in the policyholder's nursing center. In addition to common law tort claims, the estate filed a claim for a violation of the Ohio statute governing patient care. The court analyzed the statute's language and noted that under the relevant section of the statute, punitive damages could be awarded without a showing of intent, malice, willfulness or recklessness. Id. at 396. The court contrasted the case before it with Casey, supra, and held that although Ohio public policy precluded coverage when an individual sought to insure “against his own intentional or malicious acts,” indemnification was permitted
when there was a statute at issue and no proof of malice on the part of the policyholder. Id.

Similarly, in Foster v. D.B.S. Collection Agency, Case No. 01-CV-514, 2008 WL 755082 (S.D. Ohio March 20, 2008), the Southern District of Ohio considered whether punitive damages stemming from the insured's debt collection practices were insurable. In that case, the policyholder was a debt collection agency that was sued for its collection methods. The plaintiff alleged fraud, violations of the Ohio Consumer Sales Practices Act, and other related claims. The policyholder's insurance company intervened and sought a declaration that the applicable policy would not provide coverage for a punitive damages award. Rejecting the insurer's argument, the court held that “Ohio law does not prohibit insurance coverage of punitive damages in all cases,” particularly those awarded pursuant to a statute without any finding of malice. Foster, at *9. The court further found persuasive the fact that the policy language at issue explicitly purported to provide coverage for punitive damages. Id. Thus, policies construed under Ohio law may provide coverage for punitive damages, at least where punitive damages are assessed against the policyholder without a finding of malice or ill will.

Like Ohio, Pennsylvania generally subscribes to the view that it is against public policy to insure punitive damages. “Even where the [insurance] policy does not specifically exclude punitive damages, public policy does not permit Defendants to shift the burden of punitive damages to their insurer.” Allstate Ins. Co. v. Callaghan, No. 3:CV-04-2246, 2006 WL 1626651 (M.D. Pa. June 7, 2006). Because punitive damages are “a penalty, imposed to punish the defendant and to deter him and others from similar 'outrageous' conduct,” Pennsylvania does not allow insureds to transfer this responsibility to the insurer. Esmond v. Liscio, 209 Pa. Super. 200, 212 (Pa. Super. Ct. 1966). Nonetheless, Pennsylvania courts are reluctant to preclude coverage when the insured does not bear any direct liability for the conduct leading to the award of punitive damages. Therefore, the insurability of punitive damages in Pennsylvania largely depends on the identity of the tortfeasor and what relationship the tortfeasor has to the insured.

For example, in Pennbank v. St. Paul Fire & Marine Ins. Co., 669 F. Supp. 122 (W.D. Pa 1987), the Western District of Pennsylvania analyzed the insurability of punitive damages that had been imposed against a policyholder bank as a result of the acts of individual employees. The underlying action arose from the bank's repossession of a debtor corporation's property while the debtor's officers were in the bank's conference room and cut off from incoming calls. The insurer asserted that punitive damages were not covered under the policy and were not insurable under Pennsylvania law. Id. at 125.

The Pennbank court agreed, finding a distinction between punitive damages arising from the wanton misconduct of the policyholder and those arising from the imposition of vicarious liability. The court explained that it is against public policy to transfer to an insurer liability for punitive damages stemming from a corporate policy or actions taken by corporate management. Id. at 126. Conversely, when a functionary or agent of the company commits the act, the corporation is entitled to insurance coverage for punitive damages. Id. In Pennbank, the punitive damages were imposed because of a perceived plan or policy created and implemented by management; therefore, the insured was not able to transfer its punitive damage liability to the insurer. See also Whole Enchilada, Inc. v. Travelers Property Cas. Co. of America, 581 F. Supp. 2d 677, 704-05 (W.D. Pa 2008) (the law does not require an insurer to provide coverage for damages imposed because of decisions made by corporate management).

Punitive damages are insurable, however, when they arise because of vicarious liability. In Butterfield v. Giuntoli, 448 Pa. Super. 1 (Pa. Super. Ct. 1995), the plaintiff brought a garnishment action against a hospital's insurer after obtaining a judgment on a malpractice claim against the hospital. Since the insurer did not present any evidence that the hospital had any direct liability for the decisions regarding plaintiff's care, the Butterfield court ruled that Pennsylvania law was ambiguous as to whether punitive damages from malpractice are vicarious liability damages. The court thus found that the insured had a reasonable expectation of coverage, and the insurer was required to cover the punitive damages award. Id. at 23-24. Accordingly, policies construed under Pennsylvania law may provide coverage for punitive damages, at least where punitive damages are assessed vicariously against the policyholder.

Kansas also follows the general rule that a policyholder should not be permitted to transfer to an insurer its obligation to pay punitive damages:

Where exemplary damages are awarded for purposes of punishment and deterrence, as is true in this state, public policy should require that payment rest ultimately as well as nominally on the party who committed the wrong; otherwise they would often serve no useful purpose. The objective to be attained in imposing punitive damages is to make the culprit feel the pecuniary punch, not his guiltless guarantor. Hartford Accident & Indem. Co. v. American Red Ball Transit Co., 262 Kan. 570, 574-75 (1997).

Nonetheless, like Pennsylvania, Kansas does permit coverage for punitive damages in situations where the damages are imposed on an insured that is “personally blameless and its punitive damages liability exists solely by reasons of some form of imputed or vicarious responsibility.” Southern American Ins. v. Gabbert-Jones, Inc., 13 Kan. App. 2d 324, 328, (Kan. Ct. App. 1989).

Kansas has taken an unusual step and enacted a statute guiding policyholders and insurers on this point:

(a) It is not against the public policy of this state for a person or entity to obtain insurance covering liability for punitive or exemplary damages assessed against such insured as the result of acts or omissions, intentional or otherwise, of such insured's employees, agents or servants, or of any other person or entity for whose acts such insured shall be vicariously liable, without the actual prior knowledge of such insured.

(b) The type of coverage specified in subsection (a) may be provided by insurance companies doing business in this state. Kan. Stat. Ann. ' 40-2, 115 (2013).

The statute makes clear that insureds may obtain coverage for punitive damages imposed on them vicariously.

Since the enactment of the statute, the Supreme Court of Kansas has addressed the extent to which punitive damages are insurable. In Flint Hills Rural Elec. Coop. Ass'n v. Federated Rural Elec. Ins. Corp., 262 Kan. 512 (1997), the court noted that KS 40-2, 115 would likely have limited application because punitive damages were rarely imposed vicariously within the state. In that case, the insured was sued for wrongful death claims arising from the location of an electric line. The insurer denied coverage for the punitive damages award as against public policy. The Flint Hills court ruled that KS 40-2, 115 was inapplicable since the actions of the insured's managerial employees made the company complicit in wrongdoing, and thus imputed direct liability to the insured. Id. at 523. Accordingly, coverage counsel should carefully analyze policies applying Kansas law in cases where the basis for a punitive damages award against the policyholder is derivative.

Punitive Damages Not Insurable

A fairly small number of jurisdictions have concluded that punitive damages are not insurable under any circumstances. See Bohrer v. Church Mut. Ins. Co., 12 P.3d 854, 856 (Colo. Ct. App. 2000) (“Public policy prohibits an insurance carrier from providing insurance coverage for punitive damages.”); Utah Code Ann. ' 31A-20-101 (2013) (“No insurer may insure or attempt to insure against ' (4) punitive damages.”).

For example, punitive damages are not subject to insurance indemnification under New York law. New York courts have repeatedly held that coverage for punitive damages is precluded as against public policy. See Soto v. State Farm Ins. Co., 83 N.Y.2d 718 (1994); McCabe v. St. Paul Fire and Marine Ins. Co., 914 N.Y.S.2d 814 (N.Y. App. Div. 2010); Rental & Mgmt. Assoc., Inc. v. Hartford Ins. Co., 588 N.Y.S.2d 982 (N.Y. Gen. Term 1992). Specifically, in Zurich Ins. Co. v. Shearson Lehman Hutton, Inc., 84 N.Y.2d 309 (1994), the New York Court of Appeals held that insureds are not entitled to coverage for any punitive damages imposed upon them, regardless of whether they are imposed directly or derivatively. In that case, the insurance company filed a declaratory judgment action seeking a determination that it had no duty to indemnify the policyholder for punitive damages awarded against it for slanderous statements made by its employees.

The Shearson court ruled in favor of the insurer, finding that the fact that the punitive damages arose vicariously did not affect the state's position on insurance coverage for punitive damages. The court held:

New York, however, has taken the position that the imposition of vicarious punitive damages can significantly advance the deterrence goal by motivating an employer adequately to supervise its employees ' We have not deviated from this policy choice. That [another state] has made another, equally legitimate choice is not sufficient to compel a New York court to disregard our State's unswerving policy against permitting insurance indemnification for punitive damage awards. Shearson, 84 N.Y.2d at 320-21.

Thus, in New York, it is against public policy to permit insureds to obtain coverage for punitive damages where the insurance policy is governed by New York law.

Conclusion

Too often, coverage lawyers appear to accept on faith the maxim that punitive damages are not insurable as a matter of public policy. Numerous jurisdictions, however, permit coverage, at least under certain circumstances. Hence, a coverage lawyer should research this issue carefully under applicable law before accepting a reservation of rights or denial of the claim on this basis.

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Amanda M. Leffleris a partner and Gabrielle T. Kelly is an associate at the Ohio law firm of Brouse McDowell, where they represent policyholders in connection with a wide range of insurance-related disputes. They can be reached at 330-535-5711.

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Too often, policyholders and their counsel accept on faith that their insurance does not cover punitive damages as a matter of public policy. In many jurisdictions, however, there is coverage for all punitive damages, while others allow coverage of punitive damages under certain circumstances. In these jurisdictions, whether punitive damages are covered will depend largely upon the law applicable to the claim and the basis for the damages being imposed upon the insured. The various approaches taken by courts across the country are discussed below.

Insurability of Punitive Damages Allowed

Though it may come as a surprise to even experienced coverage practitioners, a number of jurisdictions place no restrictions upon coverage for punitive damages. See Omni Ins. Co. v. Foreman , 802 So.2d 195, 199 (Ala. 2001) (court held that UIM statute provides coverage for all damages including punitive damages); Aetna Casualty & Sur. Co. v. Marion Equip. Co. , 894 P.2d 664, 671 (Alaska 1995); Price v. Hartford Accident & Indem. Co. , 502 P.2d 522, 524 (Ariz. 1972) (“An insurance company which admittedly took a premium for covering all liability for damages, should honor its obligation.”); Jones v. State Farm Mut. Auto. Ins. Co. , 610 A.2d 1352, 1354 (Del. 1992) (“The phrase 'all damages' reasonably embraces punitive damages.”); Greenwood Cemetery, Inc. v. Travelers Indem. Co. , 232 S.E.2d 910 (Ga. 1977); Abbie Uriguen Oldsmobile Buick v. United States Fire Ins. Co. , 511 P.2d 783 (Idaho 1973); Skyline Harvestore Systems, Inc. v. Centennial Ins. Co. , 331 N.W.2d 106 (Iowa 1983); First Nat'l Bank v. Fidelity & Deposit Co. , 389 A.2d 359 (Md. 1978); American Home Assurance Co. v. Fish , 451 A.2d 358, 360 (N.H. 1982) (“Public policy sanctions rather than opposes insuring for liability arising directly against the insured from intentional torts. ' “); Baker v. Armstrong , 744 P.2d 170 (N.M. 1987); State v. Glens Falls Ins. Co. , 404 A.2d 101 (Vt. 1979); Brown v. Maxey , 369 N.W.2d 677 (Wis. 1985). These jurisdictions allow insurance coverage for all punitive damages awards.

For example, South Carolina permits parties to contract for coverage of punitive damages. In Carroway v. Johnson , 245 S.C. 200 (1965), the Supreme Court of South Carolina held that punitive damages are covered under an insurance policy unless the insurer includes specific language restricting liability or coverage. In Carroway, the insured sought coverage for damages arising from an automobile collision. The high court found that the “all sums” language contained in the insurance policy did not limit recovery to actual or compensatory damages. Id. at 204. Accordingly, the court held that coverage for punitive damages was included within the policy. Id. at 205.

Two decades later, the South Carolina Supreme Court reconsidered its position on coverage for punitive damages and reached the same conclusion ' that it is not against public policy for insureds to obtain insurance coverage for punitive damages. In S.C. State Budget & Control Board v. Prince , 304 S.C. 241 (1991), the policyholder sought coverage for punitive damages that had been awarded in a defamation action. The insurer argued that public policy precluded coverage for intentional acts committed with malice. The court affirmed the lower court's ruling for the insured and held, “The [insurer] should not be permitted to deny coverage in the name of the public policy when the language of its own policy specifically provides such coverage.” Id. at 249.

Insurability of Punitive Damages Depends on Nature Of Claim

In many jurisdictions, policyholders may obtain coverage for punitive damages awards only in certain circumstances. The insurability of punitive damages largely depends on the nature of the claim that led to the punitive damages award and whether the damages are assessed directly or vicariously.

For example, in Ohio, it is against public policy to provide insurance coverage for an insured's malicious conduct. This prohibition generally includes any damages stemming from the action. Wedge Prods., Inc. v. Hartford Equity Sales Co. , 31 Ohio St. 3d 65, 67 (1987). Because the purpose of punitive damages under Ohio law is “to punish an offender for the wanton, reckless, malicious or oppressive character of the act committed and to deter others from committing similar acts,” there is a strong public policy interest against allowing offenders to transfer responsibility to their insurance company. Casey v. Calhoun , 40 Ohio App. 3d 83, 84 (Ohio Ct. App. 1987).

Nonetheless, Ohio courts have shown a willingness to allow coverage for punitive damages in cases where such damages are imposed by statute and the insured does not exhibit malice or ill will. For example, in The Corinthian v. Hartford Fire Insurance Company , 143 Ohio App. 3d 392 (Ohio Ct. App. 2001), an Ohio Court of Appeals analyzed the insurability of punitive damages in a wrongful death suit. In that case, the policyholder sought insurance coverage for compensatory and punitive damages arising from allegations of negligent care to the deceased while in the policyholder's nursing center. In addition to common law tort claims, the estate filed a claim for a violation of the Ohio statute governing patient care. The court analyzed the statute's language and noted that under the relevant section of the statute, punitive damages could be awarded without a showing of intent, malice, willfulness or recklessness. Id. at 396. The court contrasted the case before it with Casey, supra, and held that although Ohio public policy precluded coverage when an individual sought to insure “against his own intentional or malicious acts,” indemnification was permitted
when there was a statute at issue and no proof of malice on the part of the policyholder. Id.

Similarly, in Foster v. D.B.S. Collection Agency, Case No. 01-CV-514, 2008 WL 755082 (S.D. Ohio March 20, 2008), the Southern District of Ohio considered whether punitive damages stemming from the insured's debt collection practices were insurable. In that case, the policyholder was a debt collection agency that was sued for its collection methods. The plaintiff alleged fraud, violations of the Ohio Consumer Sales Practices Act, and other related claims. The policyholder's insurance company intervened and sought a declaration that the applicable policy would not provide coverage for a punitive damages award. Rejecting the insurer's argument, the court held that “Ohio law does not prohibit insurance coverage of punitive damages in all cases,” particularly those awarded pursuant to a statute without any finding of malice. Foster, at *9. The court further found persuasive the fact that the policy language at issue explicitly purported to provide coverage for punitive damages. Id. Thus, policies construed under Ohio law may provide coverage for punitive damages, at least where punitive damages are assessed against the policyholder without a finding of malice or ill will.

Like Ohio, Pennsylvania generally subscribes to the view that it is against public policy to insure punitive damages. “Even where the [insurance] policy does not specifically exclude punitive damages, public policy does not permit Defendants to shift the burden of punitive damages to their insurer.” Allstate Ins. Co. v. Callaghan, No. 3:CV-04-2246, 2006 WL 1626651 (M.D. Pa. June 7, 2006). Because punitive damages are “a penalty, imposed to punish the defendant and to deter him and others from similar 'outrageous' conduct,” Pennsylvania does not allow insureds to transfer this responsibility to the insurer. Esmond v. Liscio , 209 Pa. Super. 200, 212 (Pa. Super. Ct. 1966). Nonetheless, Pennsylvania courts are reluctant to preclude coverage when the insured does not bear any direct liability for the conduct leading to the award of punitive damages. Therefore, the insurability of punitive damages in Pennsylvania largely depends on the identity of the tortfeasor and what relationship the tortfeasor has to the insured.

For example, in Pennbank v. St. Paul Fire & Marine Ins. Co. , 669 F. Supp. 122 (W.D. Pa 1987), the Western District of Pennsylvania analyzed the insurability of punitive damages that had been imposed against a policyholder bank as a result of the acts of individual employees. The underlying action arose from the bank's repossession of a debtor corporation's property while the debtor's officers were in the bank's conference room and cut off from incoming calls. The insurer asserted that punitive damages were not covered under the policy and were not insurable under Pennsylvania law. Id. at 125.

The Pennbank court agreed, finding a distinction between punitive damages arising from the wanton misconduct of the policyholder and those arising from the imposition of vicarious liability. The court explained that it is against public policy to transfer to an insurer liability for punitive damages stemming from a corporate policy or actions taken by corporate management. Id. at 126. Conversely, when a functionary or agent of the company commits the act, the corporation is entitled to insurance coverage for punitive damages. Id. In Pennbank, the punitive damages were imposed because of a perceived plan or policy created and implemented by management; therefore, the insured was not able to transfer its punitive damage liability to the insurer. See also Whole Enchilada, Inc. v. Travelers Property Cas. Co. of America , 581 F. Supp. 2d 677, 704-05 (W.D. Pa 2008) (the law does not require an insurer to provide coverage for damages imposed because of decisions made by corporate management).

Punitive damages are insurable, however, when they arise because of vicarious liability. In Butterfield v. Giuntoli , 448 Pa. Super. 1 (Pa. Super. Ct. 1995), the plaintiff brought a garnishment action against a hospital's insurer after obtaining a judgment on a malpractice claim against the hospital. Since the insurer did not present any evidence that the hospital had any direct liability for the decisions regarding plaintiff's care, the Butterfield court ruled that Pennsylvania law was ambiguous as to whether punitive damages from malpractice are vicarious liability damages. The court thus found that the insured had a reasonable expectation of coverage, and the insurer was required to cover the punitive damages award. Id. at 23-24. Accordingly, policies construed under Pennsylvania law may provide coverage for punitive damages, at least where punitive damages are assessed vicariously against the policyholder.

Kansas also follows the general rule that a policyholder should not be permitted to transfer to an insurer its obligation to pay punitive damages:

Where exemplary damages are awarded for purposes of punishment and deterrence, as is true in this state, public policy should require that payment rest ultimately as well as nominally on the party who committed the wrong; otherwise they would often serve no useful purpose. The objective to be attained in imposing punitive damages is to make the culprit feel the pecuniary punch, not his guiltless guarantor. Hartford Accident & Indem. Co. v. American Red Ball Transit Co ., 262 Kan. 570, 574-75 (1997).

Nonetheless, like Pennsylvania, Kansas does permit coverage for punitive damages in situations where the damages are imposed on an insured that is “personally blameless and its punitive damages liability exists solely by reasons of some form of imputed or vicarious responsibility.” Southern American Ins. v. Gabbert-Jones, Inc. , 13 Kan. App. 2d 324, 328, (Kan. Ct. App. 1989).

Kansas has taken an unusual step and enacted a statute guiding policyholders and insurers on this point:

(a) It is not against the public policy of this state for a person or entity to obtain insurance covering liability for punitive or exemplary damages assessed against such insured as the result of acts or omissions, intentional or otherwise, of such insured's employees, agents or servants, or of any other person or entity for whose acts such insured shall be vicariously liable, without the actual prior knowledge of such insured.

(b) The type of coverage specified in subsection (a) may be provided by insurance companies doing business in this state. Kan. Stat. Ann. ' 40-2, 115 (2013).

The statute makes clear that insureds may obtain coverage for punitive damages imposed on them vicariously.

Since the enactment of the statute, the Supreme Court of Kansas has addressed the extent to which punitive damages are insurable. In Flint Hills Rural Elec. Coop. Ass'n v. Federated Rural Elec. Ins. Corp. , 262 Kan. 512 (1997), the court noted that KS 40-2, 115 would likely have limited application because punitive damages were rarely imposed vicariously within the state. In that case, the insured was sued for wrongful death claims arising from the location of an electric line. The insurer denied coverage for the punitive damages award as against public policy. The Flint Hills court ruled that KS 40-2, 115 was inapplicable since the actions of the insured's managerial employees made the company complicit in wrongdoing, and thus imputed direct liability to the insured. Id. at 523. Accordingly, coverage counsel should carefully analyze policies applying Kansas law in cases where the basis for a punitive damages award against the policyholder is derivative.

Punitive Damages Not Insurable

A fairly small number of jurisdictions have concluded that punitive damages are not insurable under any circumstances. See Bohrer v. Church Mut. Ins. Co. , 12 P.3d 854, 856 (Colo. Ct. App. 2000) (“Public policy prohibits an insurance carrier from providing insurance coverage for punitive damages.”); Utah Code Ann. ' 31A-20-101 (2013) (“No insurer may insure or attempt to insure against ' (4) punitive damages.”).

For example, punitive damages are not subject to insurance indemnification under New York law. New York courts have repeatedly held that coverage for punitive damages is precluded as against public policy. See Soto v. State Farm Ins. Co. , 83 N.Y.2d 718 (1994); McCabe v. St. Paul Fire and Marine Ins. Co. , 914 N.Y.S.2d 814 (N.Y. App. Div. 2010); Rental & Mgmt. Assoc., Inc. v. Hartford Ins. Co. , 588 N.Y.S.2d 982 (N.Y. Gen. Term 1992). Specifically, in Zurich Ins. Co. v. Shearson Lehman Hutton, Inc. , 84 N.Y.2d 309 (1994), the New York Court of Appeals held that insureds are not entitled to coverage for any punitive damages imposed upon them, regardless of whether they are imposed directly or derivatively. In that case, the insurance company filed a declaratory judgment action seeking a determination that it had no duty to indemnify the policyholder for punitive damages awarded against it for slanderous statements made by its employees.

The Shearson court ruled in favor of the insurer, finding that the fact that the punitive damages arose vicariously did not affect the state's position on insurance coverage for punitive damages. The court held:

New York, however, has taken the position that the imposition of vicarious punitive damages can significantly advance the deterrence goal by motivating an employer adequately to supervise its employees ' We have not deviated from this policy choice. That [another state] has made another, equally legitimate choice is not sufficient to compel a New York court to disregard our State's unswerving policy against permitting insurance indemnification for punitive damage awards. Shearson, 84 N.Y.2d at 320-21.

Thus, in New York, it is against public policy to permit insureds to obtain coverage for punitive damages where the insurance policy is governed by New York law.

Conclusion

Too often, coverage lawyers appear to accept on faith the maxim that punitive damages are not insurable as a matter of public policy. Numerous jurisdictions, however, permit coverage, at least under certain circumstances. Hence, a coverage lawyer should research this issue carefully under applicable law before accepting a reservation of rights or denial of the claim on this basis.

'

Amanda M. Leffleris a partner and Gabrielle T. Kelly is an associate at the Ohio law firm of Brouse McDowell, where they represent policyholders in connection with a wide range of insurance-related disputes. They can be reached at 330-535-5711.

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