Insurability and Punitive Damages

This Article addresses issues relating to the insurability of punitive damages awards. There is no clear consensus today whether the law should allow insurance coverage of punitive damages. Our courts conflict sharply: some deny coverage on grounds of public policy; the majority allow coverage. Courts on both sides have regarded the insurability issue as implicating the most central goals of modern tort law, but they have failed to generate a consensus regarding whether coverage or the refusal of coverage best achieves these goals. Indeed, there is substantial confusion in each of the alternative judicial approaches to the insurability of punitive damages. Many courts, for example, deny insurance coverage on grounds that it violates public policy to allow insurance to diminish the deterrent effect of punitive awards, which is the awards' chief function. Yet, even courts adopting this approach have crafted exceptions to the rule, allowing insurance coverage where the award serves some compensatory purpose or where other legal principles, such as strict vicarious liability, are implicated. The rationale for these exceptions, however, is not well worked out. Courts have not explained why there should be less concern over diminishing the deterrent effect of vicarious liability or why and to what extent the compensation goal should trump the deterrence goal. Other courts have ruled, in contrast, that the deterrent effect of punitive damages can be achieved even if insurance coverage is allowed because insurers can raise premiums after an award or can