Punitive Damage1

Punitive Damages Punitive damages, also known as exemplary damages, are damages that are separate and in excess of the compensatory damages awarded to a plaintiff in a legal suit that arises from the malicious or wanton misconduct of the defendant. Punitive damages are imposed to serve as a punishment for the defendant. The potential size of a punitive damages award is unpredictable, and the process of arriving at it is just as arbitrary. There are no maximums and no minimums as in criminal law – the jury alone determines the amount. Problems arise because juries sometimes act emotionally and without regard to the broader implications of their decisions. Punitive damages are a modern phenomenon of the U.S. judicial system. In the U.S., punitive damages may be assessed in connection with nearly any type of commercial or personal activity. They have frequently been assessed for:

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Product liability Merger and acquisition disputes Discrimination based on sex, race, or age Professional liability Unfair competition

Punitive Damages Laws Differ from State to State While compensatory damages are insurable, punitive damages may or may not be. The situation differs from state to state. Some states permit insurance for punitive awards while others prohibit insurance on the basis that insuring these damages would be against public policy, believing that punishment should not be transferable. Some states are undetermined on the issue. To protect against the financial loss associated with a punitive damage award, Aon offers a variety of solutions, which include:

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Comprehensive Business Continuity. Design and implementation of a plan to address catastrophic events, including catastrophic tort claims Product/Professional Liability Committees. Advice on structuring committees that review claims, exposures, advertising, and other related issues on a regular basis Insurance Policy Audit and Review of State Laws. Comprehensive analysis to determine where you have coverage and where recovery under such coverage may not be permitted Design and Placement of Coverage with Non-Domiciled U.S. Markets. Coverage placed in markets that explicitly cover punitive damages Offshore Punitive Damages Coverage. Consulting on the placement of an offshore punitive damages policy to indemnify an insured for punitive damages assessed in locales where insuring for punitive damages is prohibited by law Implementation of Alternative Risk Financing Mechanisms. Financing punitive damages under a captive and other financing techniques