Punitive Damage Exclusions in Motorists Insurance

Some automobile insurance policies have clauses that specifically exclude the payment of punitive or exemplary damages against an insured. Punitive or exemplary damages do not pay for bodily injuries or property damage. They are awarded over and above payment for those items. Punitive or exemplary damages are intended to punish the person who caused the injuries or damage or to make that person an example to deter others from such conduct.

So long as the punitive or exemplary exclusion is not ambiguous and does not violate a state’s public policy or statutes, most courts will uphold the exclusion and enforce it. Most states agree that an insurer does not have to provide insurance coverage for an award of punitive or exemplary damages against an uninsured or underinsured person.

Several states have statutes that prohibit the punishment of intentional wrongdoers through punitive damage awards. In such states, insurance coverage for punitive or exemplary damages would not exist unless that coverage is specifically included in the insurance policy. Therefore, no punitive or exemplary damages exclusion is needed for the insurance companies in those states to avoid paying awards for punitive damages.

State laws regarding punitive or exemplary damage exclusions can vary in other ways. Some states do not permit an insurance company to provide insurance coverage for punitive damages awarded due to the acts or omissions of an insured’s employees or agents, if the insured did not know of those acts or omissions. Other states permit insurance coverage for punitive damages that arise out of a person’s death or injury due to an insured’s negligence.