THE INSURABILITY OF PUNITIVE DAMAGES IN FLORIDA
Hugh J. Connolly, Esq. • Volume 3, Issue 10 October 2009

INTRODUCTION
A standard commercial general liability insurance policy provides coverage for “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” We are often asked by claim examiners whether punitive damages are covered by this provision of the policy. The majority of jurisdictions hold that this coverage provision does include coverage for punitive damages unless such coverage is specifically excluded elsewhere in the policy. However, Florida does not adhere to this majority view. Instead, an award of punitive damages in Florida is uninsurable as a matter of public policy despite this general coverage provision of the policy. Nicholson v. American Fire & Cas. Ins. Co., 177 So.2d 52 (Fla. 1965). Thus, it is not necessary to engage in construction of the coverage provisions or exclusions of the insurance policy when the claim against the insured is for direct liability.

WHY DOES FLORIDA PROHIBIT COVERAGE FOR PUNITIVE DAMAGES?
Florida law authorizes the recovery of punitive damages from those guilty of aggravated misconduct. The purpose of punitive damages is to punish the wrongdoer and to deter others from similar misconduct. Punitive damages are not meant to compensate the victims of the aggravated misconduct. When the wrongdoer has acted with wanton or willful disregard of the safety of others, punitive damages are imposed as a measure of society’s disapproval of the aggravated misconduct. If the burden of paying that penalty is shifted to a liability insurer, the wrongdoer has no incentive to learn his lesson and change his behavior, and others would not be deterred. Imposing financial responsibility on the actual wrongdoer is the only way to advance the purpose of punishment and the deterrent effect of punitive damages. Thus, if a punitive damage award could be shifted to a liability insurer then the purpose of punitive damages would be frustrated. Employers Ins. of Wausau v. Lavender, 506 So.2d 1166 (Fla. 3d DCA 1166). In this same vein, it is the law in Florida that persons may not insure themselves against their own intentional misconduct because the availability of insurance could directly stimulate an intentional wrongdoer to violate the law. Griffin Bros. Co. v. Mohammed, 918 So.2d 425 (Fla. 4th DCA 2006).

ARE TREBLE DAMAGES INSURABLE UNDER FLORIDA LAW?
No. Although treble damages are not considered “punitive damages,” they are still designed to punish the wrongdoer, and the public policy considerations against allowing these damages to be passed on to insurers are the same. As such, public policy disallows insurance for treble damages as well. Country Manors Ass’n, Inc. v. Master Antenna Sys., Inc., 534 So.2d 1187 (Fla. 4th DCA 1988).

IS THERE AN EXCEPTION TO THE GENERAL RULE PROHIBITING COVERAGE FOR PUNITIVE DAMAGES?
Yes. Florida does permit coverage for punitive damages when these damages are imposed on the insured on the basis of vicarious responsibility for the acts of another. This exception usually comes into play when an insured employer is held vicariously liable for the actions of its employees. Under this scenario, Florida courts have determined that, unless the insured employer ratified or otherwise adopted or approved its employee’s wrongful conduct or directed the employee’s actions, the public policy concerns against the availability of coverage are not applicable. Instead, the courts recognize that when an employer’s liability for punitive damages arises solely from the fact that he relies upon employees to carry out his business, there is no reason to punish or deter the employer. U.S. Concrete Pipe Co. v. Bould, 437 So.2d 1061 (Fla. 1983).

DOES AN INSURER HAVE A DUTY TO DEFEND ITS INSURED AGAINST A SUIT SEEKING COMPENSATORY AND PUNITIVE DAMAGES?
Yes. An insurer has a duty to defend its insured whenever there are allegations in a complaint that potentially fall within the coverage provisions of the policy. Accordingly, since compensatory damages are insured, the insurer is obligated to defend its insured against the punitive damages claim as well. Nonetheless, the insurer is not obligated to indemnify the insured for a punitive damages award if the insured is found directly (not vicariously) liable. Morgan Intern. Realty, Inc. v. Dade Underwriters Ins. Agency, Inc., 617 So.2d 455 (Fla. 3d DCA 1993)

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