For insurance buyers, insurance agents and insurance wholesalers!For insurance buyers, insurance agents and insurance wholesalers!

WILL YOUR EMPLOYEE PRACTICES LIABILITY INSURANCE PAY FOR PUNITIVE DAMAGES?

3That depends. You've probably read about court cases like this: An aggrieved employee or ex-employee sues a business. The court awards $2 million for the injury - and then tacks on another $54 million for punitive damages! Isn't something out of line here?

These damages are often a high multiple of the award for the primary allegation of harm. The reasoning lies in the purpose of awarding punitive damages: To punish the negligent party.

Damages for the primary injury depend on the extent of the harm. However, punitive damages seem to be based on this premise: "How much we have to award to drive home to the negligent party that they'd better change their behavior or risk even more painful actions."

Many states prohibit Employment Practices Liability insurance (EPLI) policies from paying punitive damages. The reasoning is clear: If a business can cover this loss, did it really get "punished"? Does the ability to insure the exposure minimize the deterrence value of the award? Other states allow insuring this exposure, but only under certain conditions.

To determine whether your EPLI policy will pick up the tab for punitive damages awarded from employee-related lawsuits, talk with our professionals. We can provide information about the availability of such coverage, and explore the legal treatment of insurance proceeds for such damages in the state(s) where you operate.
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Further Reading
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