February 19, 2008

Texas Supreme Court Holds That Punitive Damages Against Employer Are Insurable

On February 15, the Texas Supreme Court issued an opinion deciding the following certified question from the Fifth Circuit: “Does Texas public policy prohibit a liability insurance provider from indemnifying an award for punitive damages imposed on its insured because of gross negligence?” The court answered that question in the negative. That puts Texas law at odds with California law, which provides that punitive damages are not insurable.


  1. Since punitive damages in California require a showing of fraud, oppression or malice, it makes sense that it is against the law to insure for puni's. You can't insure for fraud, either. But so long as "gross negligence" is insurable, then it makes sense that the damages arising therefrom, whether conpensatory or punitive, should likewise be insurable.

    I could see an argument for drawing a line between compensatory and punitive damages for insurability purposes as an incentive for the exercise of diligence, but it seems to me that insurance for gross negligence would be worth very little in that case.

  2. Our Supreme Court has given two reasons why punitive damages are not insurable. First is a public policy rationale; the goals of punitive damages (punishment and deterrence) will be frustrated if a wrongdoer can shift liability to an insurer. The second reason applies only in cases involving willful acts; Ins. Code section 533 provides that insurers are not liable for the willful act of the insured.