Insurance Coverage for Punitive Damages in Florida
By: Matthew M. Jackson, Esquire
Boyle, Gentile & Leonard, P.A.
It is a commonly held belief that Florida public policy forbids insurance coverage for punitive or exemplary damages, regardless of the policy language. However, a review of cases addressing the issue reveals that the public policy prohibition on coverage for punitive damages applies only to insureds who engage in active wrongdoing. It is clear that Florida’s public policy does not prohibit insurance coverage for punitive damages based on vicarious liability. The Florida Supreme Court has succinctly set forth the policy, and the reasoning behind it.
“Florida public policy prohibits liability insurance coverage for punitive damages assessed against a person because of his own wrongful conduct.” U.S. Concrete Pipe Co. v. Bould, 437 So. 2d 1061 (Fla. 1983). “The Florida policy of allowing punitive damages to punish and deter those guilty of aggravated misconduct would be frustrated if such damages were covered by liability insurance.” Id.
“However, it is generally held that there is a distinction between the actual tortfeasor and one only vicariously liable and that therefore public policy is not violated by construing a liability policy to include punitive damages recovered by an injured person where the insured did not participate in or authorize the act.” See Id., citing Sterling Insurance Co. v. Hughes, 187 So. 2d 898 (Fla. 3d DCA 1966). Common scenarios wherein an insured could face punitive damages based on vicarious liability include companies answering for the conduct of employees, and contractor-subcontractor relationships where the subcontractor’s actions provide the basis for a cause of action which supports punitive damages.
In cases where punitive damages are awarded based on vicarious liability, an analysis of the relevant policy language is necessary. Simply because public policy would allow for punitive damages based on vicarious liability does not mean that the language of the insurance policy actually provides coverage. For example, in First Specialty Ins. Co. v. Caliber One Indem. Co., 988 So. 2d 708 (Fla 2nd DCA 2008) the Second District Court of Appeal, held that while public policy did not forbid coverage of punitive damages based on vicarious liability, the language of the policy, which defined damages as “any compensatory amount”, did not provide coverage for punitive damages because punitive damages are not compensatory. In addition, the 2nd District held that the policy did not provide coverage, because it specifically excluded coverage for “penalties or fines” rendered against the insured. See Id. at 713. However, even a clause specifically excluding punitive damages was held to be insufficient justification for dismissing a complaint against an insurance company. See Schwab v. First Appalachian Ins. Co., 58 F.R.D. 615, 622 (Fla. 1973).
Additionally, the Florida Supreme Court has held that there must be some independent wrongdoing by the vicariously liable party to allow for punitive damages. See Mercury Motors Express, Inc. v. Smith, 393 So.2d 545, 549 (Fla. 1981). This appears to require negligence on the part of the vicariously liable party, or some other wrongful conduct- however, if the wrongful conduct of the vicariously liable party is itself the basis of a portion of the punitive damages, this would prevent recovery from insurance, at least as to the punitive damages based directly on the wrongful conduct, based on the public policy previously discussed.
It is important to note that even if an insurance policy clearly excludes punitive damages, or in cases where no vicarious liability is alleged and insurance coverage for punitive damages is obviously prohibited by public policy, an insurance company that defends an insured must act in good faith towards the insured, as to potentially covered claims and as to punitive damages claims. See Ging v. American Liberty Ins. Co., 423 F.2d 115, 116 (5th Cir. 1970). In Ging, the insured was grossly negligent, resulting in a car accident and the death of the driver of another vehicle. See Id. at 117. The insurance company defended the insured under a reservation of rights, and expressly stated that punitive damages were not covered. See Id. The insurer did not settle within policy limits despite an offer from the estate of the deceased driver to do so, did not inform the insured of the offer, did not forward correspondence from the estate to the insured despite requests by the estate to do so, and engaged in other bad faith conduct. See Id. at 117-118. After judgment was entered against insured for compensatory and punitive damages, the insurer paid in full the compensatory damages, and the estate took assignment of the insured’s bad faith claims and sued the insurer for bad faith, attempting to collect the judgment for punitive damages. In reversing summary judgment in favor of the insurer, the Ging court held:
“Because an insurance company actually did undertake the complete defense of its insured to a suit seeking both compensatory and punitive damages, the company had the duty of acting in good faith toward its insured as to the entire undertaking.” See Id. at 116
While there are several legal impediments, in some cases, insurance policies may indeed cover punitive damage, despite popular belief to the contrary. As always, the facts and the policy language will control the analysis, but when vicarious liability is alleged, insurance coverage for punitive damages becomes a possibility to be carefully evaluated.