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Many an insured has received an unpleasant surprise finding out after a court has awarded attorney’s fees or punitive damages that these awards are not covered by their malpractice insurance policy.  Yes the act(s) that were alleged were covered and yes your insurance carrier paid your defense costs and the award for damages.  But the largest portion of the award may be the punitive damages and attorney’s fees.

The time to check for coverage is not after the punitive damage award.  So how can you determine whether a particular malpractice insurance policy covers punitive damages?  Punitive damage awards are normally awarded for egregious acts with a few malpractice policies providing coverage but most do not.  One needs to read their Professional Liability Insurance policy to determine if there is coverage.  But finding the ‘exclusion’ can be tricky.  Just because it is excluded does not mean you will find it in the ‘exclusion section’.

One of the more common places to find the punitive damages ‘exclusion’ is where it is in the Wesco Lawyers Professional Liability Insurance policy definition of damages:

E.    “Damages means  judgments,  awards  and  settlements  if  negotiated  with  the  assistance  and  approval  of  the Company.  Damages do not include:

 

4. punitive or exemplary amounts and any multiplied portion of multiplied awards;…”

 

But sometimes the ‘exclusion’ is in the insuring agreement or the ‘exclusion’ section of the policy. 

The more difficult task is determining if a policy does cover punitive damages.  It is rarely explicitly stated that damages include punitive damages.  Normally you are left with a thorough reading of the entire policy to determine whether a ‘punitive damage exclusion’ exists.

Even after you have done all of this to find if a policy that will cover punitive damages, there is one more place to check.  That is to determine whether the payment of punitive damages is allowed in your particular state.  Even if the policy either states or does not exclude punitive damages, the policy must conform to the laws and court rulings for your particular state.  In almost 50% of the states, it is not permitted to insure for punitive damages.                    

One site to check is:

Punitive Damages permitted by state

Punitive damages and sanctions (attorney’s fees) can be substantial; if you have concerns about these being awarded against you review the policy in question and then determine if in your state allows insurance coverage.

 

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