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Punitive Damages

Punitive damages, also known as exemplary damages, are damages that are separate and in excess of
the compensatory damages awarded to a plaintiff in a legal suit that arises from the malicious or wanton
misconduct of the defendant. Punitive damages are imposed to serve as a punishment for the

The potential size of a punitive damages award is unpredictable, and the process of arriving at it is just
as arbitrary. There are no maximums and no minimums as in criminal law – the jury alone determines
the amount. Problems arise because juries sometimes act emotionally and without regard to the broader
implications of their decisions.

Punitive damages are a modern phenomenon of the U.S. judicial system. In the U.S., punitive damages
may be assessed in connection with nearly any type of commercial or personal activity. They have
frequently been assessed for:

• Product liability
• Merger and acquisition disputes
• Discrimination based on sex, race, or age
• Professional liability
• Unfair competition

Punitive Damages Laws Differ from State to State

While compensatory damages are insurable, punitive damages may or may not be. The situation differs
from state to state. Some states permit insurance for punitive awards while others prohibit insurance on
the basis that insuring these damages would be against public policy, believing that punishment should
not be transferable. Some states are undetermined on the issue.

To protect against the financial loss associated with a punitive damage award, Aon offers a variety of
solutions, which include:

• Comprehensive Business Continuity. Design and implementation of a plan to address

catastrophic events, including catastrophic tort claims
• Product/Professional Liability Committees. Advice on structuring committees that review
claims, exposures, advertising, and other related issues on a regular basis
• Insurance Policy Audit and Review of State Laws. Comprehensive analysis to determine
where you have coverage and where recovery under such coverage may not be permitted
• Design and Placement of Coverage with Non-Domiciled U.S. Markets. Coverage placed in
markets that explicitly cover punitive damages
• Offshore Punitive Damages Coverage. Consulting on the placement of an offshore punitive
damages policy to indemnify an insured for punitive damages assessed in locales where
insuring for punitive damages is prohibited by law

• Implementation of Alternative Risk Financing Mechanisms. Financing punitive damages

under a captive and other financing techniques