Survey of U.S. State Laws on Insurability of Punitive Damages

Presented at the Seasonal Meeting of the International Section of the New York Bar Association October 2018

Mark F. Rosenberg* Sullivan & Cromwell LLP 125 Broad Street New York, NY 10004 +1-212-558-4000

* Associates at Sullivan & Cromwell LLP Elizabeth Olsen and Julia Long provided valuable assistance in the preparation of this survey. The views expressed in this article are solely those of the author and do not necessarily reflect the views of Sullivan & Cromwell LLP. The information in this survey should be used only as a guide and a start to research on the issues discussed herein. Despite the broad characterizations necessary for charts of the types herein, many cases are, of course, fact-specific and those included in this survey may be distinguished by other cases on such grounds. In addition, this area of the law is constantly evolving, so care should be taken to consult outside counsel and to ensure research on your particular question is accurate and up-to-date. Summary: Survey of U.S. State Laws on Insurability of Punitive Damages

1. Choice of Law Rules Most Significant Relationship Test Place of the Contract Test Government Interest Test Other Test (see chart) Alaska Alabama California Louisiana Arizona Arkansas Minnesota Colorado Florida North Dakota Connecticut Georgia Pennsylvania Delaware Kansas South Carolina District of Columbia Maryland Wisconsin Hawaii Michigan Idaho New Mexico Illinois North Carolina Indiana Oklahoma Iowa South Dakota Kentucky Virginia Maine West Virginia Massachusetts Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New York Ohio Oregon Rhode Island Tennessee Texas Utah Vermont Washington Wyoming

-2- Summary: Survey of U.S. State Laws on Insurability of Punitive Damages

2. Punitive Damages Assessed for Defendant’s Own Conduct

Unclear Insurable Uninsurable (see chart for more detail) Alabama California Connecticut Alaska Colorado District of Columbia Arizona Florida Maine Arkansas Illinois Missouri Delaware Indiana Ohio Georgia Kansas South Dakota Hawaii Minnesota Texas Idaho Nebraska Iowa New Jersey Kentucky New York Louisiana Oklahoma Maryland Pennsylvania Massachusetts Rhode Island Michigan Utah Mississippi Montana Nevada New Hampshire New Mexico North Carolina North Dakota Oregon South Carolina Tennessee Vermont Virginia Washington West Virginia Wisconsin

-3- Summary: Survey of U.S. State Laws on Insurability of Punitive Damages

Unclear Insurable Uninsurable (see chart for more detail) Wyoming

-4- Summary: Survey of U.S. State Laws on Insurability of Punitive Damages

3. Rule for Vicarious Liability When Punitive Damages Generally Are Not Insurable

Unclear Insurable Uninsurable (see chart for more detail) Arkansas New York California Connecticut Utah Colorado Florida District of Columbia Illinois Maine Indiana Massachusetts Kansas Missouri Kentucky Nebraska Minnesota Nevada Oklahoma New Jersey Pennsylvania Ohio Rhode Island South Dakota Texas

-5- Summary: Survey of U.S. State Laws on Insurability of Punitive Damages

4. Rule For Insurability Determined by Basis of the Punitive Damages If General Rule Is That Punitive Damages Are Not Insurable

Unclear Insurable Uninsurable (see chart for more detail) California Utah Colorado Kentucky Connecticut Nevada District of Columbia New York Florida Texas Illinois Indiana Kansas Maine Massachusetts Minnesota Missouri Nebraska New Jersey Ohio Oklahoma Pennsylvania Rhode Island South Dakota

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Survey of U.S. States Laws on Insurability of Punitive Damages1

1 This paper provides a broad overview of the laws of all 50 states, as of June 5, 2015, regarding the insurability of punitive damages. The paper, being a summary, may necessarily omit relevant details and should not be considered a substitute for legal advice.

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Rule For Insurability Rule For Insurability Vicarious Determined by Basis of the General Rule For Insurability of Liability If General Rule Is That Punitive Damages If General Punitive Damages Assessed for Punitive Damages Are Not Rule Is That Punitive Damages State Choice of Law Method Defendant’s Own Conduct Insurable. Are Not Insurable. (Ark. 1981) (clarifying that the unintended consequences of intentional acts are insurable). California California courts generally apply a Generally Uninsurable. Unclear. Insurable. “governmental interest” analysis to As a general rule, punitive damages are There is some support for the If a punitive damages award is choice of law issues. Continental Cas. not insurable under California law. proposition that California made in another jurisdiction, Co. v. Fibreboard Corp., 762 F. Supp. Carter v. EnterCom Sacramento, LLC, recognizes an exception to its rule California will look to whether 1368, 1376 (N.D. Cal. 1991), aff’d 953 219 Cal.App.4th 337, 352 (Cal. Ct. App. against insurability of punitive the basis of the award would F.2d 1386 (9th Cir. 1992), cert. granted 2013) (“It is true that damages where those damages have have justified an award of and judgment vacated for consideration public policy prohibits the payment been imposed on account of punitive damages in California. of mootness 506 U.S. 948 (1992) (“The of punitive damage awards by [an] vicarious liability for the conduct of If it would not have, then the judgment is vacated and the case is insurer.”); Ford Motor Co. v. Home Ins. another. See, e.g., Certain award is insurable in California remanded . . . to consider the question of Co., 116 Cal. App. 3d 374, 382 (Cal. Ct. Underwriters at Lloyd’s of London v. notwithstanding its being mootness.”). “The first step in the App. 1981) (“The City Products rule Pacific Southwest Airlines USAir, classified as a punitive damages governmental interest analysis is to prohibits insurance coverage of punitive Inc., 786 F. Supp. 867, 869 (C.D. award by the awarding determine whether the applicable rules of damages, regardless of the context of the Cal. 1992) (“The courts interpreting jurisdiction. Continental Cas. law of the potentially concerned award.”); City Prods. Corp. v. Globe California law, however, have Co. v. Fibreboard Corp., 762 F. jurisdictions materially differ. If there is Indem. Co., 88 Cal. App. 3d 31, 35, 42 supplied one exception to this legal Supp. 1368, 1372 (N.D. Cal. no material difference, there is no (Cal. Ct. App. 1979) (“In any event, the concept. In vicarious liability cases 1991), affirmed 953 F.2d 1386 choice-of-law problem and the court may policy of this state that punitive damages where an employer is required to pay (9th Cir. 1992), cert. granted proceed to apply California law. The may be recovered only ‘for the sake of punitive damages as a result of the and judgment vacated for party arguing that foreign law governs example and by way of punishing the actions of one of his employees, the consideration of mootness 506 has the burden to identify the applicable defendant’ precludes passing them on to courts have held that Section 533 U.S. 948 (1992) (“Since the foreign law, show that it materially an insurer.”) (“The foregoing does not apply and the employer can punitive damages at issue in our differs from California law, and show demonstrates that the policy of this state be indemnified.”). These courts case were awarded in West that the foreign law furthers an interest with respect to punitive damages would reach this result by first holding that Virginia and Texas, we can not of the foreign state.” Frontier Oil Corp. be frustrated by permitting the party Section 533 of the California assume that they were awarded

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Rule For Insurability Rule For Insurability Vicarious Determined by Basis of the General Rule For Insurability of Liability If General Rule Is That Punitive Damages If General Punitive Damages Assessed for Punitive Damages Are Not Rule Is That Punitive Damages State Choice of Law Method Defendant’s Own Conduct Insurable. Are Not Insurable. v. RLI INS. Co., 153 Cal.App.4th 1436, against whom they are awarded to pass on Insurance Code (which provides that in accordance [with] the strict 1466 (Cal. Ct. App. 2007). Under this the liability to an insurance carrier. . . . an insurer is not liable to indemnify California standard for punitive analysis, the court is “to look to the We concluded, therefore, that the public the insured for its willful conduct) is damages. . . . If the Texas and policies underlying each of the policy of this state prohibits insurance the basis for the rule against West Virginia juries found conflicting laws, and then [is] to covering the punitive damages levied insurance for punitive damages, and Fibreboard liable based upon determine which policy is more against plaintiff.”). Some courts, then holding that Section 533 does conduct which would not justify significantly impaired by the application including the City Products Corp. court, not apply when the liability is the imposition of punitive of the law of the other state. The law of look to Section 533 of the Insurance Code vicarious. To the extent, however, damages in California, but which the more significantly impaired state is to to reach this conclusion. Section 533 that a court holds that the bar to did satisfy the lower threshold be applied.” Fibreboard, 762 F. Supp. provides that an insurer “is not liable for a insurance for punitive damages is for punitive damages existing in at 1377 (applying governmental interest loss caused by the willful act of the based not on Section 533 but instead Texas and West Virginia, then analysis to determine which state’s law insured; but he is not exonerated by the on some broader policy, see, e.g., California public policy would should apply as to whether insuring negligence of the insured, or of the Ford Motor Co. v. Home Ins. Co., not prohibit insurance of the against punitive damages is contrary to insured’s agents or others.” Cal. Ins. 116 Cal. App. 3d 374 (Cal. Ct. App. punitive damages.”). As noted public policy). In Fibreboard, the court Code § 533. 1981) (“City Products addresses the by the Fibreboard court, was required to determine whether question of whether punitive California has a particularly high California or Texas law should govern damages are uninsurable as a matter threshold for imposing punitive insurability of a punitive damages award of public policy as a separate and damages. The applicable statute issued in Texas against a California distinct issue from whether conduct provides that a defendant can be corporation for conduct that occurred in is uninsurable under Insurance Code held liable for punitive damages Texas. The court held that because “the section 533. . . . The City Products only “where it is proven by clear torts here at issue occurred in Texas,” rule prohibits insurance coverage of and convincing evidence that the Texas’ interests “outweigh[ed] punitive damages, regardless of the defendant has been guilty of California’s attenuated interest in context of the award. It is thus oppression, fraud, or malice . . . punishing and deterring the wrongful broader than the proscription in .” Cal. Civ. Code § 3294. An behavior of California manufacturers.” Insurance Code section 533.”), it award from another state that is Id. at 1378-79. may be possible to argue that based upon conduct that does not punitive damages should not be constitute “oppression, fraud, or

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Rule For Insurability Rule For Insurability Vicarious Determined by Basis of the General Rule For Insurability of Liability If General Rule Is That Punitive Damages If General Punitive Damages Assessed for Punitive Damages Are Not Rule Is That Punitive Damages State Choice of Law Method Defendant’s Own Conduct Insurable. Are Not Insurable. actions.” ITT Specialty Risk Serv. v. Avis damages. Otherwise, the legal and social Rent A Car, 985 P.2d 43, 47 (Colo. Ct. purposes for punitive damages would be App. 1998) (citing Wood Bros. Homes, defeated.” Universal Indemnity Insurance Inc. v. Walker Adjustment Bureau, 601 Co. v. Tenery, 96 Colo. 10, 39 P.2d 776 P.2d 1369 (1979)). (1934); see also Ace American Insurance Company v. Dish Network, LLC, 883 F.3d 881, 890 (10th Cir. 2018) (“The public policy of Colorado prohibits an insurance carrier from providing insurance coverage for punitive damages.”) (quoting Lira v. Shelter Ins. Co., 913 P.2d 514, 517 (Colo. 1996). Connecticut “The validity of a contract of fire, surety Unclear – Older Case Law Indicates Insurable. Unclear – possibly Insurable. or casualty insurance and the rights Uninsurable but More Recent “In several other jurisdictions, public The language in the original created thereby are determined by the Precedent Holds Policy Providing policy has been held to preclude the Tedesco case strongly suggests local law of the state which the parties Coverage for Intentional Acts Can wrongdoer whose conduct has that the reason punitive damages understood was to be the principal Insurer Punitive Damages Imposed for resulted in an award of punitive are not allowed are because they location of the insured risk during the Those Acts. damages from shifting this liability are allowing the insured to term of the policy, unless with respect to In Tedesco v. Md. Cas. Co., 18 A.2d 357, to his insurer, the courts have recover for his own intentional the particular issue, some other state has 359 (Conn. 1941), it was held that a allowed insurance coverage for an or reckless wrongdoing. If a more significant relationship under the tortfeasor may not protect himself from insured such as Avis, on whom punitives were assessed for some principles stated in § 6 [of the liability by seeking indemnity from his liability for such damages has been other purpose, then the case does Restatement (Second) Conflict of Laws] insurer for punitive damages that were imposed vicariously. . . . conclude not seem like it would banned to the transaction and the parties, in imposed on him for his own intentional or that the syntax of the pertinent policy under the public policy which event the local law of the other reckless wrongdoing. See also Bodner v. provisions as well as the established considerations in Tedesco. state will be applied. This establishes a United Services Automobile Ass’n, 222 principle resolving insurance policy special presumption in favor of

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Rule For Insurability Rule For Insurability Vicarious Determined by Basis of the General Rule For Insurability of Liability If General Rule Is That Punitive Damages If General Punitive Damages Assessed for Punitive Damages Are Not Rule Is That Punitive Damages State Choice of Law Method Defendant’s Own Conduct Insurable. Are Not Insurable. domicile of the insured or the insurer, the that which prohibits insurance under such Country Mut. Ins. Co., 420 N.E.2d place of performance, and where the circumstances.”). See also GTE North 1058, 1061 (Ill. App. Ct. 1981) underlying action was filed.” U.S. Inc. v. First State Ins. Co., 1990 WL (“Our holding here that public policy Gypsum Co. v. Admiral Ins. Co., 643 186470, at *3 (N.D. Ill. 1990) (“Although prohibits insurance against liability N.E.2d 1226, 1250 (Ill. App. Ct. 1995) never decided by the State Supreme for punitive damages that arise out of (internal citations, quotations, and Court, it is clear that under Illinois law one’s own misconduct does not ellipses omitted). In U.S. Gypsum, the insurance coverage is not allowed for affect the rule . . . that an employer court applied South Carolina law to punitive damages arising out of one’s own may insure himself against vicarious determine whether punitive damages conduct.”); Crawford Laboratories, Inc. liability for punitive damages were insurable because “South Carolina v. St. Paul Ins. Co. of Illinois, 306 assessed against him in consequence was the place where the underlying Ill.App.3d 538, 545 (Ill. App. Ct. 1999) of the wrongful conduct of his action was filed, where the underlying (“[I]n Illinois, public policy prohibits employee.” (internal citation plaintiff was domiciled, and where the insurance against liability for punitive omitted)). underlying injury occurred.” Id. at 1250. damages that arise out of the misconduct of the insured.”) Indiana “An insurance policy is governed by the Uninsurable. (probably). Insurable. Unclear. law of the principal location of the A federal District Court, predicting Vicarious liability is insurable. See insured risk during the term of the Indiana law on the issue, has held that Norfolk & W.R. Co. v. Hartford Acc. policy. . . Because Dunn was a Indiana public policy would be violated if & Indemn. Co., 420 F. Supp. 92 Tennessee resident at the time he took a wrongdoer were permitted to insure (N.D. Ind. 1976). The court granted out the policy, his claim is grounded in against punitive damages arising from his the insured’s motion for summary the law of Tennessee.” Dunn v. own misconduct. See Grant v. N. River judgment because the insured was Meridian Mut. Ins. Co., 836 N.E.2d 249, Ins. Co., 453 F. Supp. 1361 (N.D. Ind. held on a vicarious liability theory, 251 (Ind. 2005) (citing Restatement 1978) (city could not shift responsibility which was within the scope of the (Second) of Conflict of Laws § 193). to insurer for payment of punitive policy’s coverage. damages for which city was directly liable).

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Rule For Insurability Rule For Insurability Vicarious Determined by Basis of the General Rule For Insurability of Liability If General Rule Is That Punitive Damages If General Punitive Damages Assessed for Punitive Damages Are Not Rule Is That Punitive Damages State Choice of Law Method Defendant’s Own Conduct Insurable. Are Not Insurable. Kansas “In determining what state’s law applies Uninsurable. Insurable. Unclear. to a contractual dispute, Kansas follows “The Kansas Supreme Court has held that It is not against public policy to the Restatement First of the Conflict of it is against the public policy of this state obtain insurance to cover liability for Laws. Accordingly, Kansas applies the to allow a wrongdoer to purchase punitive damages or exemplary lex loci contractus doctrine and applies insurance to cover punitive damages.” damages assessed against an insured the law of the state where the contract is State Farm Fir and Cas. Co. v. Martinez, as a result of the acts of employees, made. A contract is made where the last 26 Kan.App.2d 869, 878 (Kan. 2000). agents, servants or any other person act necessary for its formation occurs.” Kansas public policy requires that for whom the insured is vicariously Found. Property Invs., LLC v. CTP, payment of punitive damages rests liable. KAN. STAT. ANN. § 40- LLC, 37 Kan. App. 2d 890, 894-95 (Kan. ultimately, as well as nominally, on the 2,115 (2010); see also Hartford, 938 Ct. App. 2007). Under Kansas law, “[a] party who committed the wrong, P.2d at 1290. contract is made where the last act otherwise such damage would often serve necessary for its formation occurs.” no useful purpose; the objective to be Novak v. Mutual of Omaha Ins. Co., 29 obtained in imposing punitive damages is Kan. App. 2d 526, 534 (2001). to make the culprit, not the culprit’s However, the Kansas Supreme Court has insurer, feel the pecuniary punch. See noted that Kansas law must be applied if Hackman v. Western Agr. Ins. Co., 251 the application of its general choice of P.3d 113, 2011 WL 1878135 at *5 (Kan. law rules would result in coverage of May 6, 2011)(“Kansas public policy punitive damages. Hartford Accident & prohibits insurance coverage for Indem. Co. v. American Red Ball Transit intentional acts: [A]n individual should Co., 262 Kan. 570, 575 (1997) (“If we not be exempt from the financial were to refuse to apply Kansas law on consequences of his own intentional the issue of punitive damages, we would injury to another.”) Specifically, thwart the purposes for which the policy permitting insurance coverage of punitive was adopted.”) (quoting St. Paul Surplus damages assessed against insureds would Lines Ins. Co. v. International Playtex, violate public policy. Hartford Acc. &

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Rule For Insurability Rule For Insurability Vicarious Determined by Basis of the General Rule For Insurability of Liability If General Rule Is That Punitive Damages If General Punitive Damages Assessed for Punitive Damages Are Not Rule Is That Punitive Damages State Choice of Law Method Defendant’s Own Conduct Insurable. Are Not Insurable. rule of one state or the other is ‘outcome 4552683, at *11 (Minn. Oct. 14, 2008). In 1390262, at *4 (Minn. May 23, determinative.’” Nodak Mut. Ins. Co. v. most instances, public policy should 2006) (“This general prohibition Am. Family Mut. Ins. Co., 590 N.W.2d prohibit a person from insuring himself [against providing insurance 670, 672 (Minn. Ct. App. 1999) aff’d, against misconduct of a character serious coverage for punitive damages] is 604 N.W.2d 91 (Minn. 2000) (internal enough to warrant punitive damages, subject to an exception for punitive- citations omitted). “As part of our despite the lack of certainty concerning damages claims based on vicarious analysis, we must consider whether the the deterrent effect of such damages. liability”); Lake Cable Partners v. rule of each state may be constitutionally Wojciak v. N. Package Corp., 310 Interstate Power Co., 563 N.W.2d 81 applied.” Id. at 672. (internal citations N.W.2d 675, 679 (Minn. 1981). While (Minn. Ct. App. 1997); Perl v. St. omitted). “The next step in choice-of- finding that the case was not an Paul Fire & Marine Ins. Co., 345 law analysis is to consider certain appropriate one in which to apply the rule, N.W.2d 209 (Minn. 1984). choice-influencing factors. These factors the court said that although the multiple help reveal the reasons for choosing one damages authorized in the compensation The Minnesota legislature explicitly state’s law over another. Jepson v. law were described as “punitive codified the principle that that General Cas. Co., 513 N.W.2d 467, 469 damages,” the statutory provision insurance companies may insure (Minn. 1994). The factors are: (1) providing for such damages was enacted against vicarious liability for predictability of result; (2) maintenance not only to punish and deter employers, punitive damages. 2000 Minn. Laws of interstate and international order; (3) but also to afford redress to employees. ch. 304, § 1, at 177. “Under the simplification of the judicial task; and (4) Id. But the court said that it recognized statutory codification of the advancement of the forum’s differences between a statutory award of common-law exception, providing governmental interest. Nodak Mut. Ins. multiple damages, not necessarily coverage for punitive damages that Co., 590 N.W.2d at 673. reflecting a judgment concerning the arise through vicarious liability culpability of the employer’s conduct, and would not violate public policy.” an award of punitive damages at common Seren, 2006 WL 1390262, at *4. law. The latter, the court said, is assessed by the jury and thus reflects the In one federal case, the court found community’s condemnation of a that the vicarious liability exception defendant’s conduct when it is viewed as to general prohibition against

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Rule For Insurability Rule For Insurability Vicarious Determined by Basis of the General Rule For Insurability of Liability If General Rule Is That Punitive Damages If General Punitive Damages Assessed for Punitive Damages Are Not Rule Is That Punitive Damages State Choice of Law Method Defendant’s Own Conduct Insurable. Are Not Insurable. Nevada “This court has adopted the substantial Insurable. Unclear. Insurable. relationship test to resolve conflict-of- The Nevada Supreme Court clearly Nevada law explicitly states that law questions.” Williams v. United Serv. prohibited, on grounds of public policy, punitive damages may be Auto. Ass’n, 109 Nev. 333, 334-335 indemnification for punitive damages.” insured if they do not arise from (Nev. 1993); “Under [the substantial Lombardi v. Maryland Cas. Co., 894 F. the wrongful act of the insured relationship test], the state whose law is Supp. 369, 372 (D. Nev. 1995) (applying with the intent to cause injury to applied must have a substantial Nevada law). However, after that case, another. NEV. REV. STAT. relationship with the transaction; and the the legislature passed a statute stating § 681A.095 (2007) transaction must not violate a strong punitive damages may be insured if they public policy of Nevada . . . The do not arise from the wrongful act of the Restatement (Second) of Conflict of insured with the intent to cause injury to Laws §193 (1971) provides that the another. NEV. REV. STAT. § 681A.095 location of the insured risk embodies a (2007). This statute is not retroactive. significant criterion in deciding which Albert D. Seeno Constr. Co. v. Twin City law governs.” Id. The agreement must Fire Ins. Co., 1997 U.S. App. LEXIS also not be contrary to the public policy 12432 (9th Cir. Nev. May 27, 1997). of another interested state. Progressive Gulf Ins. Co. v. Faehnrich, 327 P.3d 1061, 1064 (2014). New “[I]n the context of insurance contracts, Insurable. N/A In a civil action founded on a Hampshire we have found that the State which is the An insurance company can be liable for tort, nothing but compensatory ‘principal location of the insured risk’ exemplary or punitive damages where damages can be awarded, but the bears the most significant relationship to such coverage is not expressly excluded injured party is entitled to full the contract, in the absence of an express by the policy language. Weeks v. St. Paul compensation for all the injury choice of law by the parties. Ellis v. Fire & Marine Ins. Co., 673 A.2d 772 sustained, mental as well as Royal Ins. Co., 129 N.H. 326, 331, 530 (N.H. 1996); American Home Assurance material. In some cases, A.2d 303, 306 (1987).” Glowski v. Co. v. Fish, 451 A.2d 358 (N.H. 1982) – compensation for the actual

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Rule For Insurability Rule For Insurability Vicarious Determined by Basis of the General Rule For Insurability of Liability If General Rule Is That Punitive Damages If General Punitive Damages Assessed for Punitive Damages Are Not Rule Is That Punitive Damages State Choice of Law Method Defendant’s Own Conduct Insurable. Are Not Insurable. Carela, 2007 WL 2363123, at *3 (D.N.J. 696, 703 (Sup. Ct. N.J. A.D. 1980) (“INA policy which provided that assault punitive damages are imposed in Aug. 15, 2007) (internal quotation argues that claims for punitive damages and battery would be deemed an another jurisdiction that has a omitted). The factors enumerated in the are not covered by its policy. It maintains accident so long as it was not lower standard for their Restatement (Second) of Conflict of that since such damages are meant to committed “by or at the direction of imposition (e.g., gross Laws are used to determine whether punish and not to compensate, insuring the insured.” Id. at 106. The policy negligence). Johnson & another jurisdiction has a “dominant against them would contravene public provided coverage to both the Johnson v. Aetna Cas. and significant relationship.” Id. at *4. policy. We agree.”). individual partners as well as the Surety Co., 667 A.2d 1087, These factors include “(a) the needs of partnership as an entity, and the court 1093-94 (N.J. Super. Ct. App. the interstate and international systems; held that only the individual partner Div. 1995). The court refrained (b) the relevant policies of the forum; (c) responsible for the assault was barred from deciding this issue because the relevant policies of other interested from receiving coverage. Id. at 110. it found it unnecessary. Id. at states and the relative interests of those Some have argued that under 1094 (holding that the “legal states in the determination of the Malanga, New Jersey would standards imposed for the particular issue; (d) the protection of recognize an exception to its policy awards of punitive damages . . . justified expectations; (e) the basic are not so conceptually different against insurance for punitive policies underlying the particular field of damages when they are imposed for from New Jersey’s standard as to law; (f) certainty, predictability and vicarious liability. One appellate cause us to abandon our State’s uniformity of result; and (g) ease in the division case, however, has rejected well-settled policy which determination and application of the law this position and held that New precludes insurance coverage for to be applied.” Jersey bars insurance for punitive punitive damage liability” but Id. (quoting Restatement (Second) of damages regardless of whether they noting that it was not addressing Conflict of Laws § 6(2)). We did not were imposed for direct or vicarious “whether a different result could be reached if the punitive locate a New Jersey case applying these liability. Johnson & Johnson v. principles to determine the law Aetna Cas. and Sur. Co., 667 A.2d damage award was entered in a applicable to insurability of punitive 1087, 1091-92 (N.J. Super. Ct. App. jurisdiction having a damages. In Johnson & Johnson v. Div. 1995) (“Notably, Variety significantly lower standard than Aetna Cas. and Surety Co., 667 A.2d Farms, supra, contains no analysis that required by our Products

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Rule For Insurability Rule For Insurability Vicarious Determined by Basis of the General Rule For Insurability of Liability If General Rule Is That Punitive Damages If General Punitive Damages Assessed for Punitive Damages Are Not Rule Is That Punitive Damages State Choice of Law Method Defendant’s Own Conduct Insurable. Are Not Insurable. N.Y.2d 309, 317 (1994). New York also Sec. Inc. v. Vigilant Ins. Co., 21 NY.3d there is no statutory authority so reckless as to amount to such looks to the provision in the Restatement 324, 334 (2013) (“[A]n insurer may not explicitly authorizing insurance disregard.” Welch v. Mr. (Second) of Conflict of Laws which indemnify an insured for coverage for punitive damages, but Christmas Inc., 440 N.E.2d provides that as to liability insurance a punitive damages award, and a policy the Texas courts have interpreted the 1317, 1321 (N.Y. 1982). If contracts, the “‘local law of the state provision purporting to provide such general insurance law to permit such punitive damages are awarded in which the parties understood was to be coverage is unenforceable. The rationale coverage, taking the view that another jurisdiction for conduct the principal location of the insured risk underlying this public policy exception coverage is particularly justifiable in that is not sufficiently culpable . . . unless with respect to the particular emphasizes that allowing coverage would cases of vicarious corporate liability. to meet this standard, New York issue, some other state has a more defeat the purpose of punitive damages, New York, however, has taken the public policy does not prohibit significant relationship.’” Id. at 318 which is to punish and to deter others position that the imposition of insurance for them. Zurich Ins. (quoting Restatement (Second) of from acting similarly”) (internal citations vicarious punitive damages can Co. v. Shearson Lehman Hutton, Conflict of Laws § 193). New York omitted). However, if the punitive significantly advance the deterrence Inc., 84 N.Y.2d 309, 317 (1994). courts also take into account the damages were awarded in another goal by motivating an employer governmental interests behind jurisdiction, the New York policy applies adequately to supervise its conflicting laws when they are only if the damages would be punitive employees, particularly those whose identifiable. Id. at 319. under New York law. Id. at 315, 317 actions may reflect what has come to The Court of Appeals has held that New (“[I]f the damages awarded would not be be known as the ‘corporate culture’ York’s public policy against insurance ‘punitive’ under New York law, and implicate the ‘institutional coverage for punitive damage applies indemnification would not be precluded conscience’ and to take preventive even when the punitive damages have by New York public policy.”) (“[O]nly and corrective measures. We have been awarded in another jurisdiction, at when the damage award is of a ‘punitive not deviated from this policy choice. least if the New York contacts are nature’ is indemnification precluded by That Texas has made another equally New York policy.”). legitimate choice, is not sufficient to sufficiently strong. See id. at 317-19 (finding that New York’s public policy compel a New York court to applied where the insured had its disregard our State’s unswerving principal place of business in New York; policy against permitting insurance the insurance contract was negotiated indemnification for punitive damage awards, when New York choice of

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Rule For Insurability Rule For Insurability Vicarious Determined by Basis of the General Rule For Insurability of Liability If General Rule Is That Punitive Damages If General Punitive Damages Assessed for Punitive Damages Are Not Rule Is That Punitive Damages State Choice of Law Method Defendant’s Own Conduct Insurable. Are Not Insurable. any, between the parties is centered. These contacts are to be evaluated according to their relative importance with respect to the particular issue.” Hataway v. McKinley, 830 S.W.2d 53, 59 (Tenn. 1992) Texas Article 21.42 of the Texas Insurance It depends on the context. It depends on the context. Insurable. in some contexts. Code includes a choice of law provision: Texas law is unclear, and the impact that In light of Fairfield Ins. Co. v. The Texas Supreme Court has “Any contract of insurance payable to public policy has on the insurability of Stephens Martin Paving, LP, 246 held that punitive damages any citizen or inhabitant of this State by punitive damages appears to differ S.W.3d 653 (Tex. 2008), coverage imposed for gross negligence are any insurance company or corporation depending on the context. There are, for for punitive damages for vicarious insurable under a workers’ doing business within this State shall be example, certain legislative prohibitions liability will likely depend on the compensation policy. Fairfield held to be a contract made and entered on insurance for punitive damages. circumstances present in a particular Ins. Co. v. Stephens Martin into under and by virtue of the laws of Fairfield Ins. Co. v. Stephens Martin situation. There is, however, Paving, LP, 246 S.W.3d 653 this State relating to insurance, and Paving, LP, 246 S.W.3d 653, 656-57 language in the Fairfield decision (Tex. 2008). Otherwise, the law governed thereby, notwithstanding such (Tex. 2008) (noting that the Texas which indicates that an insured entity is unclear, and insurability will policy or contract of insurance may legislature has prohibited coverage for would have strong arguments in depend on the nature of the provide that the contract was executed punitive damages assessed against certain favor of coverage for punitive conduct and the importance of and the premiums and policy (in case it health care providers and various public damages when the liability was Texas’ competing policies, becomes a demand) should be payable entities such as guaranty funds). imposed vicariously: “The including freedom of contract without this State, or at the home office Additionally, multiple Texas courts have considerations may weigh differently and the punitive nature of of the company or corporation issuing held that public policy bars recovery of when the insured is a corporation or punitive damages. For example, the same.” punitive damages “under uninsured or business that must pay exemplary a federal appellate court Thus, when the insurance policy has underinsured motorist policies when the damages for the conduct of one or applying Texas law after been made payable to a citizen or insured seeks to recover from his own more of its employees. Where other Fairfield has held that Texas law inhabitant of Texas by an insurer doing insurer exemplary damages assessed employees and management are not does not permit coverage for against a third-party tortfeasor.” Id. at involved in or aware of an punitive damages imposed on an

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Rule For Insurability Rule For Insurability Vicarious Determined by Basis of the General Rule For Insurability of Liability If General Rule Is That Punitive Damages If General Punitive Damages Assessed for Punitive Damages Are Not Rule Is That Punitive Damages State Choice of Law Method Defendant’s Own Conduct Insurable. Are Not Insurable. business in Texas, the Texas public 668. employee’s wrongful act, the intoxicated driver of an 18-wheel policy on insurability of punitive In its most recent pronouncement on this purpose of exemplary damages may vehicle where the accident damages applies. See American Home topic, the Texas Supreme Court has held be achieved by permitting coverage represented the insured’s third Assurance Co. v. Safway Steel Products that it was not against public policy to so as not to penalize many for the conviction for driving while Co., 743 S.W.2d 693 (Tex. App. 1987). insure against punitive damages imposed wrongful act of one. When a party intoxicated and the insured knew When this statute does not apply, Texas as a result of gross negligence in the seeks damages in these he was a danger to others. courts apply the “most significant context of a workers’ compensation circumstances, courts should Minter v. Great American relationship” test from the Restatement policy. Fairfield Ins. Co. v. Stephens consider valid arguments that Insurance Co. of New York, 394 (Second) of Conflict of Laws. American Martin Paving, L.P., 246 S.W.3d 653, 670 businesses be permitted to insure Fed. App’x 47, 50 (5th Cir. Home Assurance Co. v. Safway Steel (Tex. 2008) (“[T]he public policy of against them.” Id. at 670. 2010). Products Co., Inc., 743 S.W.2d 693 (Ct. Texas does not prohibit insurance App. Tex. 1988). Under this test as coverage of exemplary damages for gross applied by Texas courts, the “substantive negligence in the workers’ compensation law of the state most significantly related context.”). Notwithstanding the specific to the disputed issue will apply . . . , context in which the court was addressing unless the parties expressly contract the public policy issue, it did discuss otherwise.” Id. at 698. The court in various factors which would impact the Safway Steel Products indicated that the insurability of punitive damages more jurisdiction in which the punitive generally. For example, the court damages were imposed is significant. Id. indicated that under different at 699 (“If the needs of the interstate circumstances, it would likely be against system are to be served . . . , then the public policy to allow insurance for appropriate local law to be applied in punitive damages. Id. (“Extreme resolving both the policy construction circumstances may prompt a different issues and public policy issues is the law analysis. The touchstone is freedom of of the state that imposed the punitive contract, but strong public policies may damages in the first place – Texas.”). compel a serious analysis into whether a

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