Punitive Damages for the Tort of Bad Faith

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A Video Explaining Insurance for Punitive Damages


Read the full article at https://www.linkedin.com/pulse/punitive-damages-tort-bad-faith-barry-zalma-esq-cfe and see the full video at https://rumble.com/vo1ch0-punitive-damages-for-the-tort-of-bad-faith.html and at https://youtu.be/QSABagaEKVI and at https://zalma.com/blog plus more than 3950 posts.


Insurers generally argue that they cannot or should not indemnify or insure for punitive damage awards because to do so would defeat the punishment aspect of punitive damages. Insurance carriers typically rely, in California, on “public policy” and point to California Insurance Code Section 533. Section 533 states:


An insurer is not liable for a loss caused by the willful act of the insured; but he is not exonerated by the negligence of the insured, or of the insured’s agents or others.


The purpose of punitive damages is to punish wrongdoers and thereby deter the commission of wrongful acts. [Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 928, 148 Cal.Rptr. 389, 582 P.2d 980, fn. 13 (Neal).] In Neal, the California Supreme Court set forth three factors relevant to the assessment of punitive damages:


   1. the degree of reprehensibility of the act;

   2. the amount of compensatory damages awarded; and

   3. the wealth of the particular defendant.


The primary purpose of compensatory damages is fundamentally different from punitive damages — to make plaintiffs whole, not to deter future harm. There is simply no reason why punitive damages should be limited by some fixed ratio to actual damages. [Lane v. Hughes Aircraft Co., 93 Cal.Rptr. 2d 60, 22 Cal.4th 405, 993 P.2d 388 (Cal. 2000)]

BMW was the first time the Court had ever struck down a punitive damages award as unconstitutionally excessive; the Court reaffirmed BMW in questioning the size of a punitive damages award in Cooper Industries, 532 U.S. at 440-43, 121 S.Ct. 1678, and followed BMW in striking down another punitive damages award in State Farm Mutual Insurance Co. v. Campbell, 123 S.Ct. 1513, 1521-26, 155 L.Ed.2d 585 (2003) where it limited the amount of punitive damages to a small multiplier of compensatory damages.


Insurance carriers frequently cite Peterson v. Superior Court, 31 Cal.3d 147 (1982), in support of their argument. The Peterson court addressed the question of whether “imposition of punitive damages negates an insured’s coverage for compensatory damages as well as punitive damages.” It stated that “indemnification of the punitive damages is disallowed for public policy reasons.”


© 2021 – Barry Zalma


Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

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