Aggravated, Exemplary and Restitutionary ... - Law Commission
Aggravated, Exemplary and Restitutionary ... - Law Commission
Aggravated, Exemplary and Restitutionary ... - Law Commission
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approaches. 786<br />
132, 787<br />
Although it was not expressed in this way in Consultation Paper No<br />
we regard the choice as one between three main options:<br />
(1) insurance against punitive damages awards is in all cases permitted by<br />
legislation;<br />
(2) there is no general legislative public policy bar on insurance, but insurance<br />
is barred in cases involving especially outrageous conduct;<br />
(3) insurance against punitive awards is in all cases barred by legislation.<br />
1.236 On the balance of arguments of principle, policy <strong>and</strong> practicality, we reject a bar of<br />
any sort on insurance against punitive damages: that is, we favour option 1. We<br />
give the decisive reasons for our choice below.<br />
(b) The decisive reasons for preferring option 1: insurance is permitted<br />
in all cases<br />
(i) The need for plaintiffs to have a financial reason for claiming punitive damages<br />
1.237 There is a clear public interest in punishing <strong>and</strong> deterring bad conduct of a nature<br />
which merits a punitive damages award, as well as in offering appeasement to the<br />
victims thereof. Nevertheless, it is futile to discuss the pursuit of these aims<br />
through civil litigation if plaintiffs will not claim punitive damages because the<br />
defendant cannot pay them. Plaintiffs are unlikely to claim punitive damages<br />
where defendants do not have the financial capacity to pay any substantial<br />
damages <strong>and</strong> costs which may be awarded against them. Such capacity may be<br />
afforded, however, by liability insurance.<br />
(ii) The efficacy of the pursuit of the aims of punitive damages<br />
1.238 We do not believe that the aims of punitive damages will be either wholly or<br />
substantially frustrated by generally permitting insurance against awards. Although<br />
we recognise that any retributive <strong>and</strong> deterrent purposes of this category of<br />
damages may be diluted by our proposed approach to insurance, we do not<br />
anticipate that they will be wholly frustrated: in particular, the insurance industry,<br />
in controlling the availability <strong>and</strong> cost of such insurance, is in a position to exert<br />
significant pressure on present or potential insured parties.<br />
1.239 Our views on this matter are supported by strong recent judicial statements. In<br />
Lamb v Cotogno 788<br />
the High Court of Australia recognised that the purposes of<br />
punitive damages are not wholly frustrated by the availability of insurance:<br />
786 See the discussion in <strong>Aggravated</strong>, <strong>Exemplary</strong> <strong>and</strong> <strong>Restitutionary</strong> Damages (1993)<br />
Consultation Paper No 132, para 6.39-6.41; see also, on the approach of United States<br />
jurisdictions, inter alia, L Schlueter <strong>and</strong> K Redden, Punitive Damages (3rd ed, 1995) vol 2,<br />
§ 17.0-17.2; D B Dobbs, <strong>Law</strong> of Remedies (2nd ed, 1993) § 3.11(7).<br />
787 <strong>Aggravated</strong>, <strong>Exemplary</strong> <strong>and</strong> <strong>Restitutionary</strong> Damages (1993) Consultation Paper No 132,<br />
paras 6.39-6.41.<br />
788 (1987) 164 CLR 1.<br />
167