Aggravated, Exemplary and Restitutionary ... - Law Commission
Aggravated, Exemplary and Restitutionary ... - Law Commission
Aggravated, Exemplary and Restitutionary ... - Law Commission
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1.265 Underlying this proposal is the view that insurance eliminates the punitive <strong>and</strong><br />
deterrent effect of punitive damages awards, <strong>and</strong> is therefore (generally)<br />
undesirable. Insured wrongdoers do not feel the immediate impact of any award<br />
in their own pockets: the primary burden is borne by the insurer. In contrast,<br />
permitting insurance against vicarious liability does not of itself serve to frustrate<br />
the punitive function of a punitive damages award. The law does not seek to<br />
punish the party who is vicariously, rather than primarily, liable; other<br />
considerations justify the doctrine of vicarious liability.<br />
1.266 We recognise the logic of this argument, but for several reasons we are<br />
unconvinced of its weight. First, we re-emphasise our doubts that the availability<br />
of insurance will wholly or even substantially eliminate the punitive <strong>and</strong> deterrent<br />
effects which may typically be expected of awards of punitive damages. 815<br />
Secondly, we consider that the reasoning underlying this proposal is inconsistent:<br />
vicarious liability also compromises the punitive function of punitive damages<br />
awards. Where awards are paid by a primary wrongdoer’s employer, the<br />
wrongdoing-employee escapes direct punishment by the law. He or she does not<br />
meet the liability out of his or her own pocket, <strong>and</strong> the direct punitive effect of an<br />
award is replaced by indirect pressures in the form of, for example, contribution or<br />
indemnity claims by the employer, or disciplinary action. The position is similar<br />
where insurance is permitted against the primary liability: the insured-wrongdoer<br />
does not feel the impact of an award directly in his or her own pocket.<br />
Accordingly, if the possibility of indirect punishment <strong>and</strong>/or deterrence is held out<br />
as one reason why vicarious liability is acceptable, the same argument ought to<br />
have at least some weight when deciding whether insurance should be permitted<br />
against a primary liability to pay punitive damages. 816<br />
Thirdly, insurance <strong>and</strong><br />
vicarious liability have in common one important rationale. The single most<br />
important reason both for permitting insurance <strong>and</strong> for recognising vicarious<br />
liability is the same: to ensure that judgments for punitive damages can be satisfied<br />
<strong>and</strong> therefore that victims of outrageous conduct have a financial reason for<br />
claiming punitive damages. To recognise vicarious liability to punitive damages<br />
<strong>and</strong> permit insurance in respect of it, whilst prohibiting insurance against a<br />
primary liability to pay punitive damages, ignores this.<br />
(iii) Insurance is permitted against a fixed percentage of an award<br />
1.267 A final suggestion was that insurance would be permitted against only a fixed<br />
percentage of an award of punitive damages. 817<br />
The main objections to this<br />
proposal are two-fold. The first objection is that it is difficult to select any<br />
particular percentage in a non-arbitrary way. This is due to an inherent flexibility<br />
in the appropriate balance between ensuring that plaintiffs have a financial reason<br />
to claim punitive damages <strong>and</strong> ensuring effective punishment or deterrence.<br />
Whereas the first goal is better served by permitting a higher percentage of an<br />
815 See, in particular, paras 5.238-5.241 above.<br />
816 It is possible to argue that by allowing insurance against vicarious liability, one only further<br />
weakens the likely indirect pressure on wrongdoing-employees: if the immediate burden of<br />
awards which their employers must pay is borne by their insurers, they have less of an<br />
incentive to discipline their employees.<br />
817 M Jones <strong>and</strong> K Stanton.<br />
174