Aggravated, Exemplary and Restitutionary ... - Law Commission

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