Aggravated, Exemplary and Restitutionary ... - Law Commission

would be that to allow insurance would frustrate, or at least limit, any punitive or
deterrent effect which such liability might have on the defendant. 537
1.193 The leading case on this question, Lancashire County Council v Municipal Mutual
Insurance Ltd, 538
suggests that it is not. In that case a local authority was vicariously
liable to pay awards of exemplary damages for torts committed by its employees.
The authority had an insurance policy which covered it for “all sums which the
insured shall become legally liable to pay as compensation”. The insurers were
only prepared to pay the compensatory damages and disputed their liability in
respect of the exemplary damages awarded. The local authority brought an action
against the insurers.
1.194 At first instance Judge Michael Kershaw held that it was not per se contrary to
public policy for a person to be indemnified by insurance against their liability for
exemplary damages. This was upheld by the Court of Appeal, but on slightly
different grounds. 539
Having held that the insurance policy did, on its proper
construction, cover the awards of exemplary damages, the court decided that
public policy did not require that the local authority should be prevented from
insuring against the consequences of its vicarious liability. It was not necessary for
Simon Brown LJ to go further to consider the position of a wrongdoer seeking
indemnification against exemplary damages arising from his or her personal
liability. However, the clear suggestion in Simon Brown LJ’s judgment is that the
court’s approach would be the same: insurance would be permitted even in
relation to a personal liability to pay an exemplary damages award. 540
1.195 Simon Brown LJ considered the argument that category 1 exemplary damages
cases would involve conduct which would “almost inevitably be criminal”, and that
given the principle that a person “cannot insure ... against liability for committing
a crime”, insurance against conduct falling within category 1 should be contrary to
public policy. 541
He responded:
For my part I unhesitatingly accept the principle that a person cannot
insure against a liability consequent on the commission of a crime,
whether of deliberate violence or otherwise - save in certain
circumstances where, for example, compulsory insurance is required
and enforceable even by the insured. I further recognise that in many
cases where the question of liability for exemplary damages is likely to
arise for consideration under this policy the police officer concerned
will have acted criminally. Conspicuously this will be so in cases of
assault ... 542
But there was:
537 For a very clear and forceful expression of this argument, see Denning J in Askey v Golden
Wine Co [1948] 2 All ER 35, 38C-E.
538 [1996] 3 WLR 493.
539 [1996] 3 WLR 493.
540 See, in particular, Simon Brown LJ’s reasoning at [1996] 3 WLR 493, 503B-504D.
541 [1996] 3 WLR 493, 501H-502F.
542 [1996] 3 WLR 493, 502F-G.
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