By my count, punitive damages, in some way, shape or form, are insurable in 38 states.  You know the usual drill in cases involving the issue – courts address whether public policy precludes the insurability of punitive damages on the basis that a wrongdoer should not be permitted to pass-off his or her punishment to an insurer.  Courts in some states say yes. Courts in other states say no: if the policy does not specifically preclude coverage for punitive damages, then freedom of contract controls.  There are also various nuances on the issue, such as punitive damages being insurable for vicarious but not direct liability or coverage being allowed for punitive damages based on grossly negligent but not more serious conduct.  Other permutations abound. 

Of course, the question can also be avoided if a liability policy – as is sometimes the case -- contains an express exclusion for punitive damages.  Such exclusions are routinely upheld.

That’s where the Oklahoma Supreme Court’s decision in Progressive Direct Insurance Company v. Pope comes in, addressing a punitive damages coverage issue with little case law nationally: does an exclusion for punitive damages preclude coverage for an insured’s liability for treble damages?

With so little law on the issue nationally, not to mention offering a policy drafting lesson for insurers, Progressive v. Pope was an easy choice for inclusion as one of the year’s ten most significant coverage decisions.  

The case stems from an Oklahoma statute that prohibits a driver from leaving the scene of a motor vehicle accident involving property damage.  The act is a misdemeanor, subject to imprisonment of up to one year in jail and a $500 fine.  In addition, in a civil action, the violator shall be subject to liability for three times the value of the damage caused.

At issue was the availability of coverage for such treble damages under a Progressive auto policy.  The policy contained an exclusion for “punitive or exemplary damages.”  A dispute arose whether the exclusion applied to treble damages under the statute.

The competing arguments are not surprising.  The insurer argued, among other things, that the treble damages under the statute are punitive in nature and Oklahoma public policy disfavors coverage for punitive damages.  The injured party’s arguments included such things as the policy contains no provision addressing punitive damages and the multiplying of damages is not per se punitive.

The supreme court, after looking at several sources for guidance, concluded that the treble damages awarded under the statute were punitive and came within the ambit of the exclusion:

“Generally, a statutory multiplier for damages has a punitive nature when damages are meant to punish ‘the wrongdoer’ and to act as a deterrent to others.  One cause of action may not be used to claim both common-law punitive damages and statutory punitive damages when the statutorily-authorized damages are designed to supplant the common-law punitive damages for that cause of action.  The nature of the wrongful conduct sufficient to support an award of statutory punitive damages is not necessarily synonymous with wrongful conduct to support an award of common-law punitive damages. ***

“Considering the well-known history of statutorily multiplied damages in the context of a combined punitive and deterrent purpose, our discussion of the Legislature’s purpose for 47 O.S. § 10-103 in 1987 [the statute at issue], and construction of this statute as part of the insurance policy, we conclude the statutory treble damages in 47 O.S.2011, § 10-103 are for the purpose of controlling conduct of drivers and are punitive in nature. We conclude the treble damages in 47 O.S.2011, § 10-103 are punitive for the purpose of the exclusion in the policy.”

Besides the guidance that Progressive v. Pope may offer to other courts facing this issue, the policy drafting lesson for insurers is quite apparent.  If insurers believe that treble damages – or any multiplier – are punitive in nature and intended to be excluded by a punitive damages exclusion, they should say so in the exclusion.  Plenty of punitive damages exclusions do just that.  But lots do not.