Does an auto policy cover punitive damages?

Answer 1

Liability insurance is intended to answer for essentially simple negligence (carelessness). Punitive damages, when awarded, are based upon the idea that the wrongdoer's acts were intentional, malicious, willful or egregious. In the context of an auto collision, drunk driving sometimes comes within that definition. Therefore, liability insurance does not. strictly speaking, cover the punitive element of the damages that may be awarded.

However, usually prior to a trial, the parties will attempt to settle the dispute. If there is a reasonable expectation that punitive damages could be awarded, the verdict would be "excess" over the policy limits of the insurance policy. An insurer has the obligation to settle the case, if possible, within the policy limits, so as to avoid exposing its insured to an excess verdict. The insurer may therefore offer the full policy limits despite the fact that the injury would not otherwise be worth that much money. In that very limited sense, the insurer might be said to be paying punitive damages because it is paying more than it ordinarily would. All of this is very specifically fact-driven and should not be taken, and is not intended, as legal advice.