If you live
in a state that doesn't, will your assets survive an attack?
In 27 States, Insurance
CAN NOT Cover Punitive Damages!
First, what are punitive damages and why is that important
to your net worth? Punitive damages have been historically awarded to
discourage intentional wrongdoing, wanton and reckless misconduct and
outrageous behavior. The majority of courts in the United States, hold
that punitive damages are not compensation for injury, but, instead,
are private fines levied by civil juries to punish reprehensible conduct
and to deter its future occurrence.
Traditionally, the level of punitive damages sought
by plaintiffs and awarded in civil actions was based upon the severity
of a defendant's acts. However, with increasing frequency, the plaintiff's
attorneys contend that for punitive damages to act both as an adequate
punishment for wanton/willful conduct, and an effective deterrent against
future conduct, the level of punitive damages awarded should bear some
relation to the relative wealth of the defendant. Simply stated, it
is often the wealth of the defendant and not the nature of his acts,
which dictate the level of punitive damages awarded to plaintiffs.
In many states, insurance policies cannot cover punitive
damages. These states are: Arkansas (when arising from an intentional
tort), California, Colorado, Florida, Illinois, Indiana, Kansas, Kentucky,
Maine, Massachusetts, Minnesota, Missouri, Nebraska, Nevada (when arising
from wrongful act committed with an intent to injure), New Jersey, New
York, North Carolina (when arising from an intentional tort), North
Dakota (when arising from an intentional act), Ohio, Oklahoma, Pennsylvania,
Rhode Island, South Dakota, Tennessee (when arising from an intentional
wrong), Utah, Virginia (when arising from an intentional wrong), and
Washington. See Barry R. Ostrager & Thomas R. Newman, Handbook on
Insurance Coverage Disputes, 10th ed. (Aspen Law & Business 2000),
§ 14.06 at 847-862.
Similarly, errors and omission clauses in comprehensive
general liability policies do not cover intentional acts, only accidents.
See Eric Mills Holmes, Holmes' Appleman on Insurance 2d., vol. 16 (Lexis
Publishing 2000), §§ 116.4, 117.4. Thus, E & O clauses
may not be very effective in preserving assets. Finally, if you are
sued and punitive damages are involved and you live in a state where
your insurance does not cover you, your personal assets will be at risk!
Call NCP at (800) 351-5111 and we will help solve this problem for you!
Questions about Forming an LLC or Corporation?
Call NCP at 1-800-351-5111