1. MAXIMIZING INSURANCE PAYOUTS WHEN PUNITIVE DAMAGES ARE AT ISSUE MAXIMIZING INSURANCE PAYOUTS WHEN PUNITIVE DAMAGES ARE AT ISSUE Kirk C. Chamberlin Chamberlin & Keaster, LLP 16000 Ventura Blvd., Suite 700 Encino, CA 91436-2758 D/L (818) 385-1303 C – (818) 430-2234 F – (818) 385-1802 Email: kchamberlin@ckllplaw.com

2. Attorney-Client Privilege – Attorney Work Product The information contained in this presentation is protected by the attorney-client privilege and/or work product doctrines. This presentation and all the information it contains, or may contain, including but not limited to opinions, texts, guides, illustrations, trademarks, and logos are the property of Chamberlin & Keaster, LLP. Nothing herein is intended to constitute legal advice. The presentation is for educational use only and may, or may not be applicable on a claim-by-claim and jurisdiction-by- jurisdiction basis. 2

3. PUNITIVE DAMAGES AND THEIR INSURABILITY 3

4. Punitive Damages Defined Damages awarded, not to compensate the party harmed, but to punish the wrongdoer and deter similar acts in future, both from current defendant and others similarly situated. 4

5. Simple negligence is not enough to support a punitive damages award; at least a knowing and reckless indifference toward the rights of others is required. Diversified Holdings, L.C. v. Turner (Utah 2002) 63 P.3d 686, 699; Utah Code Ann. § 78B-8-201 (West) (with exceptions for driving under the influence or providing controlled substances). The law is generally similar elsewhere. 5

6. Both Utah and California absolutely prohibit insurance coverage for punitive damages. Utah § 31A-20-101 (“No insurer may insure or attempt to insure against: … (4) punitive damages”); PPG Industries, Inc. v. Transamerica Ins. Co. (1999) 20 Cal.4th 310, 317-318; California Insurance Code Section 533. 6

7. Other states generally fall into four different categories, so long as they are not excluded by the policy: (1) No coverage for punitive damages. (2) Coverage for punitive damages awarded due to vicarious liability. (3) Coverage for punitive damages so long as they are not awarded due to intentional torts or harms. (4) Coverage for all punitive damages. The majority of states provide some coverage for some punitive damages. 7

8. Insurability of Punitive Damages STATE DIRECT PUNITIVE DAMAGES VICARIOUS PUNITIVE DAMAGESEXCEPTIONS Alabama Yes Alaska Yes Arizona Yes Arkansas Yes Punitive damages arising from intentional torts or intentional harm are likely not insurable. California No Colorado NoNot yet decided. Connecticut NoNot yet decided. Delaware Yes District of Columbia Unknown Florida NoYes Georgia Yes Hawaii No Hawaii will permit coverage for punitive damages where specifically included in policy. Idaho Yes Illinois No Indiana NoYes Iowa Yes Kansas No Kentucky Yes Louisiana Yes Maine No Maryland Yes Massachusetts Not yet decided. Michigan Michigan does not allow punitive damagesNot applicable Minnesota NoYes Mississippi Yes Missouri NoYes Montana Yes Nebraska Nebraska does not permit punitive damages.Not applicable. Nevada Yes Punitive damages arising from intentional torts or intentional harm are likely not insurable. New Hampshire Yes New Jersey NoYes New Mexico Yes New York No North Carolina Yes North Dakota Yes Ohio No Oklahoma NoYes Oregon Yes Punitive damages arising from intentional torts or intentional harm are likely not insurable. Pennsylvania NoYes Rhode Island NoNot yet decided. South Carolina Yes South Dakota NoNot yet decided. Tennessee Yes Punitive damages arising from intentional torts or intentional harm are likely not insurable Texas Yes Utah NoProbably No Vermont Yes Virginia Yes Washington Yes Washington does not permit punitive damages, but insurable if awarded under other law. West Virginia Yes Wisconsin Yes Wyoming Yes

9. HANDLING LITIGATION AND SETTLEMENT OF MATTERS WHERE PUNITIVE DAMAGES ARE ALLEGED 9

10. Defense Counsel Evaluation Defense counsel should evaluate:  The propriety and amount of punitive damages  State Farm Mut. Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408, 425 discusses the factors to be considered in assessing punitive damages and suggests that punitive damages should not ordinarily exceed compensatory damages where the compensatory damages awarded are “substantial.”  The propriety and amount of compensatory damages  The costs of defense 10

11. What if the insurer refuses to settle within policy limits?  If an insurer refuses to settle for a reasonable amount, they likely face bad faith liability, including excess compensatory damages, attorneys’ fees, and more.  But, in California the reasonableness of any settlement offer is based on a comparison of the probability of prevailing and likely compensatory damages to the offer without consideration of punitives. B. Aguerre, Inc. v. American Guar. & Liability Ins. Co. (1997) 59 Cal.App.4th 6, 16.  The law is likely the same in Utah, because it prohibits coverage for punitive damages, but no Utah case has analyzed this or any reasonably related issue. 11

12. What if the insurer refuses to settle within policy limits and punitive damages are awarded?  Options are limited.  In California, even if acting in bad faith, the insurer would not be required to pay the resulting punitive damages.  Utah law is likely the same, although no case has ruled.  States holding that punitive damages are uninsurable usually do not require the insurer to pay punitive damages arising out of a bad faith refusal to settle. 12

13. If the insurer refuses to settle within policy limits, and punitive damages are awarded, it may be possible to settle then seek reimbursement of the entire settlement from the insurer.  Unless the settlement amount is “unreasonable or the product of fraud or collusion.” Howard v. American Nat. Fire Ins. Co., 187 Cal. App. 4th 498, 532-533. 13

14. What if the insurer agrees to settle but won’t pay entire settlement because of potential punitive damage award?  As discussed above, an insurer can refuse to pay anything to settle punitive damages. But, this is when you want to push the settlement and punitive damage analysis to convince insurer otherwise.  If there is a real possibility of punitive damages, and the insurer refuses to settle the matter for a reasonable sum, it may be worth offering to contribute some amount towards the settlement agreement.  An insurer will realize that this will make it harder to prevail on any claim based on the failure to reasonably settle and may be more likely to settle. 14

15. What if the insured refuses to settle?  Insurer won’t be responsible for resulting excess damages.  Insurer may seek to invoke the cooperation clause and refuse to pay judgment or judgment in excess of settlement offer. 15