Aggravated, Exemplary and Restitutionary ... - Law Commission

defendant may seek to maximise the size of any compensatory or restitutionary
award. This would serve to maximise the part of a total award that is covered by
insurance. In direct conflict with the interests of the defendant on this issue,
however, are the interests of the insurers. This is because their interests would lie
in minimising the size of any non-punitive award, the risk of which they must
meet, and in maximising the size of any punitive award, the risk of which they need
not meet. Undesirable consequences, in particular the need for three sets of legal
representation (for defendant, plaintiff and insurers), might ensue. 800
(c) The reasons for rejecting option 2: a public policy bar in the case of
particularly outrageous conduct
1.249 Option 2 was raised in one possible form before the Court of Appeal in Lancashire
County Council v Municipal Mutual Insurance Ltd. 801
The defendant’s counsel
argued that there should be a bar on insurance where the conduct which gave rise
to the award of exemplary damages was criminal in nature. The Court of Appeal
left open what should be the proper approach to cases involving the personal
liability of defendants, but it rejected an option 2 approach, and adopted an option
1 approach, in relation to vicarious liability. 802
1.250 We consider, however, that option 1, and not option 2, is the correct approach to
adopt in relation to both personal and vicarious liability. This is so whether the
appropriate characterisation of the cases in which a public policy bar applies is, for
example, ‘especially outrageous conduct’ or ‘conduct constituting a criminal
offence’. In addition to the five positive reasons given above for favouring option
1, we consider that there are three specific reasons for rejecting option 2.
(i) The greater need to preserve a financial reason for plaintiffs to claim punitive
damages in the case of particularly outrageous conduct
1.251 First, and most importantly, the need for plaintiffs to have a financial reason to
claim punitive damages has even greater force in the case of the particularly
outrageous conduct which would be made the subject of a bar on insurance under
option 2. Perversely, a bar on insurance in the case of particularly outrageous
conduct would reduce, rather than increase, the prospect of punitive damages
being claimed. This would not be in the public interest of securing the
punishment of serious wrongdoers.
800 We recognise that permitting insurance will not remove this problem: it could arise in any
case where defendants did not insure or could not insure, either because the premiums
demanded were too high, or because the insurers excluded punitive awards from the scope
of their policies. Nevertheless, if insurance is permitted, the conflict is at the very least not
inevitable.
801 [1996] 3 WLR 493. See also Chitty on Contracts (27th ed, 1994) 16-005 (“[o]bviously a
doctrine of public policy is somewhat open-textured and flexible, and this flexibility has
been the cause of judicial censure of the doctrine”); Janson v Driefontein Consolidated Mines
Ltd [1902] AC 484, 500, per Lord Davey (“[p]ublic policy is always an unsafe and
treacherous ground for legal decision”); and Printing & Numerical Registering Co v Sampson
(1875) LR 19 Eq 462, 465, per Jessel MR (above, para 5.242).
802 [1996] 3 WLR 493, 501H-503A. See paras 4.108-4.112 above.
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