Aggravated, Exemplary and Restitutionary ... - Law Commission

the insured wrongdoer’s inability to pay all or part of any award out of his or her
own assets.
1.261 The merits of this proposal are two-fold. On the one hand, plaintiffs would be
certain of having their claims satisfied, in those cases where a defendant is insured.
On the other hand, the punitive effect of a punitive damages award would be
preserved in an undiminished, or at least less diminished, form. Defendants
would, in a greater number of cases, feel an award directly in their own pockets,
rather than indirectly through, for example, increased insurance premiums for the
future, or the inability to renew previous cover. This might always be so where the
defendant (for example, a large profit-making organisation) has sufficient assets to
meet a claim, without recourse to an insurance policy.
1.262 However, this superficially attractive argument raises considerable difficulties. The
first problem is that it is not easy to see why a potential insured, if properly
advised, would want an insurance policy limited in the way proposed. Under our
recommendations, wrongdoers will never be required to pay more than they are
‘able’ (without undue hardship) to pay. 810
Thus to apply this ‘insurance against
shortfall’ suggestion would mean that wrongdoers would be no better off if they
obtained insurance (because they would still have to meet any punitive award, out
of their own pockets, to the extent that they were able to do so). As a result, if
properly advised, no-one would want cover for punitive damages, and the net
effect would be the same as if the law prohibited cover against punitive damages. 811
1.263 The second problem with this proposal is that it is likely to produce the sort of
problematic conflict between insurer and insured wrongdoer which we have
already identified. 812
Insurers would clearly want to argue that the insuredwrongdoer
is ‘able’ to pay the award, thereby reducing the sums which they are
obliged to pay under the policy. In contrast, insured-wrongdoers would want to
argue that they are ‘unable’ to pay the award (in full or in part), thereby reducing
the sums which they have to pay out of their own pockets. It cannot be desirable
to introduce such conflict, with resulting uncertainties and costs, without good
reason. As we have already indicated, we doubt whether such a reason exists.
(ii) Insurance is only permitted against vicarious liability
1.264 Another suggestion was that insurance should not be permitted, except against
vicarious liability. 813
This might represent the existing common law position,
following Lancashire County Council v Municipal Mutual Insurance Ltd: 814
insurance
was held to be permitted against vicarious liability to pay punitive damages, but no
final conclusion was reached on the legality of insurance against a personal liability
to pay punitive damages.
810 See paras 5.135-5.141 above.
811 A similar objection can be raised to the suggestion of (eg the Association of Personal Injury
Lawyers) that insurers should be required to meet any liability to pay punitive damages in
full, but should be given a right of recourse against the insured.
812 See para 5.248 above.
813 For example: P Cane, 1 Pump Court (R Latham), and Sinclair Roche & Temperley.
814 [1996] 3 WLR 493. See paras 4.108-4.112 above.
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