Aggravated, Exemplary and Restitutionary ... - Law Commission

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1.265 Underlying this proposal is the view that insurance eliminates the punitive and deterrent effect of punitive damages awards, and is therefore (generally) undesirable. Insured wrongdoers do not feel the immediate impact of any award in their own pockets: the primary burden is borne by the insurer. In contrast, permitting insurance against vicarious liability does not of itself serve to frustrate the punitive function of a punitive damages award. The law does not seek to punish the party who is vicariously, rather than primarily, liable; other considerations justify the doctrine of vicarious liability. 1.266 We recognise the logic of this argument, but for several reasons we are unconvinced of its weight. First, we re-emphasise our doubts that the availability of insurance will wholly or even substantially eliminate the punitive and deterrent effects which may typically be expected of awards of punitive damages. 815 Secondly, we consider that the reasoning underlying this proposal is inconsistent: vicarious liability also compromises the punitive function of punitive damages awards. Where awards are paid by a primary wrongdoer’s employer, the wrongdoing-employee escapes direct punishment by the law. He or she does not meet the liability out of his or her own pocket, and the direct punitive effect of an award is replaced by indirect pressures in the form of, for example, contribution or indemnity claims by the employer, or disciplinary action. The position is similar where insurance is permitted against the primary liability: the insured-wrongdoer does not feel the impact of an award directly in his or her own pocket. Accordingly, if the possibility of indirect punishment and/or deterrence is held out as one reason why vicarious liability is acceptable, the same argument ought to have at least some weight when deciding whether insurance should be permitted against a primary liability to pay punitive damages. 816 Thirdly, insurance and vicarious liability have in common one important rationale. The single most important reason both for permitting insurance and for recognising vicarious liability is the same: to ensure that judgments for punitive damages can be satisfied and therefore that victims of outrageous conduct have a financial reason for claiming punitive damages. To recognise vicarious liability to punitive damages and permit insurance in respect of it, whilst prohibiting insurance against a primary liability to pay punitive damages, ignores this. (iii) Insurance is permitted against a fixed percentage of an award 1.267 A final suggestion was that insurance would be permitted against only a fixed percentage of an award of punitive damages. 817 The main objections to this proposal are two-fold. The first objection is that it is difficult to select any particular percentage in a non-arbitrary way. This is due to an inherent flexibility in the appropriate balance between ensuring that plaintiffs have a financial reason to claim punitive damages and ensuring effective punishment or deterrence. Whereas the first goal is better served by permitting a higher percentage of an 815 See, in particular, paras 5.238-5.241 above. 816 It is possible to argue that by allowing insurance against vicarious liability, one only further weakens the likely indirect pressure on wrongdoing-employees: if the immediate burden of awards which their employers must pay is borne by their insurers, they have less of an incentive to discipline their employees. 817 M Jones and K Stanton. 174
award to be covered by insurance, the second is better served by permitting a lower percentage. The second objection is that, accepting that it is essential for plaintiffs to have a financial reason to claim punitive damages, any percentage chosen would have to be high. This means that there would be very little difference between option 2 and this proposal, so far as the punitive efficacy of punitive damages awards is concerned. This is even more clearly the case given our doubts about how far the full availability of insurance will entail any substantial dilution of the punitive and deterrent effects that may typically be expected of punitive awards. 818 (f) Conclusion on whether insurance should be permitted 1.268 We therefore recommend that: (42) our draft Bill should clarify that insurance against the risk of an award of punitive damages is not against public policy. (Draft Bill, clause 9(1)) 1.269 Insurers, of course, remain able to refuse (or in some way limit or impose conditions on) cover for punitive damages awards. In the United States insurers have responded to the availability of exemplary or punitive damages by attempting to exclude them from the scope of their policies. 819 In this country it may already be difficult to obtain cover for certain types of claim for which exemplary damages are currently available. 820 (g) Compulsory insurance against punitive damages 1.270 A number of statutes directly or indirectly require liability insurance in certain circumstances. 821 The areas of activity covered by these schemes are extremely varied. Each clearly requires insurance against a liability to pay compensatory damages in specified circumstances. None expressly requires insurance against a liability to pay exemplary or punitive damages in those circumstances. Could any of these statutes be construed as doing so? Should any of the statutes be so construed? 818 See paras 5.238-5.241 above. 819 See Aggravated, Exemplary and Restitutionary Damages (1993) Consultation Paper No 132, para 6.41, referring to research conducted for the Law Commission; for a general overview of the approach of the courts to such attempts, see L Schlueter and K Redden, Punitive Damages (3rd ed, 1995) vol 2, § 17(2)(B) and the articles cited therein. A specific exclusion of puniitve damages is likely to be required. 820 On consultation, Peter Carter-Ruck observed that most insurance policies for libel exclude liability for publications found to be malicious, and the Association of Chief Police Officers indicated that police officers are finding it difficult to obtain insurance cover for exemplary damages, notwithstanding that in almost every case in which police are involved, there is a risk of an exemplary damages award. 821 Road Traffic Act 1988, s 143; Nuclear Installations Act 1965, s 19; Employers’ Liability (Compulsory Insurance) Act 1969; Merchant Shipping Act 1995, s 163; Riding Establishments Act 1964, s 1(4A)(d); Civil Aviation (Licensing) Regulations 1964; Insurance Brokers (Registration) Act 1977, s 12, and the rules made pursuant thereto; Dangerous Wild Animals Act 1976, s 1(6)(a)(iv); Solicitors Act 1974, s 37, and the rules made pursuant thereto; Credit Unions Act 1979, s 15; Estate Agents Act 1979, s 16. 175
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THE LAW COMMISSION Item 2 of the Si
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should emphasise at the outset that
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practitioners and academics) consid
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punitive damages should survive for
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and sued, he will, at worst, be mad
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‘exceptional’ 62 conduct or mot
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defendant or his legal advisers per
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an undertaking in damages which was
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likely adversely to affect him or h
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noting the concession by the respon
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Kralj, which was an “excruciating
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two of their lordships who gave jud
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such a restriction, unless one take
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(1) legislation should provide that
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1.3 Historically, a number of diffe
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nuisance 195 has also been recognis
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day market). At first instance, Pet
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equired to trigger an account of pr
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disgorgement to principals of bribe
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disgorge what he has saved by commi
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there is no consensus among comment
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(a) Restitutionary damages should b
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the purposes of the claim to restit
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account of profits and damages but
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area. The problem of ‘election of
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there is no such in-built limitatio
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PART IV EXEMPLARY DAMAGES: PRESENT
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that exemplary damages were not awa
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1.96 These questions were recently
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to be irrelevant to, and even incon
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1.107 Consistently with the apparen
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manner. As shall be seen below, it
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1.117 Major Commonwealth jurisdicti
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In the present case there is the fu
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an aspect of the case which made ex
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1.137 The ‘non-discrimination’
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We have ... been referred to a numb
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Thus it has been suggested that the
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underlying such damages, that of pu
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easons of fairness to defendants: i
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(6) Multiple plaintiffs 1.165 Very
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Legal Services Act 1990 and Rules o
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MR himself suggested figures to ass
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Thompson v MPC achieves its aims, t
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proceeded on the basis that the doc
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would be that to allow insurance wo
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PART V EXEMPLARY DAMAGES: REFORM 1.
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1.8 As regards the divide between t
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3. THE CASE FOR AND AGAINST EXEMPLA
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(5) The criminal approach to vicari
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particularly unsatisfactory to rely
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1.34 On the first interpretation an
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4. OUR CENTRAL REFORM PROPOSALS (1)
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when applying this principle a cour
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indefensible position which the com
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... the availability of exemplary d
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But these concepts are inadequate,
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for a wrong which arises under an A
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view that such an award would be co
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the promise. To award exemplary dam
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else should, actually constitute in
Page 123 and 124: awarded as damages (including exemp
Page 125 and 126: 1.88 The first argument is that it
Page 127 and 128: (2) the relationship between (on th
Page 129 and 130: was determined, the court could mak
Page 131 and 132: (iii) A ‘last resort’ remedy (2
Page 133 and 134: A discretionary or an absolute bar
Page 135 and 136: 1.117 We have therefore recommended
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Page 139 and 140: (24) our draft Bill should lay down
Page 141 and 142: 1.141 In our view, this is necessar
Page 143 and 144: the punitive damages award on the A
Page 145 and 146: to that remedy. 720 Yet this means
Page 147 and 148: (31) once punitive damages have bee
Page 149 and 150: e so where the defendant consents t
Page 151 and 152: 1.183 We also think that any ‘adv
Page 153 and 154: liability’) which applies to any
Page 155 and 156: (c) Implications of the adoption of
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Page 159 and 160: conduct. 756 Although it has consis
Page 161 and 162: liable to pay a sum of money which
Page 163 and 164: 1.224 The second difference is that
Page 165 and 166: award if they succeed in persuading
Page 167 and 168: approaches. 786 132, 787 Although i
Page 169 and 170: ... [c]ontracts should only be held
Page 171 and 172: (ii) The problems of defining with
Page 173: the insured wrongdoer’s inability
Page 177 and 178: punitive damages, no enactment shal
Page 179 and 180: one case, 831 and arguably done so
Page 181 and 182: common law to hold, if necessary, t
Page 183 and 184: PART VI SUMMARY OF RECOMMENDATIONS
Page 185 and 186: (19) the ‘cause of action’ test
Page 187 and 188: damages shall be permitted for that
Page 189 and 190: MICHAEL SAYERS, Secretary 11 Septem
Page 191 and 192: Nigel Ley Harvey McGregor QC Tim Ow
Page 193 and 194: APPENDIX C Persons and organisation
Page 195 and 196: Steve Hedley John Hodgson L Hoyano
Page 197: 197
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