Aggravated, Exemplary and Restitutionary ... - Law Commission

1.271 It would be very difficult to argue that any of the existing statutory requirements
for insurance were intended, when passed, to extend to a liability to pay exemplary
or punitive damages. The primary purpose of compulsory insurance is plaintiffprotection:
ensuring that defendants are able (via the insurer) to meet judgments
against them. Each existing statutory requirement is such that the dominant aim
must have been to ensure that defendants could compensate plaintiffs for their
injuries. 822
In some of the statutes, for example, the compulsory insurance
provisions are expressed to apply only to a liability which the statute itself
establishes, and that statutory liability is a liability to compensate only. In all of the
other cases, the compulsory insurance provision applies to an area of activity in
which it would be extremely rare (or impossible) on the state of the law, at the
time of enactment, for a claim to exemplary damages to succeed. 823
It would in
any case require a rather forced interpretation of the aim of plaintiff-protection, for
it plausibly to extend to require that insurance against exemplary or punitive
damages be compulsory. For, on the face of it, there is injustice to the plaintiff
only if he or she cannot obtain compensation - not if he or she is merely unable to
obtain the ‘windfall’ of an exemplary or punitive damages award.
1.272 In our view, the fact that the legislature has made insurance compulsory in an area
of activity, so as to ensure that claims to compensation can be satisfied, provides
no justification for concluding that the relevant statute should in future, in view of
the new remedy of punitive damages which we propose, extend to require
insurance against liability to that remedy also. Whether this is so must be a matter
for the legislature to decide, rather than for resolution on the basis of assumptions
about what the enacting legislature might have decided, if the law had then been
what we propose it should now be. The decision is pre-eminently a policy
decision which is appropriate for the legislature, and not for the courts.
1.273 We therefore consider that no Act or subordinate legislation should be construed
to require insurance against a liability to pay punitive damages. Statutory
clarification of this point is essential for both insurers and insured; it cannot be left
to ad hoc resolution by courts following litigation. We recommend that:
(43) our draft Bill should ensure that, unless a future enactment
expressly or clearly requires insurance against a liability to pay
822 Thus, in many cases, we find parallel compensation funds established (eg Merchant
Shipping Act 1995, Ch IV; Nuclear Installations Act 1965, s 18; rules made pursuant to the
Insurance Brokers (Registration) Act 1977 (see SI 1987 No 1496 and SI 1990 No 2461);
Solicitors Act 1974, s 36); expressly-created direct rights of action for victims against
insurers (Merchant Shipping Act 1995, s 165; see also Road Traffic Act, s 153); and terms
in the insurance contract being rendered ineffective as against victims (Road Traffic Act
1988, s 148).
823 For example, exemplary damages have never been awarded for the tort of negligence, yet
this would be the main basis for a claim against motorists (covered by the Road Traffic Act
1988) or against employers by their employees (covered by the Employers’ Liability
(Compulsory Insurance) Act 1969). The same reasoning applies to professional indemnity
insurance. Exemplary damages cannot be awarded for negligence, breach of contract,
deceit or pre-contractual misrepresentations actionable under s 2(1) of the
Misrepresentation Act 1967. In addition to the unlikelihood of there being a cause of
action for which exemplary damages could be claimed, there is the difficulty of fitting
claims within one of the three Rookes v Barnard categories.
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