New York Supreme Court Rules That Punitive Damages Award From Foreign Jurisdiction Not Insurable Under NY Law

Blogs, Insurance Coverage

In a recent decision, the New York Supreme Court recognized that the public policy ban on insurance coverage for punitive damages under New York law extended to preclude indemnification of an award from a foreign jurisdiction where the purpose of punitive damages in that jurisdiction is similar to New York law. Certain Underwriters at Lloyd’s v. BDO Seidman LLP, 2012 NY Slip Op 51425(U) (July 27, 2012).

Following the imposition of a $55,000,000 punitive damages award by a Florida jury against BDO Seidman LLP (“BDO”), Certain Underwriters at Lloyd’s (“Lloyd’s”) commenced an action in New York state court alleging coverage did not exist for punitive damages. Specifically, Lloyd’s argued that BDO’s policy excluded from coverage, “any claim or claims for fines, penalties, punitive or exemplary damages.” Lloyd’s subsequently filed a motion for summary judgment seeking a declaration that punitive damages were not covered under the policy.

In reaching its verdict, the court recognized the public policy of New York precludes insurance indemnification for punitive damages. The issue addressed by the court was whether the same prohibition on coverage applied to an out-of-state judgment for punitive damages.

In considering this issue, the court first examined Florida’s statutory and decisional law to determine if Florida law permitted the award for punitive damages. The court found, similar to New York law, the purpose of punitive damages under Florida law was to punish the defendant for wrongful conduct and to deter similar misconduct by the defendant and others. Finding consistency between the applicable laws in both states, the court recognized that the allowance of coverage for a punitive damages award from a Florida litigation would violate New York public policy.