Punitive Damages Wrap Policy

Punitive damages serve to penalize the defendant rather than provide compensation to the plaintiff, meaning that the standard criteria used to determine compensatory awards — such as actual medical expenses and lost wages — are not considered in the evaluation of punitive damages.

A punitive damages wrap policy (puni-wrap) is a standalone insurance policy issued outside of the United States (Bermuda is a preferred country) to provide coverage for punitive damages that are not otherwise payable under a traditional insurance policy. These policies “wrap around” domestic insurance policies, allowing coverage for punitive damages in jurisdictions where such indemnification is otherwise prohibited. 

Puni-wraps are not subject to the same regulatory and public policy restrictions as domestic policies, enable insureds to secure coverage for punitive damages that would typically be excluded. However, puni-wrap policies are only triggered by final judgements and do not cover settlements, even if the settlement amount was influenced by potential punitive damages.   

Unlike traditional insurance policies, which are subject to domestic regulatory constraints and may be unable to cover punitive damages, puni-wraps policies operate independently and outside of these restrictions. They share a coverage limit with the domestic policy, meaning any payments made for compensatory damages under the primary policy also reduce the limits available under the puni-wrap.

Additionally, while a standard policy may cover various types of claims, a puni-wrap specifically targets punitive damages and only responds to final court judgements, not settlements. This distinction provides insureds with more certainty in securing punitive damages coverage, albeit with limitations tied to the domestic policy.