PUNITIVE DAMAGES IN AVIATION CASES: SOLVING THE INSURANCE COVERAGE DILEMMA

The obligation of insurers to indemnify their insureds for punitive damages (PD) is discussed in a review of state legislation, judicial decisions, and contract provisions, focusing on aircraft manufacturers and airline operators as insureds. The complications and problems arising from the fact that 22 states specifically allow for coverage of PD and 20 states prohibit such coverage (mainly on the public-policy ground that PD should affect the guilty party directly) are illustrated in a survey of applicable cases. The impact on the aviation industry, with its interstate activity, potentially large damage claims, and strong economic position (as a major buyer of insurance coverage in a competitive market), is found to be significant. Since no uniform state laws are foreseeable, a simple and strict exclusion of PD payments in general-liability policies is proposed.