Exemplary Damages

What Does Exemplary Damages Mean?

Exemplary damages, also known as punitive damages, are financial payments required following the loss in a civil suit. Many insurance policies include exclusions for exemplary damages, meaning they will not cover these financial obligations if a policyholder is sued.

Insuranceopedia Explains Exemplary Damages

Liability insurance can cover certain court costs incurred by the insured. However, specific liability policies may exclude exemplary damages, leaving the insured responsible for these expenses. Whether punitive damages are covered depends on the policy language and, in some cases, state law, so it is worth reviewing the exclusions in any general liability insurance policy before assuming protection is in place.

To mitigate these financial risks, many businesses seek commercial general liability policies that include coverage for exemplary damages. Some also add a commercial umbrella insurance policy, which can provide an extra layer of liability protection above the limits of an underlying CGL policy.