Also known as: exemplary damages · define punitive damages · are punitive damages insurable
Punitive damages are extra money a court orders a defendant to pay to punish especially reckless, willful, or malicious conduct, on top of compensating the victim's actual losses.
Punitive damages (also called exemplary damages) are awarded not to reimburse a plaintiff for actual harm but to punish the defendant and deter similar behavior, and they usually require conduct that was intentional, fraudulent, or grossly reckless. Whether insurance can pay them is a separate question that turns on state law: some states allow coverage for punitive damages, while others ban it as against public policy, reasoning that letting insurance foot the bill would defeat the punishment. Many D&O and liability policies exclude punitive damages or cover them only 'where insurable by law,' so a large punitive award can land directly on your company or its directors.
Punitive damages, sometimes called exemplary damages, are a court-ordered payment meant to punish a defendant for especially egregious conduct - such as fraud, malice, or gross recklessness - and to deter others from doing the same. Unlike compensatory damages, which reimburse the plaintiff for actual losses, punitive damages are extra and are tied to how blameworthy the behavior was. Courts award them only in a minority of cases where ordinary compensation is considered insufficient.
It depends on the state and the policy. Some states permit insurance to cover punitive damages; others prohibit it as against public policy, so an insurer cannot legally pay them there. Many liability, D&O, and E&O policies address this with wording like 'punitive damages where insurable by law,' which follows whatever the applicable state allows. Because rules differ, confirm with your broker how your specific policy and state treat punitive awards.
Compensatory damages reimburse a plaintiff for actual losses, such as medical bills, lost income, or property damage. Punitive damages are separate and additional: they are not tied to the size of the harm but to how wrongful the defendant's conduct was, and their purpose is punishment and deterrence. A single lawsuit can include both, and the punitive portion is often the part your policy is least likely to cover.
Definitions are educational and may be modified by your specific policy language, endorsements, and state rules. For regulatory guidance, refer to the California Department of Insurance or the NAIC.
Last updated: July 2026.