Under Hawaii Insurance law, punitive damages are not insurable unless expressly provided for in an insurance policy. Haw. Rev. Stat. §431:10-240. A recent Texas case issued a surprising decision holding that public policy did not bar a liability insurer from covering punitive damage for an employer’s gross negligence. See Fairfield Ins. Co. v. Stephens Martin Paving L.P., 2008 Tex. LEXIS 123 (Tex., Feb. 15, 2008).
In Fairfield, an employee died in 2002 when a piece of equipment overturned. Stephens Martin Paving was insured for workers compensation and liability by Fairfield at the time. Fairfield paid workers compensation benefits to the employee’s family. When the family later learned Stephens did not maintain a safe workplace, it sued for gross negligence.
Fairfield moved for declaratory relief in federal court, seeking a determination on whether coverage was available for punitive damages due to the employer’s gross negligence. The District Court determined Texas public policy did not prohibit coverage for punitive damages. The Fifth Circuit Court of Appeals certified to the Texas Supreme Court whether state public policy prohibited a liability insurer from paying punitive damages for a policyholder’s gross negligence.
The Texas Supreme Court responded by holding that state law did not prohibit indemnity coverage for punitive damages for gross negligence. Given Hawaii’s statute, it seems doubtful the Hawaii Supreme Court would reach the same result unless the policy provided for punitive damages.
