The Insurance Commission (IC) has issued a legal opinion, stating that coverage for exemplary damages in a directors and officers liability insurance is not allowed under Philippine laws, regardless of whether the same is adjudged as civil, criminal or administrative in nature.
The legal opinion resulted from the request by FPG Insurance Co. Inc. for confirmation that punitive, aggravated or multiplied damages, fines and penalties are insurable, provided that the same were not criminal in nature.
In resolving whether damages, fine or penalties of exemplary or punitive in nature are insurable or not, the IC examined applicable laws and decisions promulgated by the Supreme Court.
“While the Insurance Code does not provide any provision which specifically deals with the question on the insurability of damages, fines or penalties which are exemplary or punitive in nature, this issue can and was resolved based on the provisions of the New Civil Code,” Insurance Commissioner Dennis B. Funa said.
While the New Civil Code guarantees the freedom of contracting parties to stipulate on the terms and conditions of a contract, such contracts whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy are nonexistent and void from the very beginning.
Funa added the purpose of the imposition of exemplary or punitive damages is to serve as deterrent to future and subsequent parties from the commission of a similar offense.
“Thus, in the absence of any law or judicial precedent which provides otherwise, it is the opinion of the Commission that exemplary or punitive damages, fines or penalties, regardless of the nature of the proceedings where the same is awarded, are not insurable under Philippine laws on the ground that the same is against public policy,” he said.
According to the IC, its position is supported in the case of Northwestern National Casualty Co., v. McNulty in the United States, wherein the US Court denied an insurance claim of punitive damages.
According to the US Court, the clear purpose of a punitive damages award is to punish and deter, thus, this mandates that damages rest ultimately, as well as nominally, on the party actually responsible for the wrong.
Therefore, the IC will disapprove a policy provision in a directors and officers liability insurance that includes indemnification for exemplary or punitive damages, fines or penalties.
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