Insuring Intentional Torts

Abstract

Conventional insurance law lore provides intentional torts are not, and should not be, covered by insurance. There are four primary justifications for this: 1) injuries or losses must be fortuitous (i.e., accidental) to be covered by insurance, 2) most insurance policies contain express intentionality exclusions that preclude coverage for injuries or losses expected or intended by the insured, 3) wrongdoers should not be permitted to benefit from their own intentional misconduct by allowing insurance to cover their liabilities for such misconduct, and 4) it is against public policy to allow insurance to cover injuries or losses caused intentionally because allowing such coverage would undermine society’s interest in deterring and punishing intentional misconduct. On the other hand, there are other competing public policies that weigh in favor of allowing insurance to cover intentional torts: 1) the enforcement of contracts, and 2) the compensation of innocent victims.

This Article analyzes the competing public policies and arguments in favor of and against allowing insurance to cover intentional torts. In doing so, it discusses numerous lines of liability insurance that expressly cover various types of intentional torts. It then explores whether the theoretical foundation underlying the public policy against allowing liability insurance to cover intentional torts – that intentional misconduct is effectively deterred and punished by disallowing coverage – is supported by empirical evidence. Ultimately, the Article concludes that the compensation of innocent tort victims and the enforcement of contracts outweigh the limited deterrent impact of disallowing coverage. Consequently, the Article makes the novel proposal that, contrary to the conventional wisdom, the default rule should be that liability insurance can cover intentional torts unless there are compelling reasons why the specific type of intentional tort at issue should be deemed insurable. The Article further proposes that, contrary to the current law, insurers be granted subrogation rights against their insureds under certain lines of liability insurance for injuries intentionally and directly caused by their insureds.

Keywords: intentional torts, insurance, public policy, victims, fortuity, expected or intended, D&O, CGL, homeowners, personal liability, slayer, punitive damages, criminal acts

JEL Classification: K12, K13, K23, K42