What is the philosophy behind punitive damages awards?
If a policyholder commits insurance fraud, he or she may go to jail. Because insurance companies don’t go to jail when they commit fraud, they must be punished monetarily. The only way to monetarily punish a company that makes millions or billions of dollars in annual revenue is to take enough of its profit to make the punishment felt. Yet amazingly, most punitive damage awards represent only a tiny fraction of a company’s surplus.
