High court affirms coverage for punitive damages
By Jeffrey P. Downer

A liability insurance policy covers punitive damages, the Washington Supreme Court has held, affirming the Court of Appeals.

In Fluke Corp. v. Hartford Acc. & Indem. Co., no. 70519-4 (2001), Fluke sued a competitor in California and lost. The competitor then sued Fluke for malicious prosecution, claiming punitive damages under California law. Fluke tendered its defense to Hartford. Hartford defended Fluke but notified Fluke it would not pay claims for punitive damages or for intentional conduct. Fluke sued Hartford in Washington, where the policy was issued and whose law therefore governed the coverage issues.

The Court found coverage for punitive damages, noting that the policy agreed to all sums the insured must pay "as damages" without differentiating between compensatory and punitive damages. The Court said that Hartford could have provided in the policy that it covered compensatory damages only, but Hartford failed to do so. The Court followed courts in other states that have so held.

The Fluke Court also found coverage for malicious prosecution even though it is an intentional tort. The policy’s "advertising injury" coverage expressly included coverage for malicious prosecution, which prevails over the intentional-acts exclusion. The Court rejected Hartford’s argument that coverage for intentional torts is against public policy, saying that it rarely invokes public policy to defeat coverage.