On Friday, August 19, 2022, a jury in Georgia awarded $1.7 billion in punitive damages to the children of two parents who were killed when their 2002 Ford F-250 rolled over. The day before, the same jury had awarded $24 million in compensatory damages. In the legal profession, this is known as a “nuclear verdict” – an award that is significantly disproportionate to what would be expected given the economic damages in the case.

Even though Ford plans to appeal, the verdict shocked the nation and is making automobile manufacturers and insurance companies nervous about its impact. To begin to understand what is at risk, it is helpful to understand the difference between compensatory and punitive damages.

In a nutshell, compensatory damages are intended to compensate the injured party for losses or injuries sustained by someone else’s wrongdoing. For example, if a person is injured in a car accident and their car is totaled, compensatory damages would cover the loss of the vehicle, medical bills, lost wages, and the like. Punitive damages, on the other hand, are not designed to make the injured party whole. Rather, they are issued as a penalty against the tortfeasor (i.e., the wrongdoer) and designed to prevent others from being hurt by the same or similar actions. In the case of the Ford verdict, the $1.7 billion punitive award was the jury’s way of punishing the automobile manufacturer for a flawed design in its roof strength and to ensure that Ford more carefully considers safety features moving forward.

Interestingly, the evidence presented in the 14-day jury trial showed that Ford’s roof design flaw was not the actual cause of the 2014 accident. Pep Boys, a nationwide automotive service chain, had mistakenly installed the wrong size, or “load range” tires on the plaintiffs’ truck in 2010. Despite the resulting blowout causing the truck to overturn and causing the deaths, only 30% of the fault was assigned to Pep Boys with Ford shouldering the blame for remaining 70%. In other words, even though the blown tire caused the accident, the jury considered Ford mostly at fault for willfully ignoring its unsafe design flaw in the roofs of their 2002 Ford F-250 trucks. That is another way of saying that even though the accident would have happened due to the blowout, the deaths would not have occurred if the roof design was safer.

For good reason, businesses and the companies that insure them are now on alert while the Ford verdict works its way through the appellate process. The compensatory damages, while significant, pale in comparison to the punitive damages. Business owners may be wondering if there is any coverage for punitive damages if something similar were to happen to them.

In Virginia, punitive damages are “capped” at $350,000. This means that, if a jury awards a plaintiff anything over that amount, it is automatically reduced to the maximum of $350K. While that would be a welcome relief in a verdict such as Ford’s, it is still significant and could be catastrophic for small businesses who are not insured against such awards. The good news is that, in Virginia, coverage options exist to protect against punitive damages awards.

Virginia Code § 38.2-227 states:

“It is not against the public policy of the Commonwealth for any person to purchase insurance providing coverage for punitive damages arising out of the death or injury of any person as the result of negligence, including willful and wanton negligence, but excluding intentional acts. This section declares existing policy.”

If you have any questions about how to ensure that your business is covered against punitive damages awards or any other types of fault-based liability in general, please contact Mo Sherman (msherman@setlifflaw.com) at 804-377-1275 or Steve Setliff (ssetliff@setlifflaw.com) at 804-377-1261.