Other Than Life (OTL) Practice Exam

What is NOT covered under Liability?

1. General damages

2. Compensatory damages

3. Punitive damages

4. Special damages

The correct answer is: Punitive damages

In the context of liability insurance, punitive damages are distinguished from other categories of damages in that they are not typically covered. Liability insurance is designed to cover the costs associated with general, compensatory, and special damages resulting from an individual's negligent or harmful actions. General damages refer to non-monetary losses such as pain and suffering or emotional distress, while compensatory damages encompass both economic and non-economic losses that a plaintiff incurs due to the defendant's actions. Special damages, on the other hand, are specific losses that can be quantified, like medical expenses or lost wages. Punitive damages, however, are intended to punish the wrongdoer for particularly egregious behavior and deter similar conduct in the future. Because their primary purpose is to impose a punishment rather than to compensate the victim for losses, most liability insurance policies exclude coverage for such damages. This aligns with the fundamental principle that insurance is meant to cover losses and damages that are directly incurred, rather than punitive measures aimed at modifying behavior.