FCA authorised · FRN 724952 0117 325 0027Quote & buy →
US exposure
Punitive damages are an extra sum a US court can award to punish a defendant and deter similar conduct, on top of compensation for actual loss. They matter for insurance because many UK liability and PI wordings exclude or limit them, so part of a US judgment can end up uninsured.
Part of: PI insurance for US exposure
In short
In US civil claims, punitive (or exemplary) damages can be added to compensatory damages where conduct is found especially harmful. The US Supreme Court treats grossly excessive awards as a breach of due process: BMW v Gore (1996) set three guideposts, and State Farm v Campbell (2003) said single-digit ratios to compensation are more likely to be constitutional. English law allows exemplary damages only in three categories identified in Rookes v Barnard (1964). UK PI and liability policies commonly exclude punitive damages or cover them only where insurable, so check the wording and the jurisdiction clause before taking on US work.
Last reviewed 7 October 2026 by the Apex professional indemnity team.
A US civil judgment can contain two different kinds of money. Compensatory damages repay the claimant’s actual loss. Punitive damages (also called exemplary damages) are added on top to punish the defendant, and they are usually reserved for conduct found to be especially harmful.
The US Supreme Court put the distinction plainly in State Farm v Campbell (2003): compensatory damages “are intended to redress the concrete loss that the plaintiff has suffered”, while punitive damages “are aimed at deterrence and retribution”. In other words, punitive damages are not measured by what the claimant lost. They are measured by how badly the court thinks the defendant behaved and how much it takes to stop it happening again.
For a UK business, that matters in two ways. First, the size of a US award can bear little relation to the loss your client or customer suffered. Second, because the award is a punishment rather than compensation, insurance policies treat it differently from the rest of the judgment.
US punitive damages are not unlimited. The Supreme Court has held that a “grossly excessive or arbitrary” award breaches the Due Process Clause of the Fourteenth Amendment. Two decisions set the framework that lower courts still apply.
| Case | Decided | Compensatory award | Punitive award | Outcome |
|---|---|---|---|---|
| BMW of North America v Gore, 517 U.S. 559 | 20 May 1996 | $4,000 | $2 million | Held “grossly excessive”: about 500 times the actual harm. Reversed and sent back. |
| State Farm v Campbell, 538 U.S. 408 | 7 April 2003 | $1 million | $145 million | A 145-to-1 ratio held unconstitutional. Reversed and sent back for recalculation. |
Gore set three guideposts, which State Farm confirmed. A court reviewing an award looks at:
State Farm added that “single-digit multipliers are more likely to comport with due process”. That is guidance, not a fixed cap: the Court accepted that a higher ratio might be justified where particularly egregious conduct causes only a small economic loss. This page does not cover state-specific rules; take US legal advice on any particular claim or contract.
English law has exemplary damages too, but they are far narrower. In R (Lumba) v Secretary of State for the Home Department [2011] UKSC 12, the Supreme Court restated that “exemplary damages may be awarded in three categories of case”, citing Lord Devlin in Rookes v Barnard [1964] AC 1129. The category in issue there covered “oppressive, arbitrary or unconstitutional action by servants of the government”.
The Law Commission reviewed the area in its 1997 report on aggravated, exemplary and restitutionary damages and recommended putting exemplary damages on a principled footing. The Government rejected its recommendations, so the categories approach remains.
| US punitive damages | English exemplary damages | |
|---|---|---|
| Purpose | Deterrence and retribution | Punishment in a narrow set of cases, for example restraining gross misuse of executive power |
| When available | Conduct found especially harmful | Only within the categories identified in Rookes v Barnard |
| Limits | Due process review under the Gore guideposts | The categories themselves restrict when an award can be made |
| Relevance to a UK trading business | A real feature of US claims against UK firms selling or advising there | Rarely part of ordinary commercial or professional negligence claims |
The practical point: a UK business used to English litigation may never have thought about a punitive element. Once it sells, advises or operates in the US, that changes.
Most UK professional indemnity and liability wordings deal with punitive damages expressly. The common approaches are:
| Part of a US judgment | How UK wordings commonly treat it |
|---|---|
| Compensatory damages | Usually covered, subject to the policy terms and a jurisdiction clause that includes the US |
| Claimant’s costs awarded against you | Often covered, within or in addition to the limit depending on the wording |
| Your own defence costs | Usually covered with the insurer’s consent; check whether they erode the limit |
| Punitive or exemplary damages | Commonly excluded, or covered only where insurable |
| Multiplied (for example treble) damages | Often excluded alongside punitive damages, or only the compensatory part covered |
| Fines and penalties | Commonly excluded |
None of this helps if the policy excludes US claims altogether. Check the territorial and jurisdiction limits first: our guide to PI with US jurisdiction explains the usual options, and territorial and jurisdiction limits covers the wording.
For a wider view of the risk, read our page on PI insurance for US exposure.
If this affects your business, these are the points a broker will ask about:
Speak to a broker
PI with US exposure, placed by a named broker
Start the online proposal and save it as you go, or leave your number and a named broker will call you back, usually the same working day.
Apex Insurance Brokers is an independent insurance broker based in Bristol, established in 2009 and authorised and regulated by the Financial Conduct Authority. We are not tied to one insurer: we work with over 30 markets, including Lloyd’s syndicates through wholesale brokers, and every client has a named broker who handles the placement, mid-term changes, certificates for clients and the renewal.
Compensatory damages repay the claimant’s actual loss. Punitive damages are added to punish the defendant and deter similar conduct; the US Supreme Court described them as aimed at “deterrence and retribution”. Because they are not tied to the loss, they can be much larger than the compensatory award, though due process limits apply.
Often not. Many UK PI wordings exclude punitive, exemplary and multiplied damages alongside fines and penalties. Some cover them only where the applicable law allows an insurer to pay. The policy must also include US jurisdiction to respond at all. Check both clauses with your broker before you work for US clients.
There is no single national cap. The US Supreme Court reviews awards under the Due Process Clause: BMW v Gore (1996) set three guideposts, and State Farm v Campbell (2003) said single-digit ratios to compensatory damages are more likely to be constitutional. This page does not cover state-specific rules, so take US legal advice on a particular claim.
Only in narrow circumstances. English courts can award exemplary damages in three categories of case identified by Lord Devlin in Rookes v Barnard (1964), as the Supreme Court restated in Lumba (2011). One category is oppressive, arbitrary or unconstitutional action by servants of the government. They rarely arise in ordinary commercial claims.
No. A worldwide or US jurisdiction clause decides which courts’ judgments the policy will respond to. Whether it pays the punitive part of a judgment depends on the definition of damages and the exclusions. A policy can include US jurisdiction and still exclude punitive damages.
Apex arranges professional indemnity for UK businesses with US clients. Tell us about your US work and we’ll look for a wording that fits it. Or call 0117 325 0027.
Start your PI proposal Call 0117 325 0027Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information, not advice on your individual circumstances. Cover is always subject to the insurer’s acceptance and the policy terms, and this page does not guarantee that cover will be available or on what terms.
