Terrence’s Insurance Paid Everything the Jury Awarded, Except the $1.5 Million That Actually Punished Him

8 min read · Last updated August 31, 2026

In this article

• The four words doing all the work
• Terrence’s $2,150,000 verdict, three ways
• This is happening to a real employer right now
• The two ways carriers sell around it
• What to check before your next renewal
• Frequently asked questions

Terrence Ashworth built his warehouse-staffing company in Sacramento, California, from a folding table and a phone line into 34 full-time placements a week. In 2025, a former dispatcher he had fired after a safety complaint sued him for retaliation. A jury found his company had acted with malice and awarded her $500,000 in compensatory damages plus $1.5 million in punitive damages. Terrence’s EPLI policy, a $2 million limit he had carried for six years, paid the $500,000 compensatory award and covered his defense. It paid nothing toward the $1.5 million punitive portion. The gap had nothing to do with his policy limit, his broker, or his deductible. It came from California law.

The four words doing all the work

Employment Practices Liability Insurance (EPLI) is the policy that covers discrimination, harassment, wrongful termination, and retaliation claims against a business. Nearly every EPLI form covers punitive damages only “where insurable by law.” Those four words hand the actual coverage decision to whichever state’s law applies to the claim, not to the insurer or the business owner who bought the policy.

California is the cleanest example, and it traces to a single state supreme court case. In PPG Industries, Inc. v. Transamerica Insurance Co., 20 Cal. 4th 310 (1999), the California Supreme Court ruled that letting an “intentional wrongdoer… shift responsibility for its morally culpable behavior to the insurance company… would defeat the public policies of punishing the intentional wrongdoer for its own outrageous conduct and deterring it and others from engaging in such conduct in the future.” Industry estimates put the number at roughly 11 states that bar insuring punitive damages outright as a matter of public policy, with California, Florida, and New York most commonly named. A separate, smaller group of states takes a narrower approach, barring coverage only for a defendant’s own direct wrongdoing while still allowing it when the punitive award traces to an employee’s conduct rather than the employer’s.

Terrence’s company is registered in California and the claim was tried there, so California’s rule controlled the outcome, regardless of what his declarations page said about his coverage limit.

Terrence’s $2,150,000 verdict, three ways

The jury’s award broke into three pieces: $500,000 in compensatory damages, roughly $150,000 in defense costs through trial, and $1.5 million in punitive damages. What each piece cost Terrence depended entirely on the kind of coverage behind the policy, not on the size of the verdict itself.

Verdict component	No EPLI at all	Standard EPLI, “where insurable by law”	EPLI with a most-favored-venue endorsement
Compensatory damages ($500,000)	Owner pays in full	Insurer pays	Insurer pays
Defense costs (about $150,000)	Owner pays in full	Insurer pays	Insurer pays
Punitive damages ($1,500,000)	Owner pays in full	Owner pays in full, excluded under state law	Insurer pays, if a qualifying state’s law can be applied instead
Owner’s out-of-pocket total	$2,150,000	$1,500,000	$0, if the endorsement succeeds

Terrence’s actual policy sat in the middle column. His broker had never mentioned the most-favored-venue option, because it had not been offered to him at renewal.

This is happening to a real employer right now

This is not a hypothetical. In December 2025, a federal jury in Colorado awarded Rehab Mohamed $1.5 million in compensatory damages and $10 million in punitive damages against the Society for Human Resource Management (SHRM) for race discrimination and retaliation. A federal judge declined to set the award aside in April 2026, and SHRM appealed and posted bond.

In a July 28, 2026 complaint, SHRM’s own insurer, Twin City Fire Insurance Company, a Hartford Insurance Group subsidiary, asked a federal court to rule that it owes nothing toward the $10 million punitive portion. Twin City’s position rests on Virginia Code Section 38.2-227, which permits insuring punitive damages tied to negligence “but excluding intentional acts.” The jury’s own instructions required a finding that SHRM acted with malice or reckless indifference, and Twin City argues that finding places the award outside what it can lawfully pay.

Nothing about that dispute has been decided yet. What it already shows is that a full EPLI limit and a real jury verdict are not enough to guarantee payment. The same insurer that wrote the policy and defended the case at trial can turn around and sue its own policyholder to avoid paying the largest number in the verdict.

The two ways carriers sell around it

Two products exist specifically to close this gap, and neither ships automatically with a standard EPLI policy.

The first is an endorsement called “most-favored-venue” wording. It tells the insurer to apply whichever qualifying jurisdiction’s law is most favorable to insuring punitive damages, as long as that jurisdiction has a real connection to the claim: where the damages were awarded, where the underlying conduct happened, where the business is incorporated or based, or where the insurer itself is based. If any of those four connections points to a state that allows punitive-damage coverage, the endorsement lets the insurer pay under that state’s law instead of the harsher one.

The second option is a standalone product, sometimes called a punitive-damages wrap policy, issued outside the United States, commonly in Bermuda. It pays only after a final court judgment, never a settlement, and it exists precisely because a handful of states will never allow domestic coverage no matter how the primary policy is worded.

What to check before your next renewal

Pull your EPLI declarations page and find the punitive damages clause. If it reads “where insurable by law” and nothing else, ask your broker directly whether a most-favored-venue endorsement is available and what it costs. Ask which state’s law would actually apply to a claim against your business, since that depends on where you are incorporated, where your employees work, and where a lawsuit would realistically be filed. A business with locations in more than one state has more room to negotiate a favorable jurisdiction into the endorsement than a single-location employer does.

EPLI pricing has been easing across the market. The Council of Insurance Agents and Brokers (CIAB), a trade group that surveys commercial insurance brokers, reported overall commercial premiums down 2.0% in the second quarter of 2026, with employment-related liability lines among those softening. A softer market is a better moment to ask for an endorsement most carriers will not volunteer on their own.

Pair this review with our guide on how to review business insurance coverage so the punitive-damages clause is not the only gap you check for. If you have already confirmed your exposure using our guide to the EPLI wage-and-hour exclusion, the punitive-damages clause sits on the same declarations page and rarely shows up until a verdict forces the question.

Frequently asked questions

Does business insurance cover punitive damages? Sometimes. Most Employment Practices Liability Insurance (EPLI) and similar liability policies cover punitive damages only “where insurable by law,” which means coverage depends on which state’s law applies to the claim. Roughly 11 states bar insuring punitive damages outright as a matter of public policy, so the same verdict can be fully insured in one state and completely uninsured in another.

What does “where insurable by law” mean in an insurance policy? It means the policy pays punitive damages only if the state law governing the claim actually permits insurers to cover them. In states like California, courts have ruled that insuring a company against its own punitive damages defeats the purpose of the award, so coverage is barred no matter how the policy is worded or how high its limit runs.

Which states don’t allow insurance for punitive damages? Industry estimates put the number at roughly 11 states that bar it outright. California is the most reliably documented example, tracing to the 1999 case PPG Industries, Inc. v. Transamerica Insurance Co. Florida and New York are commonly named as well. A separate, smaller group of states bars coverage only for an employer’s own direct wrongdoing while still allowing it when the punitive award traces to an employee’s conduct.

Can I buy insurance specifically for punitive damages? In some cases. A most-favored-venue endorsement lets your insurer apply a more favorable state’s law when the facts of a claim connect to more than one jurisdiction. Separately, some carriers sell a standalone punitive-damages wrap policy, issued outside the United States, that pays only after a final court judgment, not a settlement.

Why would my insurer sue me instead of just paying the verdict? An insurer that believes state law bars it from covering part of a judgment can file its own lawsuit asking a court to confirm that limit before paying anything on the disputed portion. This is happening right now in a real 2026 case involving the Society for Human Resource Management, where the insurer sued to avoid paying $10 million in punitive damages from a discrimination verdict.