Punitive Damages may, or may not be, covered by your general liability insurance. Depends on the state, and the best site for your state is here.
From two of my favorite Rugby Lawyers:
A. Khasa: In Tort law, they're damages awarded to punish the party who committed a tort (say, making faulty seatbelts) and deter future bad action, rather than to make the other party whole. The meaning might be somewhat different in other areas of law (like Contracts). I think they require something more than just negligence- like recklessness.In CA, not covered. Alaska? Directly assessed are insurable. And, the reason I know this is because a competitor tried to tell one of my clients that my carrier didn't cover punitive damages in CA. Nobody does, meat popsicle, and I still got the client.
T. Meek: basically punishment for bad actions. over and above damages actually incurred.
As always, ask questions of ANY agent/broker who bad mouths competition.