Insurance Law / Policies & Exemplary Damages

Here is information for people living in Grand Prairie, Arlington, Mansfield, Burleson, Benbrook, Dallas, Fort Worth, and other places in Texas. If has to do with “exemplary damages.”
Exemplary damages, often called punative damages, are damages awarded in a lawsuit when the defendant’s willful acts were malicious, violent, oppressive, fraudulent, wanton, or grossly reckless.
The United States Court of Appeals for the Fifth Circuit ruled in a case on August 27, 2010, that dealt with a exemplary damages and insurance policies. Judge Haynes issued the opinion of the Court. The style of the case is, Darrell D. Minter, As Receiver, v. Great American Insurance Company of New York.
The district court held that a policy issued by Great American Insurance Company of New York (Great American) includes coverage for exemplary damages in a state court lawsuit. Great American appealed it’s order to pay exemplary damages, arguing that such coverage violates Texas public policy. In the case, the Court of Appeals ruled that the award of exemplary damages did violate public policy.
Here are the facts of this case. In 1996, Jerry Largent, a truck driver for JTM Materials (JTM), pulled out of a private driveway in a tractor trailer owned by Hammer Trucking Company (Hammer) on lease to JTM. The trailer was struck by a vehicle driven by Grant Morris. Both drivers were intoxicated. Morris was injured. JTM had a primary truckers insurance policy with St. Paul Fire & Marine Insurance Company (St. Paul) for up to $1 million and an excess umbrella policy with Great American for coverage over the $1 million primary policy, up to $25 million (the umbrella policy).
Morris sued sued Largent, Hammer, and JTM in Texas state court. During trial, testimony was elicited that showed that Largent, who pled guilty to DWI in connection with this accident, had two prior convictions for DWI. Largent admitted that, at the time of the accident, (1) he was intoxicated; (2) he realized that he was a danger “to folks on the highway” having driven an 18-wheeler while he was intoxicated; and (3) he knew it was possible that someone might get hurt because he was intoxicated and driving a truck. A jury awarded $2,633,170 in actual damages, plus exemplary damages of $1,650,000 against Largent and $300,000 against Hammer.
Darrell Minter was appointed as a receiver to collect the judgment and the receiver filed this lawsuit trying to collect from the insurance company.
Great American filed a motion for new trial or to amend the judgment on the ground that exemplary damages were not covered by the umbrella policy. The court denied the motion for new trial based on Texas public policy does not prohibit insurance coverage of exemplary damages in this case. The court concluded that the “ongoing, systemic, extreme circumstances” it deemed necessary to avoid indemnity of exemplary damages were not present.
Great American appeals only that portion of the judgment holding that the exemplary damages awarded against Largent are insurable under Texas public policy.
In Texas there is a two step process for determining whether an exemplary damage claim is insurable:
First, the court must decide whether the plain language of the policy covers the exemplary damages sought in the underlying suit against the insured.
Second, if the above answer is yes, to determine whether the public policy of Texas allows or prohibits coverage in the circumstances of the case. In doing this, the court looks for express statutory provisions regarding the insurability of exemplary damages to determine whether the Legislature has made a policy decision, then they consider the general public policies of Texas.
In this case, Great American concedes the policy language covers exemplary damages. Both sides agreed the Texas Legislature has not made an explicit policy decision relevant to this case. What remains then, is for the court to consider the general public policies of Texas. Great American wants a rule that indemnity for exemplary damages against individuals always violates public policy.
This court decided the decision was easy. This accident represented Largent’s third DWI conviction. Largent, then, was a repeat offender who clearly has not learned his lesson. By his own admission, he knew he was a “danger to the folks on the highway” driving drunk in an 18-wheeler and that it was “possible someone might get hurt.” Under the facts of this case, Texas public policy prohibits Great American from indemnifying the exemplary damages award here. Any exemplary damages must therefore be recovered from Largent himself and not from Great American.
This case is relevant for understanding situations where the courts will make an insurance company pay exemplary damages incurred by one of its insureds.