Uninsured Motorist Coverage And Punitive Damages

Weatherford insurance lawyers need to be able to discuss the coverages available to a client, depending on the circumstances they are dealing with as described by the client. When it comes to uninsured motorist coverage, the Houston Court of Appeals [14th Dist.] issued an opinion in 1997, that is still good law. The style of the case is, Milligan v. State Farm Mutual Automobile Insurance. Here is what the case tells us.
The facts in this case are not in dispute. Milligan was injured in an accident caused by an uninsured drunk driver. The parties agree that the driver’s conduct constituted gross negligence. At the time of the accident, Milligan was insured by State Farm under a policy providing uninsured motorist coverage. State Farm’s policy provides in relevant part as follows:
We will pay damages which a covered person is legally entitled to recover from the owner or operator of an uninsured motor vehicle because of bodily injury sustained by a covered person, or property damage caused by an accident.
Milligan and State Farm settled her claim for actual damages under the uninsured motorist coverage in her auto policy, but State Farm denied coverage of Milligan’s claim for exemplary damages. The parties filed a joint petition for declaratory relief to determine the coverage issue. State Farm prevailed in the declaratory judgment action, and Milligan appealed.
In Milligan’s sole point of error, she argued that the trial court erred in granting State Farm’s motion for summary judgment because the Texas Insurance Code provides that uninsured motorist coverage includes “payment of all sums … as damages … because of bodily injury.” Therefore, she contends that she is entitled to recover exemplary damages as a matter of law.
Uninsured motorist coverage is mandated by the Texas Insurance Code.
In other cases, those courts finding exemplary damages are not recoverable under uninsured motorist provisions focus on the policy reasons for imposing exemplary damages. First, the courts note the statutory definition of exemplary damages as “any damages awarded as an example to others, as a penalty, or by way of punishment.” Exemplary damages are assessed both to punish a wrongdoer and to serve as a deterrent to future wrongdoers.
Neither deterrence of wrongful conduct nor punishment of the wrongdoer is achieved by imposing exemplary damages against an insurance carrier in this situation.
The policy considerations which permit an insurer to obligate itself for punitive damages based on the conduct of its insured are different than those where uninsured motorist coverage is at issue. With uninsured motorist coverage, there has been no opportunity for the insurer to bargain “for a price;” coverage is mandated by law with a stated purpose of relieving innocent motorists of actual losses.
This court agreed with sister court’s decisions and held that the uninsured motorist clause in the auto policy in this case does not cover exemplary damages as a matter of law.