When Are Punitive Damages Available

Fort Worth insurance lawyers need to be able to discuss with clients, the situations wherein punitive damages may be part of a claim. A 2008, 5th Circuit Court of Appeals opinion discusses one aspect of these punitive damages. The style of the case is, American International Specialty Lines Inc. Co. v. Res-Care, Inc. Here is the necessary information.
American sought reimbursement from Res-Care under a non-waiver agreement for the uncovered claims included in its $9 million settlement of the underlying claim, asking the district court to apportion the settlement costs among covered and non-covered claims. The court determined that the non-waiver agreement satisfied the conditions set forth by the Texas Supreme Court for reimbursement. Turning to the merits, the court determined the district court properly considered all evidence relevant to the settlement decision, and was not limited to considering only the evidence admissible in the underlying suit. Res-Care sought to defeat American’s coverage claims by asserting waiver and estoppel because American waited 18 months after coverage issues were apparent before raising a coverage question. The court further held Res-Care waived the defense by entering into the non-waiver agreement, and the court found no merit in Res-Care’s contention that it was “forced” to enter into the non-waiver agreement.
In making its ruling in this case, the court found Texas public policy did not provide coverage for punitive damages in this instance given the egregious circumstances and nature of the avoidable conduct that caused the injuries. The 5th Circuit stated that “we conclude that the extreme circumstances which gave pause in another related court decision were present in this case. The plaintiff’s complaint in the underlying case is rife with allegations of gross negligence for which the responsibility should not be shifted from the defendants to their insurance company. The complaint alleged that all defendants including Res-Care, were grossly negligent in their actions, not only for direct participation in the bleach incident on April 12, 1998, but also for failure to take reasonable steps to prevent the situation from occurring, and for failure to alleviate the harm immediately afterward.” The circumstances of the decedent’s injury and death, were so extreme that the purposes of punishment and deterrence of conscious indifference outweigh the normally strong public policy of permitting the right to contract between the insurance company and the insured.
In looking at a case where there is a possibility of recovering punitive damages, an attorney has to conscious of what kind of damages are covered by the insurance agreement.