Auto Policy And Punitive Damages

Lawyers handling car wreck cases would be especially interested in this 2017 opinion from the Texas Supreme Court.  It is styled, Farmers Texas County Mutual Insurance Company v. Jennifer L. Zuniga et al.

This is an appeal from the granting of a summary judgment in favor of Zuniga wherein Farmers had asked the court to rule that there is no coverage under the policy at issue for punitive damages.  This Court reversed that summary judgment.

Determining whether exemplary damages for gross negligence are insurable requires a two-step analysis.  First, the Court decides whether the plain language of the policy covers exemplary damages sought in the underlying suit against the insured.  Second, if the Court concludes that the policy provides coverage, it determines whether the public policy of Texas allows or prohibits coverage in the circumstances of the underlying suit.

The insuring agreement in the Farmers policy provides in pertinent part as follows:

Insuring Agreement

A. We will pay damages for bodily injury or property damage for which any
covered person becomes legally responsible because of an auto accident. Property damage includes loss of use of the damaged property. Damages include prejudgment interest awarded against the covered person. We will settle or
defend, as we consider appropriate, any claim or suit asking for these damages. In
addition to our limit of liability, we will pay all defense costs we incur. Our duty
to settle or defend ends when our limit of liability for this coverage has been
exhausted.
***
Supplementary Payments
In addition to our limit of liability, we will pay on behalf of a covered person:
***

3. Interest accruing after a judgment is entered in any suit we defend. Our duty to

pay interest ends when we offer to pay that part of the judgment which does not
exceed our limit of liability for this coverage.
***
5. Other reasonable expenses incurred at our request.
In this case it is undisputed who is covered and is legally responsible for the punitive damages.
In siding with Farmers, this Court cited language from the Kentucky Supreme Court noting the definitional difference between “damages for bodily injury” and “punitive damages” as follows:
Damages for bodily injury are regarded as compensatory damages and include
the expense of cure, value of time lost, fair compensation for physical and mental
suffering caused by the injury, and for any permanent reduction of the power to
earn money. The object of compensatory damages is to make the injured party
whole to the extent that it is possible to measure his injury in terms of money. The
object is not to place the plaintiff in a better position than he would have been had
the wrong not been done.
Punitive damages are damages, other than compensatory and nominal damages,
awarded against a person to punish and to discourage him and others from similar
conduct in the future. It is an allowance of smart money as the penalty for egregious conduct, or even … as an expression of the indignation of the jury. From the injured party’s perspective, punitive damages represent an additional, non-
compensatory award based upon public policy concerns largely irrelevant to the issue of compensation.