Uninsured Coverage and Punative Damages In Texas

Punative damages and “exemplary” damages are essentially the same thing in Texas. The way exemplary damages works in Texas is the same regardless of whether you live in Arlington, Grand Prairie, Fort Worth, Dallas, or Weatherford.
The Texas Court of Appeals in Houston, Texas, recently dealt with the issue of how exemplary damages are handled when the claim made is a claim against a person’s own insurance carrier for uninsured motorist benefits. This case was decided on February 4, 2010. The style of the case is, Sandra Gervais Laine, v. Farmers Insurance Exchange.
In this case Laine’s mother was killed in an auto accident. The other driver was at fault and was intoxicated. Laine made a claim against Farmers Insurance Exchange for benefits under her uninsured motorist benefits portion of the auto policy. Farmers paid the uninsured benefits limit of $250,000. She then made a claim against her umbrella policy which provided the same benefits as the auto policy except for a higher amount. The limit under the umbrella policy was $1,000,000.
Farmers denied the claim under the umbrella policy and Laine sued Farmers. A jury found the uninsured driver at fault and assessed actual damages of $175,000. The jury then found exemplary damages in the amount of $1,500,000 as punishment against the intoxicated driver. The trial Judge overruled the jury’s verdict against Farmers on the exemplary damages. The appeals court affirmed the Judge’s ruling.
The Judge’s looked at the policy language and public policy considerations in making their decision. The policy defined damages as “the total of damages that the insured must pay (legally or by agreement with our written consent) because of bodily injury, personal injury or property damage caused by an occurrence covered by this policy…” The policy goes on to talk about “bodily injury”. The policy is silent on the issue of exemplary damages. The court held that exemplary damages are amounts in excess of actual damages. And it did not matter that the policy did not contain an exclusion for “damages which are punitive or exemplary.”
As for public policy considerations, the Texas Supreme Court has rejected as against public policy, coverage under uninsured motorist policies, when the insured seeks to recover from his own insurer exemplary damages assessed against a responsible third party wrongdoer. Further, that both public policy and the language contained in the Insurance Code and the Motor Vehicle Safety Responsibility Act, limit recovery under an uninsured motorist policy to compensatory damages. Here, the court cited the Texas Insurance Code, Section 1952.001 and Texas Transportation Code, Sections 601.001 – 601.054, and stated that this policy does not support rendering damages against an insurance company since neither deterrence of wrongful conduct nor punishment … of the wrongdoer is achieved by imposing exemplary damages upon the insurance company.
To further affirm their position, the court looked to Chapter 41 of the Civil Practice and Remedies Code as further indication that the punishment imposed through exemplary damages is to be directed at the wrongdoer. And, the Texas legislature ensured that persons injured by uninsured motorists be compensated for their actual injuries, when they enacted Section 1952.101, Texas Insurance Code.