Southern Farm Bureau Cas. Ins. Co. v. Daniel, 5--4903

• Decision Date: 05 May 1969
• Docket Number: No. 5--4903,5--4903
• Citation: 440 S.W.2d 582,246 Ark. 849
• Parties: SOUTHERN FARM BUREAU CASUALTY INSURANCE COMPANY, Appellant, v. Richard A. DANIEL, Appellee.
• Court: Arkansas Supreme Court

Page 582

440 S.W.2d 582

246 Ark. 849

SOUTHERN FARM BUREAU CASUALTY INSURANCE COMPANY, Appellant, v. Richard A. DANIEL, Appellee.

No. 5--4903.

Supreme Court of Arkansas.

May 5, 1969.

Rehearing Denied June 9, 1969.

Skillman & Furrow, West Memphis, for appellant.

Spears & Sloan, West Memphis, for appellee.

BYRD, Justice.

The issues here are (1) whether punitive damages arising out of an accident are recoverable within the terms of appellant Southern Farm Bureau Casualty Insurance Company's automobile liability policy, and (2) whether such recovery is contrary to the public policy of the state of Arkansas. It is stipulated that as a result of an automobile accident between Larry White and appellee Richard A. Daniel, the jury returned a verdict for Daniel in the amount of $7,000 compensatory damages and $5,000 punitive damages. The policy in question, a comprehensive automobile policy, provides as follows:

'To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages:

'Coverage A. Because of bodily injuries sustained by any person, and

'Coverage B. Because of injury to or destruction of property, caused by accident and arising out of the ownership, maintenance, or use of any automobile, including loading and unloading thereof.'

So far as our research reveals, this is the first time this issue has come before this court. Cases from other jurisdictions can be found holding both ways, see American Surety Co. of N.Y. v. Gold (10th Cir. 1966), 375 F.2d 523, 20 A.L.R.3rd 335. Those courts which accentuate heavily the punishment aspect of punitive damages hold that it is against public policy to permit them to be recovered, Northwestern National Casualty Company v. McNulty (5th Cir. 1962), 307 F.2d 432. Other courts point out that the line of demarcation between a jury's allowance of punitive damages and compensatory damages is too thin and exacting to apply coverage in the one case and deny coverage in the other. Such courts, Lazenby v. Universal Underwriters Ins. Co., 214 Tenn. 639, 383 S.W.2d 1 (1964), place much less emphasis on the punishment aspect of punitive damages and permit a recovery under language similar to that involved here. They point out that there is nothing to prevent the insurer from excluding the payment of punitive damages by appropriate policy provisions.

Our cases, Kroger Grocery & Baking Co. v. Reeves, 210 Ark. 178, 194 S.W.2d 876 (1964), hold that there can be no recovery for punitive damages unless actual damages are suffered and assessed. Such damages have been defined as damages imposed by was of punishment and as those given or awarded in view of the supposed aggravation of the injury to the feelings of the plaintiff by the wanton or reckless conduct of the defendant, Erwin v. Milligan, 188 Ark. 658, 67 S.W.2d 592 (1934). Punitive damages are awarded upon a showing of gross and wanton negligence, Holmes v. Hollingsworth, 234 Ark. 347, 352 S.W.2d 96 (1961), and recovery thereof has been permitted against an employer for acts or admissions of an employee even though such acts were done without the employer's knowledge or authorization and were not subsequently ratified by him, Miller v. Blanton, 213 Ark. 246, 210 S.W.2d 293, 3 A.L.R.2d 203 (1948).

As we read the policy herein it agrees to pay on behalf of the insurer all sums which the insured shall become LEGALLY OBLIGATED TO PAY AS DAMAGES, because of bodily injuries sustained. When we consider that under our law, one cannot become legally obligated to pay punitive damages unless actual damages have been sustained and assessed, we find that punitive damages constitute a sum which the insured becomes legally obligated to pay as damages because of bodily injuries sustained, see Carroway v. Johnson, 245 S.C. 200, 139 S.E.2d 908 (1965).

Neither can we find anything in the state's public policy that prevents an insurer from indemnifying its insured against punitive damages arising out of an accident, as dintinguished from intentional torts. Since we have permitted punitive damages to be assessed against an employer under the doctrine of respondeat superior even in the absence of the employer's knowledge or authorization of the employee's acts, we can perceive of no good reason why an employer should be prohibited from insuring himself against such losses, since the losses are in effect a business loss--i.e. a calculated risk of doing business.

It has been suggested that our decision herein should be controlled by Arnold v. State, 220 Ark. 25, 245 S.W.2d 818 (1952), wherein we held that a surety on a sheriff's bond was not liable for punitive damages. We find that this case is not controlling because such bonds are executed pursuant to statute and cover only the damages set forth in the statute. See Maryland Casualty Co. v. Baker, 304 Ky. 296, 200 S.W.2d 757 (1947).

Affirmed.

FOGLEMAN and JONES, JJ., dissent.

FOGLEMAN, Justice.

While the precise question has not been specifically decided in this state, I must dissent from the majority opinion because the result is wholly inconsistent with the theory of punitive damages in Arkansas, and with other decisions by this court. This action places the burden of punishment on parties not guilty. While it may be true that the insurance company which pays punitive damages on an automobile liability policy is not really punished, this is so only when these losses can be passed on by the insurance company to its policyholders in the form of increased premiums.

Under the Arkansas theory allowing punitive damages I do not see how they can be said to be sums which an insured becomes legally obligated to pay as damages because of bodily injuries sustained by another person or because of injury to or destruction of property. A review of some of the statements made by this court as to the nature and purposes of punitive damages will clearly show that the decision by the majority completely destroys the basic purpose for allowance of these damages.

The nature of both compensatory and punitive damages is treated in Vogler v. O'Neal, 226 Ark. 1007, 295 S.W.2d 629, 62 A.L.R.2d 832. In that opinion we defined the sums which constituted damages because of bodily injuries. We quoted from Coca-Cola Bottling Co. of Arkansas v. Adcox 189 Ark. 610, 74 S.W.2d 771, as follows:

'The measure of damages for a physical injury to the person may be broadly stated to be such sum, so far as it is susceptible of estimate in money, as will compensate plaintiff for all losses, subject to the limitations imposed by the doctrines of natural and proximate consequences, and of certainty, which he has sustained by reason of the injury, including compensation for his pain and suffering, for his loss of time, for medical attendance and support during the period of his disablement, and for such permanent injury and continuing disability as he had sustained.' (Emphasis mine.)

In treating punitive damages in the Vogler case we recalled the announcement of a principle of law in Miller v. Blanton, 213 Ark. 246, 210 S.W.2d 293, 3 A.L.R.2d 203, when we adopted the language of the opinion in Ross v. Clark, 35 Ariz. 60, 274 P. 639, as follows:

"Punitive damages' are not intended to remunerate the injured party for the damages he may have sustained. They are not to compensate; they are the penalty the law inflicts for gross, wanton, and culpable negligence, and are allowed as a warning or as an example to defendants and others. Because they are an example as to what the law will do for such conduct when it results in injury to the person or property of others, they are sometimes called exemplary damages.' (Emphasis mine.)

In Holmes v. Hollingsworth, 234 Ark. 347, 352 S.W.2d 96, we said:

'* * * Punitive damages are not intended to remunerate the injured parties for the damages sustained. Punitive damages are the penalty which the law inflicts on the guilty party, and are allowed as a warning or an example to others. What would be sufficient punitive damages against one person might be grossly excessive against another.' (Emphasis mine.)

In Erwin v. Milligan, 188 Ark. 658, 67 S.W.2d 592, it was said that punitive damages are given by way of punishment 'in addition to compensation for the loss sustained.' We have classified a judgment based upon punitive damages as somewhat of a windfall for a plaintiff. Dunaway v. Troutt, 232 Ark. 615, 339 S.W.2d 613.

It seems crystal clear to me from these cases that punitive damages are no part of damages 'because of bodily injuries' or 'because of injury to property.'

The majority rely heavily upon the case of Carroway v. Johnson, 245 S.C. 200, 139 S.E.2d 908 (1965). The result in that case is based substantially upon a statute which should be taken to be a statement of the public policy of South Carolina. Section 46--750.13, Code of Laws of South Carolina, (1962), requires that every policy of automobile liability insurance contain a provision 'insuring the person * * * against loss from the liability imposed by law for damages * * *.' The South Carolina court had held in Laird v. Nationwide Ins. Co., 243 S.C. 388, 134 S.E.2d 206 (1964) that one could not collect punitive damages under the uninsured motorist clause of his automobile insurance policy. The insurer in that case agreed to pay all sums which the insured should be legally entitled to recover as damages from the owner or operator of an uninsured automobile because of bodily injury. In its opinion the court made a clear distinction between the language of the statute hereinabove cited and the language of the uninsured motorist policy when it said:

'It is required by Section 46--750.13 of the Code that a liability insurance policy must insure 'against loss from the liability imposed by law,' while under the uninsured motorist coverage, which appears on said policy by endorsement, is for the benefit of the insured, and those qualifying as such, and does not insure 'against liabilty...