American Home Assur. Co. v. Safway Steel Products Co., Inc., A Div. of Figgie Intern., Inc.
| Decision Date | 09 December 1987 |
| Docket Number | No. 3-86-077-CV,3-86-077-CV |
| Citation | 743 S.W.2d 693 |
| Parties | AMERICAN HOME ASSURANCE COMPANY, et al., Appellants, v. SAFWAY STEEL PRODUCTS COMPANY, INC., A DIVISION OF FIGGIE INTERNATIONAL, INC., et al., Appellees. |
| Court | Texas Court of Appeals |
Steven M. Tipton, Flahive, Ogden & Latson, Austin, for appellants.
Dean M. Kilgore, Diana K. Borden, McGinnis, Lochridge & Kilgore, Austin, for appellees.
Before POWERS, GAMMAGE and CARROLL, JJ.
Appellants, American Home Assurance and National Union Fire Insurance, appeal from a declaratory judgment in favor of appellees, Rawlings Sporting Goods and Safway Steel Products, concerning insurance coverage of punitive damage awards. The litigation follows two separate product liability actions in which Texas juries had assessed punitive damages.
The issues in this appeal fall broadly into three principal categories: (1) conflicts of law; (2) construction of the language of the insurance agreements in question; and (3) the insurability of punitive damage awards as a matter of public policy.
We have concluded that any conflict of law question must be resolved in favor of applying Texas law, that the plain language of the policies does not exclude punitive damages, and that insuring against possible punitive damages is not contrary to Texas public policy. Accordingly, we affirm the trial court's judgment.
A. Rawlings Case: In 1973, Rawlings Sporting Goods Company, Inc., purchased an Umbrella Liability Policy from American Home Assurance. While the policy was in effect, Mark Daniels sustained injuries while playing football and wearing a Rawlings football helmet. Mark sued, and the jury found Rawlings grossly negligent in failing to warn its customers of the limitations of the helmet, and awarded $750,000 in punitive damages. Rawlings Sporting Goods Co., Inc. v. Daniels, 619 S.W.2d 435 (Tex.Civ.App.1981, writ ref'd n.r.e.).
American Home paid the claim but reserved for future resolution the issue of whether it was legally obligated to pay the punitive damage portion of the judgment. The policy provides in part:
Insuring Agreements
Coverage--To pay on behalf of the insured the ultimate net loss in excess of the retained limit herein defined, which the insured shall become legally obligated to pay as damages by reason of the liability imposed upon the insured by law, or assumed by the insured under contract because of--
(a) Personal injury, including death at any time resulting therefrom, as defined herein and caused by or arising out of an occurrence.
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Definitions
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Occurrence--With respect to Personal Injury ... the term "occurrence" means an event ... which result(s) in Personal Injury ... neither expected nor intended from the standpoint of the insured ...
Ultimate Net Loss-- ... the term "Ultimate Net Loss" shall mean the total sum which the insured or any company as its insurer, or both become obligated to pay by reason of personal injury ...
B. Safway Case: In 1977, National Union Fire Insurance Company, Inc. issued an Excess Third Party Liability Policy to Safway Steel Products Company, Inc. During the policy period, Leo Ventris successfully sued Safway for injuries caused by a defective scaffold. Ventris charged gross negligence in design, testing, marketing, warning or failure to warn of the dangers of the scaffolding system, and recovered $1,000,000 in punitive damages.
The case settled while under submission on appeal and National Union Fire paid its portion of the settlement, but reserved for future resolution the issue of whether it was obligated to pay that part of the settlement attributable to punitive damages. The pertinent provisions of the Safway policy are as follows:
Insuring Agreement
In consideration of the payment of premium stated in the Declarations, the Company agrees to indemnify the insured in accordance with the applicable insuring agreements of the Primary Insurance, against loss subject to the limits stated in Item 6, Section I of the Declarations and as fully and to all intents and purposes * * *
as though the Primary Insurance had been issued forth in Item 6 ...
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1. It is agreed that this policy, except as herein stated, is subject to all conditions, agreements and limitations of and shall follow the Primary Insurance in all respects ...
Safway's primary insurance carrier at the time was United National Insurance Company, and the pertinent contractual provisions are as follows:
Coverage--Bodily Injury Liability
The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... bodily injury ... to which this insurance applies, caused by an occurrence ...
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"Occurrence" means an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.
Since both the Rawlings and Safway cases involve similar questions, they were consolidated into a single declaratory judgment action.
As a preliminary matter, appellants contend that the district court erred in applying Texas law both to the construction of the insuring agreements, and to the issue of whether public policy prohibits the insurability of punitive damage awards. Appellants suggest that New York or Missouri law should have been applied in the Rawlings case and New York or Wisconsin law applied in the Safway case. This argument is primarily based upon § 188 of the Restatement (Second) of Conflict of Laws which addresses the evaluation of the significance of a state's relationship to a particular question. 1
Applying the § 188 analysis to the record of this appeal, we find the following contacts:
A. The Rawlings Case: American Home is a New York Corporation with its principal place of business in New York; Rawlings' principal place of business is Missouri; the umbrella liability policy was negotiated by phone with Rawlings' office in Missouri; the policy was issued in New York and countersigned in Missouri; the premiums are payable in New York through Rawlings' agent in Ohio; and the last act of affirmance by the insurer occurred in New York.
B. The Safway Case: National Union Fire's state of incorporation is Pennsylvania; National Union Fire's home office and principal place of business is New York; Safway's principal place of business is Wisconsin; the policy premiums are payable in New York; and the last act of affirmance by the insurer occurred in New York.
In Duncan v. Cessna Aircraft Co., 665 S.W.2d 414 (Tex.1984), the Supreme Court abandoned the traditional lex loci rule for Comment (a) of § 6 states "A court, subject to constitutional limitation, must follow the directions of its legislature." See also Reese, Conflict of Laws and the Restatement Second, 28 Law & Contemp.Prob. 679 (1973). Such is our case. Texas Ins.Code Ann. art. 21.42 (1981) provides:
resolving choice of law questions and adopted the "most significant relationship" approach set forth in § 6 of the Restatement (Second) of Conflict of Laws. 2 The guidelines in § 6 direct courts to identify the relative interest of each state in having its law applied, and then to balance the interests of the affected states with the factors listed in the Restatement (Second). However, a court should only resort to the § 6 guidelines in the absence of either a valid contractual agreement between the parties regarding the applicable law, or a local statutory provision controlling the disposition of the choice of law question
Any contract of insurance payable to any citizen or inhabitant of this State by any insurance company or corporation doing business within this State shall be held to be a contract made and entered into under and by virtue of the laws of this State relating to insurance, and governed thereby, notwithstanding such policy or contract of insurance may provide that the contract was executed and the premiums and policy (in case it becomes a demand) should be payable without this State, or at the home office of the company or corporation issuing the same.
Here both American Home and National Union Fire were at all times "doing business" in Texas. Moreover, at the moment the Texas juries in both the underlying personal injury actions returned a verdict legally obligating Rawlings and Safway to pay the respective plaintiffs certain sums for both compensatory and punitive damages, both insurance policies became "payable" under their own terms.
Article 21.42 has been previously upheld as constitutional. Austin Bldg. Co. v. National Union Fire Ins. Co., 432 S.W.2d 697 (Tex.1968). The only limitation is that art. 21.42 may not be given an extraterritorial effect. Aetna Life Ins. Co. v. Dunken, 266 U.S. 389, 45 S.Ct. 129, 69 L.Ed. 342 (1924). In other words, the statute may not be used in a way which regulates business outside the State of Texas.
We have little difficulty in concluding that art. 21.42 requires us to apply Texas law to the issues in this appeal. In reaching this conclusion, we have considered and rejected the argument that application of Texas law would in essence regulate business outside of our State. Further, we cannot agree with the necessarily attendant proposition that New York, Missouri, and Wisconsin have any interest in determining which parties are financially responsible for paying a Texas jury verdict.
The fact that the respective insurance policies were negotiated, executed and premiums paid elsewhere in no way alters the tenor placed on the litigation when the instigating events arose in Texas. Our analysis of the choice of law issues in this appeal has led us to conclude that Texas has adequate contacts to sustain the choice of forum law under art. 21.42. See Allstate Insurance Co. v. Hague...
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