Abbie Uriguen Oldsmobile Buick, Inc. v. U.S. Fire Ins. Co.

Decision Date03 July 1973
Docket NumberNo. 11226,11226
Citation511 P.2d 783,95 Idaho 501
PartiesABBIE URIGUEN OLDSMOBILE BUICK, INC., a corporation, Plaintiff-Appellant, v. UNITED STATES FIRE INSURANCE COMPANY, Defendant-Respondent.
CourtIdaho Supreme Court

Paul M. Beeks, of Kramer, Plankey, Smith & Beeks, Twin Falls, for appellant.

R. B. Rock, of Moffatt, Thomas, Barrett & Blanton, Boise, for respondent.

SHEPARD, Justice.

This case results from an insurance company's denial of policy coverage for punitive damages. The insured brought this action seeking recovery of attorneys fees incurred as a result of the company's prospective denial of the punitive damage claim. Summary judgment was entered in favor of the company. We reverse.

The first question presented herein is whether an insurance company is obligated, under a blanket automobile liability policy, to provide coverage of punitive damage claims arising out of an automobile accident; or whether, conversely, public policy in Idaho precludes such coverage. The second issue is whether the company's prospective denial of coverage against the punitive damage claim was a breach of the insurance contract which entitled the insured to retain his own counsel and thereafter recover his attorneys fees.

On May 27, 1970 one George Green, Jr. was driving an automobile owned by Abbie Uriguen Oldsmobile, Inc. Joe Uriguen was a passenger in the car. The automobile was involved in an accident in which two persons were severely injured.

Those injured brought suits against Green, Joe Uriguen, doing business as J & U Auto Sales, and Abbie Uriguen Oldsmobile, Inc. alleging that Green was operating the automobile 'in a negligent, heedless and reckless manner while under the influence of intoxicating liquor'; that Green was driving the automobile with the permission of the Abbie Uriguen Corporation; and that the Uriguen Corporation had 'full knowledge of the fact that the defendant George Green, Jr. was driving under the influence of intoxicating liquor at the time he was given permission to drive said automobile.'

Joe Uriguen's relationship to this accident is obscure, to say the least, since he is alleged to be a resident of Cassia County, Idaho and operating an automobile sales business in the City of Burley in Cassia County, while Abbie Uriguen Oldsmobile, Inc., is alleged to be a corporation with its principal place of business in Twin Falls, Idaho. Joe Uriguen is not alleged to be an owner of the automobile but only a passenger; however, it is alleged that the automobile was being used for 'business purposes' of Joe Uriguen.

We note that the two law suits by the injured persons arose out of substantial injury to them because the record reveals that the law suits were settled for $39,500. The record is somewhat ambiguous regarding the amount of the claim for punitive damages asserted in those actions; it is either $50,000 or $150,000.

Uriguen Corporation tendered the defense of the two suits to its liability insurance carrier, defendant-respondent U. S. Fire Insurance Co., Inc. U. S. Fire's attorney wrote Uriguen Corporation that while U. S. Fire would provide a full defense to the two law suits it would not cover any awards of punitive damages. The letter states:

'This letter is written to inform you that in the event the plaintiffs are successful in recovering punitive damages against Abbie Uriguen Oldsmobile Buick, Inc., a corporation, that such damages will not be paid by your liability insurance carrier for the reason that it is against public policy for an insured to obtain coverage for this type of damage. You are therefore urged to employ counsel of your choice and at your own expense to protect your interests with respect to plaintiffs' claim for punitive damages in each case.' (Emphasis supplied)

Uriguen thereafter retained its own legal counsel to guard its interests regarding the punitive damage claims. Correspondence was exchanged between attorneys for U. S. Fire and Uriguen Corporation. A motion to dismiss and strike the allegations of the complaint relating to punitive damages was denied. Counsel for U. S. Fire wrote:

'This is to inform you that we will continue to diligently defend your client, but, in the event punitive damages are awarded, it will be necessary for Mr. Uriguen to pay those out of his own pocket since they will not be paid by his liability insurance carrier.

'We have attempted in every way possible and to the best of our ability to eliminate from this case the element of punitive damages, but at this point have been unsuccessful in doing so. If Mr. Uriguen desires to employ you at his own expense to defend this case in connection with the punitive damage items, you are invited to do so and we will assist you in every way possible.'

Later, counsel for U. S. Fire wrote counsel for Uriguen Corporation:

'Pursuant to our telephone conversation of today, you will find enclosed herewith a copy of a letter dated August 6th which we have today received from counsel for plaintiff in the above matter.

'You will note the offer of settlement of $100,000 general and special damages and $50,000 punitive damages. We are forwarding a copy to the insurance company.

'If you have any thoughts on how best to conduct the case from this point, we would be happy to discuss it with you at a mutually convenient time.'

Later still, counsel for U. S. Fire wrote counsel for Uriguen Corporation:

'It would appear that plaintiffs are making it more difficult to attempt to negotiate settlement in this case. Enclosed herewith are copies of Motion to Amend Amended Complaint and Notice of Hearing, all of which indicates plaintiffs are attempting to obtain an Order from the Court to increase the prayer for punitive damages from $50,000.00 to $150,000.00.

'Since you are representing Abbie Uriguen Oldsmobile Buick, Inc., individually, in this case, we thought you should be immediately advised of this Motion to Amend. We intend to resist it, but as we have repeatedly advised you and Mr. Uriguen our insurance company client, the liability carrier for Mr. Uriguen, cannot pay any award of punitive damages in the event plaintiff obtains such an award, since our research leads us to the conclusion that such payment by insurance companies would be against public policy.'

U. S. Fire settled both suits in November of 1971. That settlement did not specifically set forth any allocation between actual or punitive damages but merely released all defendants 'of and from all claims, demands, actions or causes of action, judgments, costs, both known and unknown which the undersigned have or may hereafter have on account of, or in any way growing out of a certain accident * * *.'

Uriguen Corporation then brought the instant action seeking to recover its attorneys fees on the theory that U. S. Fire violated I.C. § 41-1839 when it prospectively denied any liability for any award which might be made for punitive damages. 1 The district court entered summary judgment for U. S. Fire on the grounds that I.C. 41-1839 did not apply; that Uriguen was not in any sense obliged to retain additional legal counsel, and, that the entire issue of U. S. Fire's obligation to cover punitive damage claims was mooted by the settlement of the two suits against Uriguen.

At the time of the accident Uriguen Corporation was covered by a U. S. Fire policy containing the following pertinent provision:

'The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

Coverage C. bodily injury or

Coverage D. property damage

to which this insurance applies, caused by an occurrence and arising out of the ownership, maintenance, or use, including loading or unloading, of any automobile . . .'

We note that such policy provision is identical with policy provisions in cases which we will discuss herein. This case focuses on U. S. Fire's prospective denial of any coverage of a punitive damage award. We consider first Uriguen's assertion that the trial court erred in adopting U. S. Fire's contention that public policy forbids insurance coverage of punitive damage awards.

This is a question of first impression in Idaho. There are only a few cases dealing with this question in other jurisdictions and the courts have sharply divided regarding public policy on insuring against punitive damages.

Idaho follows the majority view that the public purpose behind punitive damages is both to punish and to deter. Cox v. Stolworthy, 94 Idaho 683, 496 P.2d 682 (1972); Boise Dodge, Inc. v. Clark, 92 Idaho 902, 453 P.2d 551 (1969); Jolley v. Puregro Co., 94 Idaho 702, 496 P.2d 939 (1972). We note, however, that none of such cases are applicable to the situation at bar since all were based on deliberate and intentional acts of the tortfeasor. For example in Jolley the acts were 'deliberate, wilful, malicious and intentional and for the sole purpose of harassing.'

There is authority that punitive damage awards are covered by automobile liability insurance. For example, in 7 Appleman, Insurance Law and Practice, § 4312 (1972 Supp.) it is stated:

'In a recent case the court concluded that under applicable state law an award of punitive damages against an insurer would be improper. It is submitted that this extension of a rule of public policy, originally limited to acts intentionally caused, is unsound. The facts of the cited case indicate that defendant's conduct was not wilful. He had no present intent to injure plaintiff. Had his act been wilful, in the sense that he intended injury to the plaintiff, the insurer would have been completely absolved of liability. It seems strangely inconsistent for an insurer, in one breath, to admit liability for compensatory damages, and then to deny liability for that part of an award claimed attributable to reckless or wanton conduct. Mr. Appleman's arguments apply with equal force to punitive damages. In any event a court should not aid an insurer...

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