First Nat. Bank of St. Mary's v. Fidelity & Deposit Co.

• Decision Date: 18 July 1978
• Docket Number: No. 86A,86A
• Citation: 283 Md. 228,389 A.2d 359
• Parties: The FIRST NATIONAL BANK OF ST. MARY'S v. FIDELITY AND DEPOSIT COMPANY.
• Court: Maryland Court of Appeals

Page 228

283 Md. 228

389 A.2d 359

The FIRST NATIONAL BANK OF ST. MARY'S v. FIDELITY AND DEPOSIT COMPANY.

No. 86A.

Court of Appeals of Maryland.

July 18, 1978.

Browne L. Kooken, Landover (Dukes & Kooken, Landover, and William Aleck Loker, Gen. Counsel, Leonardtown, on the brief), for appellant.

David A. Levin, Upper Marlboro (Alan R. Siciliano and O'Malley, Miles, Farrington & McCarthy, Upper Marlboro on the brief), for appellee.

Argued Jan. 14, 1978 before MURPHY, C. J., and SMITH, LEVINE, ELDRIDGE, ORTH and COLE, JJ.

Reargued March 6, 1978 before MURPHY, C. J., SMITH, LEVINE, ELDRIDGE, ORTH and COLE, JJ., and SOLOMON LISS, Associate Judge of the Court of Special Appeals, specially assigned.

SMITH, Judge.

We shall here hold that public policy does not protect appellee, Fidelity & Deposit Company of Maryland (F & D), from liability under its policy of insurance with appellant, The First National Bank of St. Mary's (the Bank), for that portion of a judgment entered against the Bank which included an assessment of exemplary damages.

This case is the direct outgrowth of the unfortunate set of circumstances related in First National Bank of St. Mary's v. Todd, --- Md. ---, 389 A.2d 371 (1978). That case involved a claim for malicious prosecution in which a Calvert County jury returned a verdict of $4,000 for compensatory damages against the Bank and one of its employees, and $8,000 punitive damages against the Bank.

The Bank filed a declaratory judgment action against F & D seeking a determination that the latter was "obligated to undertake the complete defense, irrespective of the types of damages claimed, of the action" brought by Mrs. Todd against the Bank and its employee and "(t)hat F & D (was) obligated to pay on behalf of (the Bank and its employee) all sums which they (might) become obligated to pay as damages, whether they be labeled compensatory or punitive, as a result of the (same) action . . . ." The matter came on for hearing in the Circuit Court for Prince George's County. A stipulation of facts was entered into. The trial judge (Chasanow, J.) rendered a scholarly and well-reasoned opinion holding that F & D must undertake the defense but further holding that it was "not obligated to indemnify the complainant-bank for the . . . punitive damages assessed against the Bank." The Bank appealed the latter determination to the Court of Special Appeals. We then granted the Bank's petition for the writ of certiorari prior to argument in that court.

The Bank raises two issues here: (1) that the trial court erred in holding that its liability in the Todd matter was direct rather than vicarious, and (2) that the public policy of this State does not prohibit insurance coverage of exemplary damages in this situation. F & D counters with a contention that the coverage provided in its policy does not extend to punitive damages.

1. Policy Coverage

In the Court of Special Appeals F & D would have been entitled to raise the issue of policy coverage in an effort to sustain the judgment of the trial court. It likewise would have been entitled to argue the point in this Court had we granted the writ of certiorari on our own motion. It failed, however, to point out this question either in an answer to the Bank's petition for the writ of certiorari or in a cross-petition for such a writ. Hence, under the reasoning in Dempsey v. State, 277 Md. 134, 355 A.2d 455 (1976), and Walston v. Sun Cab Co., 267 Md. 559, 298 A.2d 391 (1973), the matter is not before us. ¹ In this instance we have examined the policy provision in question and conclude that if the matter were properly before us we would hold that the trial judge did not err in determining that its provisions embraced an award for exemplary damages.

2. Vicarious v. Direct Liability

The Bank has overlooked the written stipulation of facts the parties entered into in this case, paragraphs six and seven of which read as follows:

"6. Counsel for Alma Todd wrote a letter to the First National Bank of St. Mary's County outlining the defenses of Alma Todd and requesting that the matter be handled civilly rather than through criminal prosecution. After advice of counsel, It was the corporate decision of the First National Bank of St. Mary's County to continue with the criminal prosecution.

"7. After consultation with counsel, the First National Bank of St. Mary's County, As a matter of corporate policy, rejected the offers of Alma Todd and Made the corporate decision in the furtherance of the business purposes of the corporation to prosecute Alma Todd." ² (Emphasis added.)

Thus, the trial judge did not err in holding that liability was direct rather than vicarious.

3. Public Policy

As we have already related, Mrs. Todd's action against the Bank and its employee was for malicious prosecution. In Safeway Stores, Inc. v. Barrack, 210 Md. 168, 177, 122 A.2d 457, 462 (1956), this Court held that punitive damages could be recovered in such an action if a jury found "a want of probable cause, plus malice, but that malice might be inferred from a want of probable cause." To the same effect See Montgomery Ward & Co. v. Keulemans, 275 Md. 441, 448, 340 A.2d 705 (1975).

In Wedeman v. City Chevrolet Co., 278 Md. 524, 531, 366 A.2d 7, 12 (1976), Judge Levine pointed out for the Court that exemplary "damages are awarded, over and above full compensation, to punish the wrongdoer, to teach him not to repeat his wrongful conduct and to deter others from engaging in the same conduct." It is from such statements by this and other courts relative to the purpose of such damages that the public policy argument is constructed, it being contended that if the wrongdoer may have someone else bear the expense of paying such an assessment that the deterrent effect is lost.

In Maryland-National Capital Park and Planning Commission v. Washington National Arena, 282 Md. 1216, 386 A.2d 1216 (1978). Judge Levine fully reviewed the public policy doctrine for this Court. See also Food Fair Stores, Inc. v. Joy, 283 Md. 205, 389 A.2d 874 (1978). However, the issue here presented does not appear to have previously been considered by this Court.

There are divergent points of view as to whether it is against public policy to provide insurance coverage for exemplary damages. A large number of the cases involve claims arising from automobile accidents. ³ The cases are collected and analyzed in Annot., 20 A.L.R.3d 343 (1968), and the 1977 supplement thereto. Holdings against such coverage include: American Surety Company of New York v. Gold, 375 F.2d 523 (10th Cir. 1966) (applying Kansas law); Northwestern National Casualty Company v. McNulty, 307 F.2d 432 (5th Cir. 1962) (applying Virginia and Florida law); Ging v. American Liberty Insurance Company, 293 F.Supp. 756 (N.D.Fla.1968) (applying Florida law); Commercial Union Insurance Co. of New York v. Reichard, 262 F.Supp. 275 (S.D.Fla.1966) (applying Florida law); American Insurance Co. v. Saulnier, 242 F.Supp. 257 (D.Conn.1965) (applying Connecticut law); Tedesco v. Maryland Casualty Co., 127 Conn. 533, 18 A.2d 357 (1941); Crull v. Gleb, 382 S.W.2d 17 (Mo.App.1964); Newark v. Hartford Accident & Indemnity Co., 134 N.J.Super. 537, 342 A.2d 513 (App.Div.1975); LoRocco v. N. J. Mfrs. Ind. Ins. Co., 82 N.J.Super. 323, 197 A.2d 591 (App.Div.1964); and Esmond v. Liscio, 209 Pa.Super. 200, 224 A.2d 793 (1966).

Cases holding insurance coverage for such damages not outlawed by public policy include: Hartford Life Insurance Co. v. Title Guarantee Co., 520 F.2d 1170 (D.C.Cir.1975); Price v. Hartford Accident and Indemnity Company, 108 Ariz. 485, 502 P.2d 522 (1972); Southern Farm Bur. Cas. Ins. Co. v. Daniel, 246 Ark. 849, 852, 440 S.W.2d 582 (1969); Greenwood Cemetery v. Traveler's etc. Co., 238 Ga. 313, 232 S.E.2d 910 (1977); Abbie Uriguen Olds. Buick, Inc. v. United States F. I. Co., 95 Idaho 501, 511 P.2d 783 (1973); Continental Insurance Companies v. Hancock, 507 S.W.2d 146 (Ky.1974); Colson v. Lloyd's of London, 435 S.W.2d 42 (Mo.App.1968); Harrell v. Travelers Indemnity Co., 279 Or. 199, 567 P.2d 1013 (1977); and Lazenby v. Univ. U'wtrs. Ins. Co., 214 Tenn. 639, 383 S.W.2d 1 (1964).

The leading case denying coverage is that of Northwestern National Casualty Company v. McNulty, 307 F.2d 432. That opinion has been quoted numerous times by courts considering this issue. Severe injuries were involved, including permanent damage to the brain, sustained in an accident in which a drunken driver traveled at an excessive rate of speed. Judge Wisdom said for the court:

"Where a person is able to insure himself against punishment he gains a freedom of misconduct inconsistent with the establishment of sanctions against such misconduct. It is not disputed that insurance against criminal fines or penalties would be void as violative of public policy. The same public policy should invalidate any contract of insurance against the civil punishment that punitive damages represent.

"The policy considerations in a state where, as in Florida and Virginia, punitive damages are awarded for punishment and deterrence, would seem to require that the damages rest ultimately as well (as) nominally on the party actually responsible for the wrong. If that person were permitted to shift the burden to an insurance company, punitive damages would serve no useful purpose. Such damages do not compensate the plaintiff for his injury, since compensatory damages already have made the plaintiff whole. And there is no point in punishing the insurance company; it has done no wrong. In actual fact, of course, and considering the extent to which the public is insured, the burden would ultimately come to rest not on the insurance companies but on the public, since the added liability to the insurance companies would be passed along to the premium payers. Society would then be punishing itself for the wrong committed by the insured." Id. at 440-41.

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