Harrell v. Travelers Indem. Co.

• Jurisdiction: Oregon
• Parties: John T. HARRELL, Appellant, v. The TRAVELERS INDEMNITY COMPANY, Respondent.
• Citation: 279 Or. 199,567 P.2d 1013
• Court: Oregon Supreme Court
• Decision Date: 20 July 1977

Page 1013

567 P.2d 1013

279 Or. 199

John T. HARRELL, Appellant, v. The TRAVELERS INDEMNITY COMPANY, Respondent.

Supreme Court of Oregon, In Banc.

Argued and Submitted April 4, 1977.

Decided July 20, 1977.

Larry C. Hammack, Medford, argued the cause for appellant. With him on the briefs was Haviland, deSchweinitz, Stark & Hammack, Medford.

Patrick Ford, Medford, argued the cause for respondent. With him on the brief was Ford & Cowling, Medford.

TONGUE, Justice.

This is an action to collect from an insurance company a judgment of $25,000 in punitive damages entered against defendant's insured for reckless driving. Plaintiff appeals from a trial court decision on stipulated facts that defendant insurance company is not liable.

Plaintiff was injured in a collision with an automobile driven by defendant's insured, Mrs. Linnie Ames. The jury returned verdicts against Mrs. Ames for $70,000 in compensatory damages and $25,000 in punitive damages. The award of punitive damages, based on evidence that defendant's insured had been guilty of reckless driving after drinking, was affirmed by this court, Harrell v. Ames, 265 Or. 183, 508 P.2d 211, 65 A.L.R.3d 649 (1973).

Defendant paid plaintiff the $70,000 in compensatory damages, but not the $25,000 in punitive damages. ¹ Defendant's insured assigned to plaintiff all rights against defendant. The trial court upheld the assignment and plaintiff's right to sue. It concluded, however, that the insurance policy did not cover punitive damages, for two reasons: (1) that the 'language' of the insurance policy 'does not provide coverage for punitive damages,' and (2) that such coverage would be 'contrary to the expressed Oregon public policy.'

1. The insurance policy does not exclude liability for punitive damages.

The insurance policy was issued by defendant to South Coast Lumber Co., an Oregon corporation, and is over 70 unnumbered pages in length, including numerous endorsements. The 'named insured,' in addition to that corporation, includes, among others, 'C. V. Ames,' husband of Mrs. Ames, and provides that

'* * * Whenever the named insured also includes individually named insureds, the spouses of such individually named insureds are included if members of the same household.'

On a page entitled 'Comprehensive Automobile Liability Insurance Coverage Part' it is provided, among other things, that:

'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 and arising out of the ownership, maintenance or use * * * of any automobile * * *.' (Emphasis theirs)

The policy then immediately goes on to state five paragraphs of 'exclusions,' none of which are claimed to exclude liability for punitive damages.

It is contended on behalf of defendant insurance company that 'the only reasonable construction of this policy language and coverage involved in this case' is that 'the clear intent of the policy was to provide coverage for compensatory damages resulting from bodily injury' and that 'since punitive damages are in no sense compensatory' (but are 'awarded only as a deterrent to the violation of a societal interest') they are not considered within the coverage. In support of this contention defendant cites Noe v. Kaiser Foundation Hosp., 248 Or. 420, 425, 435 P.2d 306 (1967), as holding that the purpose of punitive damages in Oregon is 'deterrence,' and the Missouri case of Crull v. Gleb, 382 S.W.2d 17 (Mo.App.1964), as holding (at 23) that such a policy covers only 'damages for bodily injury' and that '[p]unitive damages do not fall in this category.'

It would appear, however, that the majority of courts hold to the contrary. As an example of the reasoning of such courts, it was stated in Norfolk & W. Ry. Co. v. Hartford Acc. & Indem. Co., 420 F.Supp. 92, 94 n.1 (N.D.Ind.1976), that:

'Of course, a threshold question may be posed, whether the language of the insurance contract admits of a construction which allows coverage for punitive damages. The contract covers 'all sums which the insured shall become legally obligated to pay.' The contract's explanation of the term 'damages' is that it 'includes' certain items, namely, that it 'includes damages for death [etc.].' The explanation does not attempt to be all-inclusive, and it is in any event a circular definition. The contract nowhere mentions punitive damages, although it was within Hartford's power to exclude such coverage. The policy unambiguously covers 'all sums.' Punitive damages are a form of damages; when liquidated by judgment, they are a 'sum.' Thus, this contract does not even present such an ambiguity as would call into play the rule that ambiguities in insurance contracts should be resolved in favor of the insured.' (Emphasis added) ² As also stated in 7 Appleman, Insurance Law and Practice 132, § 4312 (1962):

'* * * [I]t is clear that the average insured contemplates protection against claims of any character caused by his operation of an automobile, not intentionally inflicted. When so many states have guest statutes in which the test of liability it made to depend upon wilful and wanton conduct, or when courts, in an effort to get away from contributory negligence of the plaintiff, permit a jury to find a defendant guilty of wilful and wanton conduct where the acts would clearly not fall within the common law definitions of those terms, the insured expects, and rightfully so, that his liability under those circumstances will be protected by his automobile liability policy.'

and (at 136):

'Of course, a policy could expressly exclude liability arising from wilful and wanton acts * * *.'

and also (at 86) Supp. (1972):

'In any event a Court should not aid an insurer which failed to exclude liability for punitive damages. * * *'

Although this court has not previously decided this precise question, we believe that the resoning as stated by these authorities is in accord with the reasoning adopted by this court in other cases involving the interpretation of insurance policies. Thus, in Chalmers v. Oregon Auto Ins. Co., 262 Or. 504, 508-09, 500 P.2d 258, 260 (1972), we restated the effect of such cases as follows:

'* * * [A]lthough an insurance company is ordinarily entitled to the enforcement of an insurance policy as written by the company if its terms are clear and unambiguous, in the event of an ambiguity in the terms of an insurance policy, any reasonable doubt will be resolved against the insurance company and in favor of extending coverage to the insured. * * *

'* * * [W]hile the primary rule of contract interpretation, including insurance contracts, is to ascertain the intent of the parties, if possible, it is nevertheless established in Oregon that when a policy of insurance is ambiguous it 'should be construed * * * in the sense in which the insured had reason to suppose it was understood.' (Citing cases)'

Upon the application of these rules to the provisions of this insurance policy, we hold that such provisions were ambiguous, at the least, so as to require the resolution of any reasonable doubts against the insurance company; that upon reading the policy provisions as set forth above, and in the absence of any express exclusion of liability for punitive damages, a person insured by such a policy would have reason to suppose that he would be protected against liability for 'all sums' which the insured might become 'legally obligated to pay' and that the term 'damages' would include all damages, including punitive damages which became, by judgment, a 'sum' that he becamse 'legally obligated to pay.'

Defendant insurance company could have removed this ambiguity easily by including an express exclusion from liability for punitive damages, but apparently chose not to do so. As stated by Appleman, supra (at 86 Supp.), 'there is nothing in the insuring clause that would forewarn an insured that such was to be the intent of the parties,' if indeed, such was the intent of the insurance company.

2. The provision of this insurance contract under which defendant undertook to provide protection from liability for punitive damages is not void as against public policy.

Defendant next contends that if even the provisions of its policy be construed so as to impose liability for punitive damages, such provisions would then be invalid as contrary to the public policy of Oregon to the effect that the sole purpose of punitive damages in Oregon is to act as 'a punishment and deterrent for anti-social conduct' and that 'to do otherwise would result in the diminishment of punitive damages as a deterrent.'

In support of that contention defendant states that 'this is a case of first impression in Oregon' on this question and then cites an Annotation in 20 A.L.R.3d at 343 (1968), which (according to defendant) indicates a clear split of authority among other courts.

(a) 'Public policy' as a basis for a declaration by a court

that an existing contract is void.

It is important to bear in mind at the outset that this case does not involve the application of any settled and established rule of contract 'public policy,' but the adoption in Oregon of a proposed new rule of 'public policy' under which both existing and future insurance contracts which undertake to provide protection from liability for punitive damages would be held to be invalid.

It has been said of 'public policy' as a ground for invalidation by the courts of private contracts that 'those two alliterative words are often used as if they had a magic quality and were self-explanatory * * *' ³ and that for a court to undertake to invalidate private contracts upon the ground of 'public policy' is to mount 'a very unruly horse, and when you once get astride it you never know where it will carry you.' ⁴

In Eldridge et al. v. Johnston, 195 Or. 379, 405, 245 P.2d 239, 251 (1952), we sai...