Hartford Accident & Indem. Co. v. American Red Ball Transit Co., Inc.

Decision Date06 June 1997
Docket NumberNo. 74656,74656
Citation938 P.2d 1281,262 Kan. 570
CourtKansas Supreme Court
PartiesThe HARTFORD ACCIDENT & INDEMNITY COMPANY, Appellant/Cross-appellee, v. AMERICAN RED BALL TRANSIT COMPANY, INC., and Albert Printup, Appellees, and Barry L. Smith, Administrator of the Estate of Glen C. Smith, deceased, et al., Appellees/Cross-appellants.

Syllabus by the Court

1. This court's review of conclusions of law is unlimited.

2. Ordinarily the validity of a contract and its construction are determined by the law of the state where the contract was made. There is an exception to this rule where the contract contravenes the settled public policy of the state whose tribunal is invoked to enforce the contract.

3. In Kansas, exemplary damages are awarded for purposes of punishment and deterrence. Kansas public policy requires that payment of punitive damages rest ultimately as well as nominally on the party who committed the wrong; otherwise such damages would often serve no useful purpose. The objective to be attained in imposing punitive damages is to make the culprit feel the pecuniary punch, not the culprit's insurer.

4. Generally, federal preemption of state law occurs only if state law conflicts with or frustrates the federal scheme or Congress sought to occupy the field to the exclusion of the states. There is a reluctance to infer preemption, and there is an assumption that Congress did not intend to displace state law.

5. A conflict between federal and state law in regard to federal preemption requires a positive and direct conflict in order to make coexistence of the two laws an impossibility. It is necessary that the state law in its application to the same field contravene federal public policy or cause a different result or consequence.

6. In making a determination concerning federal preemption, a court should examine those concerns emphasized by Congress in enacting the legislation. State law should be preempted only to the extent necessary to protect achievement of the purposes of the federal act in question.

7. The purpose of the Interstate Commerce Commission (ICC) statutory law and regulations under the Federal Motor Carrier Safety Act is to ensure that a financially responsible party will be available to compensate third persons injured in a collision with an ICC carrier.

8. K.S.A. 40-2,115(a) provides that it is not against public policy to obtain insurance coverage for punitive damages awarded against an employer based upon corporate vicarious liability.

9. Before the passage of K.S.A. 40-2,115(a), this court had adopted the complicity rule set out in the Restatement (Second) 10. In 1987, the Kansas Legislature adopted K.S.A. 60-3701 and based corporate liability for punitive damages for the conduct of its employees upon the complicity rule, not a vicarious liability rule. There is no corporate employer liability under the complicity rule and K.S.A. 60-3701(d)(1) unless the questioned conduct was authorized or ratified by a person expressly empowered to do so on behalf of the employer.

of Torts § 909 (1977). The complicity rule generally provides that a corporation might be held liable for punitive damages resulting from acts of its employees only when it has directed or ratified those acts.

11. In Kansas, a corporation may not be held liable under a vicarious liability theory for punitive damages based upon the conduct of its employees; punitive damages against a corporation for the conduct of its employees are awarded on the basis of the complicity rule expressed in Kline v. Multi-Media Cablevision, Inc., 233 Kan. 988, 666 P.2d 711 (1983), and K.S.A. 60-3701. Under the facts of this case, K.S.A. 40-2,115(a), based upon a corporate vicarious liability rule, does not apply.

Philip L. Bowman, of Adams, Jones, Robinson & Malone, Chartered, Wichita, argued the cause, and Donald W. Bostwick, and Clifford L. Malone, of the same firm, were with him on the briefs, for appellant/cross-appellee Hartford Accident & Indemnity Company.

Randall E. Fisher, Wichita, argued the cause and was on the brief, for appellees/cross-appellants Smith et al.

Terrill D. Albright, of Baker & Daniels, Indianapolis, Indiana, argued the cause, and Ronald D. Gifford, of the same firm, and James L. Grimes, Jr., and Jay F. Fowler, of Foulston & Siefkin, Topeka, were with him on the briefs, for appellee American Red Ball Transit Company, Inc.

DAVIS, Justice:

Hartford Accident & Indemnity Company (Hartford), the insurer of American Red Ball Transit Company, Inc., (Red Ball) filed a declaratory judgment action requesting a determination that it was not obligated to indemnify Red Ball or Albert Printup for punitive damages. The district court held that Hartford was obligated to indemnify Red Ball, but not Printup. Hartford appeals from the court's decision with regard to Red Ball, and Barry L. Smith, administrator of the estate of Glen C. Smith, deceased, cross-appeals from the decision with regard to Printup.

We are called upon to answer the questions of whether Kansas law applies in this case; whether federal law preempts Kansas law; and, if not, whether under the facts of this case there is a Kansas policy against insuring for punitive damages. While the parties raise and discuss additional issues, a resolution of the above three issues will resolve this case.

We conclude that Kansas law applies and is not preempted by federal law. We further conclude that under the facts of this case, a state policy against insurance coverage for punitive damages exists. We, therefore, reverse the judgment that Hartford is liable under its policy for punitive damages awarded against Red Ball. In all other respects, we affirm.

FACTS

The underlying facts of the present case are set forth in Smith v. Printup, 254 Kan. 315, 866 P.2d 985 (1993) (Smith v. Printup I ). That same case was also the subject of a second appeal, Smith v. Printup, 262 Kan. 587, 938 P.2d 1261 (1997), this day decided (Smith v. Printup II ). Highly summarized, Albert Printup jackknifed his moving van and collided with a pickup truck, killing both occupants of the truck. Carolyn S. Elliott died immediately, while Glen C. Smith survived for some minutes before dying at the scene.

Printup was employed by Southwest Movers, Inc., (Southwest) but had been "leased out" to Red Ball for 4 to 5 years preceding In addition to awarding compensatory damages in both wrongful deaths, the jury determined that Smith was entitled to punitive damages from Red Ball and Printup but not from Southwest in Smith's survival action. The focus of Smith v. Printup I related to punitive damages. We set aside the amount of punitive damages awarded against Red Ball and Printup, reversed the jury determination that Smith should not be awarded punitive damages against Southwest, and remanded with specific instructions. 254 Kan. at 359-60, 866 P.2d 985. Upon completion of the remand proceedings, the trial court set the punitive damage award against Red Ball at $100,000 and against Printup at $20,800. A jury again determined that Southwest was not liable for any punitive damages. In Smith v. Printup II, we affirmed both the trial court's and the jury's determinations. Southwest is not a party to this appeal. While Printup does not respond to this appeal, the coverage issues concerning punitive damages against Red Ball and Printup remain.

the accident. The relatives of Elliott and Smith sued Printup, Southwest, and Red Ball for wrongful death, and the administrator of the Smith estate sued the same defendants for Smith's pain and suffering. The trial court allowed the Smith plaintiffs (Smith) to amend their complaint to seek punitive damages in accordance with K.S.A. 60-3701 against Southwest, Printup, and Red Ball in conjunction with the survivor action.

The policy issued by Hartford was in effect at the time of the accident and contained the necessary Interstate Commerce Commission (ICC) form BMC 90 endorsements. Both Red Ball and Printup were "insureds" under the terms of the policy. Based upon undisputed facts, the trial court determined that Hartford's policy covered the punitive damage award against Red Ball but not the punitive damage award against Printup. While the court decided other matters, the appeals in this case involve only the question of insurance coverage for punitive damage awards against Red Ball and Printup. Additional facts necessary to resolve insurance coverage of punitive damages are set forth in the opinion.

STANDARD OF REVIEW

The parties do not dispute the facts. The only questions before this court involve questions of law over which this court's review is unlimited. Gillespie v. Seymour, 250 Kan. 123, 129, 823 P.2d 782 (1991).

CHOICE OF LAW

Red Ball contends that Indiana law applies because it is the state where the insurance policy was issued. See Simms v. Metropolitan Life Ins. Co., 9 Kan.App.2d 640, 685 P.2d 321 (1984). The trial court, relying upon Norfolk & W. Ry. Co. v. Hartford Acc. & Indem. Co., 420 F.Supp. 92, 94 (N.D.Ind.1976), determined that Indiana law required the issue of punitive damages to be determined under the law of the state with the most "intimate contact" with the transaction. Thus, the trial court held that "[t]he meritorious position of Red Ball [application of the law where the contract was entered into applies] sends us to Indiana and, under Indiana law, back to Kansas for its interpretation of the issues."

We agree that Kansas law applies but not for the reasons set forth by the trial court. The application of Kansas law is controlled by St. Paul Surplus Lines Ins. Co. v. International Playtex, Inc., 245 Kan. 258, 777 P.2d 1259 (1989), cert. denied 493 U.S. 1036, 110 S.Ct. 758, 107 L.Ed.2d 774 (1990). In St. Paul, the losing defendants in a successful products liability case appealed the trial court's decision that Kansas public policy precluded their recovery of assessed punitive damages from their liability insurers....

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