Hensley v. Erie Ins. Co.

• Decision Date: 20 October 1981
• Docket Number: No. CC917,CC917
• Citation: 283 S.E.2d 227,168 W.Va. 172
• Court: West Virginia Supreme Court
• Parties: Sandra Lee HENSLEY, et al. v. The ERIE INSURANCE CO.

Page 227

283 S.E.2d 227

168 W.Va. 172

Sandra Lee HENSLEY, et al. v. The ERIE INSURANCE CO.

No. CC917.

Supreme Court of Appeals of West Virginia.

Oct. 20, 1981.

Syllabus by the Court

1. "An insurance policy which requires construction must be construed liberally in favor of the insured." Syllabus Point 3, Polan v. Travelers Insurance Company, 156 W.Va. 250, 192 S.E.2d 481 (1972).

2. Where the liability policy of an insurance company provides that it will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury and the policy only excludes damages caused intentionally by or at the direction of the insured, such policy will be deemed to cover punitive damages arising from bodily injury occasioned by gross, reckless or wanton negligence on the part of the insured.

3. The public policy of this State does not preclude insurance coverage for punitive damages arising from gross, reckless or wanton negligence.

Ralph C. Dusic, Jr., Charleston, for plaintiffs.

Andrew J. Goodwin, Charleston, for defendants.

MILLER, Justice:

This certified question comes from the Circuit Court of Kanawha County. We are asked to decide whether "[i]n an action to recover excess judgments over the insurance coverage available ... the plaintiffs [may] recover punitive damages awarded against the insured in the original action." The certified question assumes the right of an injured plaintiff to bring an excess suit against the defendant's insurance carrier. ¹ The trial court held that payment by the insurance company of the punitive damages awarded against the insured was improper as it violated the public policy which prohibited an insured from shifting the payment of punitive damages to his insurance company. This public policy argument rests on the further premise that punitive damages are solely designed to punish and deter the wrongdoer, and, if he is able to shift the payment of punitive damages to his insurance carrier, he escapes the punishment. For the reasons stated herein, we reverse the trial court.

The plaintiffs, Sandra Hensley and Claudia Mathews, received personal injuries as a result of an automobile accident. The defendant in the underlying personal injury suit, Gary Lewis, was insured by The Erie Insurance Company. The accident occurred while Lewis, in an intoxicated condition, was operating his vehicle at a high rate of speed on the wrong side of a public road. He collided head-on with the car occupied by the plaintiffs.

The plaintiffs filed suit for compensatory and punitive damages. During the course of the litigation, plaintiffs discovered that the defendant Lewis had insurance coverage limits of ten thousand dollars ($10,000) for personal injuries to any one person, and a twenty thousand dollar ($20,000) total limit for all personal injuries arising from a single accident. ² After discovery of these insurance limits, both plaintiffs, through their attorney, offered to settle for the ten thousand dollar ($10,000) limit available to each of them.

The insurance company declined to settle for the policy limits. Its insured, the defendant Lewis, made a demand that it settle within his policy limits, but the company also declined this request. After a jury trial, a verdict was returned for the plaintiff Hensley for twelve thousand dollars ($12,000) compensatory damages and punitive damages in the amount of seven thousand dollars ($7,000). The plaintiff Mathews recovered $17,300 in compensatory and seven thousand dollars ($7,000) in punitive damages.

The insurance company paid the policy limits on the judgment. Thereafter, the plaintiffs brought this direct action against the insurance company to recover the excess compensatory and punitive damages.

In an excess suit, the recovery of punitive damages initially awarded in an underlying negligence action depends upon whether an insurance carrier may be held liable for punitive damages under the language of its insurance contract. If this liability is found, then we must determine whether there is some public policy against insurance coverage for punitive damages.

Most courts which have considered a liability policy with language that is similar to the provisions in the present case hold that coverage is available for punitive damages arising out of gross, reckless or wanton negligence but not for an intentional tort. These decisions focus upon policy language to the effect that the insurance company will "[pay] on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages." ³ (Emphasis added) This "all sums" clause is then coupled with the general insurance law rule that a policy is liberally construed in favor of the policyholder and strictly against the insurer. The final inquiry is whether there is any specific exclusion in the policy for punitive damages; if not, coverage is found. A typical recitation of this analysis is found in Abbie Uriguen Oldsmobile Buick, Inc. v. United States Fire Insurance, 95 Idaho 501, 507, 511 P.2d 783, 789 (1973):

"We point out that the policy provisions herein make no distinction as between actual and punitive damages. Punitive damages are not specifically excluded from the policy language. Under the provision of the policy the company promises to pay on behalf of the insured all sums which the insured shall be legally obligated to pay as damages caused by the use of any automobile. The law is clear in Idaho that insurance policies are to be construed most liberally in favor of recovery." ⁴ (Emphasis in original)

We also follow the general rule that: "An insurance policy which requires construction must be construed liberally in favor of the insured." Syllabus Point 3, Polan v. Travelers Insurance Company, 156 W.Va. 250, 192 S.E.2d 481 (1972). See also, Broy v. Inland Mutual Insurance Company, W.Va., 233 S.E.2d 131 (1977); Thompson v. State Automobile Insurance Co., 122 W.Va. 551, 11 S.E.2d 849 (1940). This rule is but a tacit acknowledgment that the insurance policy is prepared by the company and therefore, the average policyholder has no opportunity to influence the policy language.

We note that the "all sums" clause in the policy is quite broad. It extends coverage for all sums that the insured is found legally obligated to pay arising from bodily injury. ⁵ This language does not limit or attempt to define the type of act which gives rise to the bodily injury. Bodily injury can occur from a grossly negligent act as well as an act predicated on ordinary negligence.

Our conclusion that coverage exists under the policy in the present case rests not only on the foregoing reasoning but additionally on the specific wording of a policy exclusion in the present case. This exclusion provided that the insurance company was not liable for "[d]amage caused intentionally by or at the direction of the Insured." By limiting its "all sums" general coverage clause to exclude only coverage for damages resulting from an intentional act of the insured, the company is deemed to have intended to cover punitive damages arising from gross, reckless or wanton negligence. Not only does the rule of strict construction against the insurance company apply but the familiar rule that the specific inclusion of one subject excludes all others is also applicable. This rule, although most frequently associated with the construction of statutes, State ex rel. City of Charleston v. Hutchinson, 154 W.Va. 585, 176 S.E.2d 691 (1970), also applies to contracts. Harbert v. County Court of Harrison County, 129 W.Va. 54, 64, 39 S.E.2d 177, 186 (1946); 2A Sutherland Statutory Construction § 47.24 (1973).

Thus, we conclude that where, as here, the liability policy of an insurance company provides that it will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury and the policy only excludes damages caused intentionally by or at the direction of the insured, such policy will be deemed to cover punitive damages arising from bodily injury occasioned by gross, reckless or wanton negligence on the part of the insured.

The real controversy in this case rages over whether public policy should preclude the payment of punitive damages under an insurance policy. ⁶ Even in this area, however, there is some measure of accord. Most courts conclude that it is against public policy to permit insurance coverage for a purposeful or intentional tort. ⁷ The difference of opinion revolves around whether public policy should exclude insurance coverage for punitive damages founded upon gross, reckless or wanton negligence. On this issue, the modern trend is to permit recovery for punitive damages arising from gross, reckless or wanton negligence absent some specific exclusion of coverage for punitive damages in the policy. ⁸

The leading case holding that public policy precludes insuring against punitive damages is Northwestern National Casualty Company v. McNulty, 307 F.2d 432 (5th Cir. 1962). ⁹ Factually, McNulty involved a drunk driver who lost control of his car and crashed into the rear of plaintiff's vehicle. The rationale of the McNulty decision was bottomed on the premise that punitive damages were meant to punish and deter the wrongdoer. Consequently, the court reasoned that the goals of deterrence and punishment would not be met if the wrongdoer could obtain insurance against punitive damages. A secondary theme of McNulty was that its rule would reduce the amount of drunk driving but this reasoning is merely a specific application of the general deterrence theory of punitive damages.

McNulty also mentioned certain "substantial practical difficulties, bearing on public policy, in allowing insurance against punitive damages." 307 F.2d at 441. Three such "difficulties" were listed but upon close analysis they do not merit legitimate consideration. The first such difficulty...