Home Ins. Co. v. American Home Products Corp.

• Decision Date: 18 January 1990
• Citation: 550 N.E.2d 930,551 N.Y.S.2d 481,75 N.Y.2d 196
• Parties: , 550 N.E.2d 930 HOME INSURANCE COMPANY, Plaintiff, v. AMERICAN HOME PRODUCTS CORPORATION, et al., Defendants.
• Court: New York Court of Appeals Court of Appeals

Page 481

551 N.Y.S.2d 481

75 N.Y.2d 196, 550 N.E.2d 930

HOME INSURANCE COMPANY, Plaintiff, v. AMERICAN HOME PRODUCTS CORPORATION, et al., Defendants.

Court of Appeals of New York.

Jan. 18, 1990.

Sheila L. Birnbaum, Irene A. Sullivan, Timothy G. Reynolds and Douglas W. Dunham, New York City, for plaintiff.

Daniel J. Thomasch, Louis C. Lustenberger, Jr., and Susan M. Hart, New York City, for American Home Products Corp. et al., defendants.

Eugene R. Anderson, Irene C. Warshauer, John H. Kazanjian, James Walker Smith and Tracy E. Makow, New York City, for Product Liability Advisory Council, Inc., amicus curiae.

OPINION OF THE COURT

HANCOCK, Judge.

A judgment for $9.2 million in compensatory damages and $13 million in punitive damages, based on a jury verdict, was recovered in an Illinois trial court against American Home Products Corp. (AHP). The damages were awarded for the grave and permanent injuries (including severe impairment of mental function) sustained by Marcus Batteast, a two-year-old boy, as a result of the administration of a drug, aminophylline, manufactured by AHP through its subsidiary, Wyeth Laboratories. On appeal to the appellate court of Illinois the judgment against AHP was unanimously affirmed (Batteast v. American Home Prods. Corp., No. 806-16808 [Cir.Ct., Cook County, Ill.], affd. sub nom. Batteast v. Wyeth Labs., 172 Ill.App.3d 114, 122 Ill.Dec. 169, 526 N.E.2d 428 [1st Dist.1988], lv. granted 123 Ill.2d 556, 128 Ill.Dec. 887, 535 N.E.2d 398 [1988].

The question to be decided--certified to this court by the United States Circuit Court of Appeals for the Second Circuit--concerns the insurance coverage under the excess liability policy issued by The Home Insurance Company (Home) to AHP and whether that policy covers the award for punitive damages in the Batteast case. Home commenced an action in New York State Supreme Court against AHP seeking a judgment declaring that it was not obligated to indemnify AHP for the amount of the punitive damages not covered by primary insurance. The action was removed to Federal court which declared that Home "is liable under its excess insurance policy for the punitive damages awarded in Batteast". (Home Ins. Co. v. American Home Prods. Corp., 665 F.Supp. 193, 197 [Duffy, J., S.D.N.Y.1987].) Home appealed to the Circuit Court of Appeals.

The Circuit Court of Appeals, noting that the question of coverage for punitive damages recovered in out-of-State judgments is one of first impression in this State and one which involves important New York public policy considerations, has certified to us the following question: "Would New York require the insurer to reimburse the insured for punitive damages awarded against the insured on the out-of-state judgment in this case?" (873 F.2d 520, 522 [2d Cir.1989].)

For reasons which follow, we hold that to require Home to indemnify AHP for such damages under its excess policy would be contrary to the public policy of this State. Accordingly, we answer the certified question in the negative.

I

The parties are in agreement that the answer to the question certified depends on an analysis of New York's public policy and an application of that policy to the circumstances here. ^* There is no question that the general rule, as articulated in two of our recent decisions, is that New York public policy precludes insurance indemnification for punitive damage awards, whether the punitive damages are based on intentional actions or actions which, while not intentional, amount to "gross negligence, recklessness, or wantonness" (Public Serv. Mut. Ins. Co. v. Goldfarb, 53 N.Y.2d 392, 400, 442 N.Y.S.2d 422, 425 N.E.2d 810) or "conscious disregard of the rights of others or for conduct so reckless as to amount to such disregard" (Hartford Acc. & Indem. Co. v. Village of Hempstead, 48 N.Y.2d 218, 227, 422 N.Y.S.2d 47, 397 N.E.2d 737).

The considerations underlying our public policy--thoroughly discussed in the court's opinion in Hartford Acc. (id., at 225-229, 422 N.Y.S.2d 47, 397 N.E.2d 737)--need not be detailed here. The main argument against coverage, we noted, is that to allow it would defeat "the purpose of punitive damages, which is to punish and to deter others from acting similarly, and that allowing coverage serves no useful purpose since such damages are a windfall for the plaintiff who, by hypothesis, has been made whole by the award of compensatory damages." (Id., at 226, 422 N.Y.S.2d 47, 397 N.E.2d 737.)

We underscored these policy considerations in Public Serv. Mut. Ins. Co. v. Goldfarb (supra). There, we declared that the insured, a dentist, could not claim reimbursement for any punitive damages that might be awarded in the malpractice case which had been brought against him by a patient who claimed that he had committed sexual abuse. We emphasized that if punitive damages were to be awarded "on any ground other than intentional causation of injury [emphasis in original]--for example, gross negligence, recklessness or wantonness--indemnity for compensatory damages would be allowable even though indemnity for the punitive or exemplary component of the damage award would be barred as violative of public policy." (Public Serv. Mut. Ins. Co. v. Goldfarb, supra, 53 N.Y.2d at 400, 442 N.Y.S.2d 422, 425 N.E.2d 810 [emphasis supplied].)

It can be argued that the claims for punitive damages in Public Serv. Mut. (based on alleged sexual abuse by the insured) and in Hartford Acc. (based on police officers' alleged violation of 42 U.S.C. § 1983 in using nightsticks) involved alleged wrongs which could be found to have been intentional or even criminal and which were, for that reason, more grievous in nature than the wrongful conduct in a case based on negligence or products liability. We hold, however, that the policy articulated in Public Serv. Mut. and Hartford Acc. should apply equally to cases involving conduct which, although not intentional, is found to be grossly negligent, or wanton or so reckless as to amount to a conscious disregard of the rights of others. Indeed, the very language of these opinions (see, Public Serv. Mut. Ins. Co. v. Goldfarb, supra, at 400, 442 N.Y.S.2d 422, 425 N.E.2d 810; Hartford Acc. & Indem. Co. v. Village of Hempstead, supra, 48 N.Y.2d at 227, 422 N.Y.S.2d 47, 397 N.E.2d 737) indicates that the same policy considerations would apply to conduct of this kind (see, Aetna Cas. & Sur. Co. v. Shuler, 72 A.D.2d 591, 592, 421 N.Y.S.2d 87; Padavan v. Clemente, 43 A.D.2d 729, 350 N.Y.S.2d 694; Parker v. Agricultural Ins. Co., 109 Misc.2d 678, 680-681, 440 N.Y.S.2d 964).

Nor should New York policy be applied any differently solely because the punitive damages award happens to have been rendered in another State. It is the punitive nature of the award coupled with the fact that a New York insured seeks to enforce it in New York against a New York insurer which calls for the application of New York public policy. To determine whether there should be reimbursement in New York for an out-of-State punitive damages award, we must examine the nature of the claim, including the degree of wrongfulness for which the damages were awarded in the foreign State, as well as that State's law and policy relating to punitive damages in order to properly ascertain whether reimbursement would offend our public policy.

We accordingly turn to an analysis of the Batteast punitive damages award and of the Illinois law under which it was rendered.

II

The tort theory on which AHP's liability was predicated was its failure to warn of the risks it knew to be inherent in the administration of the drug, aminophylline, in suppository form to children. The appellate court of Illinois, on its review of the trial record, found "that there is ample evidence to support plaintiffs' contention that Wyeth's aminophylline was unreasonably dangerous due to the lack of adequate warnings accompanying the product. While the evidence demonstrates that Wyeth was aware of certain risks involved in administering aminophylline suppositories to children, Wyeth failed to warn the medical profession of the risks." (Batteast v. Wyeth Labs., 172 Ill.App.3d 114, 127, 122 Ill.Dec. 169, 178, 526 N.E.2d 428, 437, supra.) The appellate court listed nine separate risks for which no warning was given including, significantly, the fact that "severe intoxication and death have followed rectal administration because of hypersensitivity or overdosage" (id., at 127, 122 Ill.Dec. at 178, 526 N.E.2d at 437).

Having decided the question of liability, the appellate court addressed the issue of punitive damages and rejected defendant's two contentions: (1) that the trial court should, as a matter of law, have dismissed the claim for punitive damages without submitting the issue to the jury and (2) that, in any event, the verdict on punitive damages was contrary to the weight of the evidence.

With respect to the legal challenge to the sufficiency of the proof to warrant submission of the punitive damages issue, the appellate court of Illinois stated: "if the jury believed that Wyeth was guilty of willful and wanton conduct which proximately caused plaintiff to be injured, and if the jury believed that justice and the public good require it, it was proper for the jury to award plaintiffs an amount which will serve to punish Wyeth and deter others from the commission of like offenses. Willful and wanton conduct is a course of action which shows deliberate intention to harm or shows an utter indifference or conscious disregard for the safety of others" (id., at 141, 122 Ill.Dec. at 187, 526 N.E.2d at 446). The court, on its review of the record, decided that the evidence was "amply sufficient to support the trial court's decision to submit the issue of punitive damages to the jury" (id.).

In rejecting defendant's argument that the punitive damages verdict was contrary to the weight of the evidence, the intermediate appellate court determined that,...