Mazza v. Medical Mut. Ins. Co. of North Carolina, 415PA83

• Decision Date: 28 August 1984
• Docket Number: No. 415PA83,415PA83
• Citation: 311 N.C. 621,319 S.E.2d 217
• Parties: Jeffrey P. MAZZA v. MEDICAL MUTUAL INSURANCE COMPANY OF NORTH CAROLINA and Robert A. Huffaker.
• Court: North Carolina Supreme Court

Page 217

319 S.E.2d 217

311 N.C. 621

Jeffrey P. MAZZA v. MEDICAL MUTUAL INSURANCE COMPANY OF NORTH CAROLINA and Robert A. Huffaker.

No. 415PA83.

Supreme Court of North Carolina.

Aug. 28, 1984.

Boyce, Mitchell, Burns & Smith, P.A. by G. Eugene Boyce and Lacy M. Presnell, III, Fayetteville, for plaintiff-appellee.

Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan by James D. Blount, Jr., Henry A. Mitchell, Jr. and Nigle B. Barrow, Jr., Raleigh, for defendant-appellant Medical Mut. Ins. Co. of North Carolina.

COPELAND, Justice.

Medical Mutual maintains that it is not liable for either the punitive damages or the actual damages awarded to plaintiff, and that the trial court committed reversible error in finding it liable. With regard to both the punitive and actual damages, the insurance company proffers similar arguments in support of its contention of non-liability. Defendant first argues that North Carolina's public policy precludes insurance coverage of punitive and compensatory damages caused by intentional misconduct. Second, the terms of the insurance contract did not include coverage for punitive damages.

The provision of the insurance contract which is at issue reads as follows:

I. Terms. The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of:

1. Individual Professional Liability Coverage.--A. Any claim or claims made against the Insured during the policy period arising out of the performance of professional services rendered or which should have been rendered ... by the Insured ...

According to our interpretation of the insurance contract, the terms provide coverage for actual and punitive damages. Further, this State's public policy does not prohibit insurance coverage of punitive damages nor of actual damages. We shall consider first the contentions of the parties with regard to the punitive damage award.

I.

In making the determination as to punitive damages, we are concerned first with whether public policy prohibits insurance coverage of punitive damages based upon wanton or gross negligence or, as in the present case, medical malpractice, and second, whether the terms of the insurance contract cover punitive damages. There are no North Carolina cases directly on point. Courts in other jurisdictions have considered these questions, and before 1970, it appears that a particular court's decision depended primarily upon which of these two issues the court focused its attention. Our research discloses that courts relying upon the language of the insurance policy generally have decided that punitive damages were recoverable. One of the leading cases reaching this conclusion is Lazenby v. Universal Underwriters Insurance Co., 214 Tenn. 639, 383 S.W.2d 1 (1964). Other cases reaching the same conclusion are Carroway v. Johnson, 245 S.C. 200, 139 S.E.2d 908 (1965); Pennsylvania Threshermen & Farmers' Mutual Casualty Insurance Co. v. Thornton, 244 F.2d 823 (4th Cir.1957); Glens Falls Indemnity Co. v. Atlantic Building Corp., 199 F.2d 60 (4th Cir.1952); American Fidelity & Casualty Co. v. Werfel, 230 Ala. 552, 162 So. 103 (1935); Ohio Casualty Insurance Co. v. Welfare Finance Co., 75 F.2d 58 (8th Cir.1934), cert. denied, 295 U.S. 734, 55 S.Ct. 645, 79 L.Ed. 1682 (1934). See: Annot., 16 A.L.R.4th 14 (1982).

We believe that the recent trend of those courts considering the public policy question, has been to allow insurance coverage for punitive damages. See: Anthony v. Frith, 394 So.2d 867 (Miss.1981); Harrell v. Travelers Indemnity Co., 279 Or. 199, 567 P.2d 1013 (1977); Abbie Uriguen Oldsmobile Buick, Inc. v. United States Fire Insurance Co., 95 Idaho 501, 511 P.2d 783 (1973); Price v. Hartford Accident & Indemnity Co., 108 Ariz. 485, 502 P.2d 522 (1972). Some of these courts have reasoned that public policy is not an issue. Others say that competing public policies outweigh the consideration of punishing the insured by way of punitive damages. Comment, The Exclusion Clause: A Simple and Genuine Solution to the Insurance for Punitive Damages Controversy, 12 U.S.F.L.Rev. 743, 746 (1978). Additionally, "[w]ith respect to construction of various types of insurance contracts ... the courts ... have usually held that coverage of punitive damages was provided when construing policies covering ... professional ... entities or their employees...." Annot., 16 A.L.R.4th 14, 16.

Many courts have allowed recovery of punitive damages for willful and wanton negligence because there existed a distinction between negligence and intentional torts. Hensley v. Erie Insurance Co., 283 S.E.2d 227 (W.Va.1981); Continental Insurance Cos. v. Hancock, 507 S.W.2d 146 (Ky.1974); Ohio Casualty Insurance Co. v. Welfare Finance Co., 75 F.2d 58, cert. denied, 295 U.S. 734, 55 S.Ct. 645, 79 L.Ed. 1682. This rationale was applied in Morrell v. Lalonde, 45 R.I. 112, 120 A. 435, error dismissed, 264 U.S. 572, 44 S.Ct. 401, 68 L.Ed. 855 (1923). That court held that punitive damages were recoverable for medical malpractice under a liability insurance policy.

The main thrust of defendant's argument concerning punitive damages is that allowing insurance coverage for punitive damages is contrary to public policy. Defendant asserts that the "purposes of awarding punitive damages in North Carolina are to punish the wrongdoer individually and to deter the wrongdoer and others from engaging in similar misconduct." Medical Mutual contends that this Court, by allowing insurance coverage for punitive damages, would frustrate the purposes for which punitive damages are awarded.

We know of no public policy of this State that precludes liability insurance coverage for punitive damages in medical malpractice cases. North Carolina General Statute § 58-72 appears to authorize insurers to provide coverage for punitive damages. The modern trend and better reasoned decisions in other jurisdictions are to the effect that it is not against public policy to insure against punitive damages. Harrell v. Travelers Indemnity Co., 279 Or. 199, 567 P.2d 1013; Price v. Hartford Accident & Indemnity Co., 108 Ariz. 485, 502 P.2d 522; Dairyland County Mutual Insurance Co. v. Wallgren, 477 S.W.2d 341 (Tex.Civ.App.1972); Southern Farm Bureau Casualty Insurance Co. v. Daniel, 246 Ark. 849, 440 S.W.2d 582 (1969).

The relief the insurance company now seeks is the development by this Court of a statement of public policy regarding punitive damages stemming from medical malpractice. Defendant bases its argument upon its contention that the act or acts constituting the medical malpractice were intentional. However, the record fails to indicate a specific determination by the jury that the medical malpractice was intentional, as opposed to wanton or gross negligence. We find no merit in defendant's contention that the medical malpractice aspects of this case involved intentional acts by Dr. Huffaker. Medical Mutual argued at trial and in its brief on appeal, that Dr. Huffaker's actions did not constitute medical malpractice since the physician-patient relationship between Dr. Huffaker and the plaintiff no longer existed at the time in question. The trial judge, having determined that there was sufficient evidence of a physician-patient relationship, instructed the jury that the medical malpractice was the negligent care and treatment of a patient by a doctor. The jury returned a verdict in favor of plaintiff based on that charge. Thus, in our opinion, the medical malpractice in the instant case resulted from the attending doctor's negligence in abandoning treatment of the plaintiff and in failing to follow the applicable medical standard of care. However, we emphasize that at this time we neither reach nor decide the question of whether public policy prohibits one from insuring himself from the consequences of his or her intentional tortious acts.

In reviewing the considerations pertaining to public policy in North Carolina, it is important to note that punitive damages are recoverable for injuries other than those intentionally inflicted. This Court has stated that:

It is generally held that punitive damages are those damages which are given in addition to compensatory damages because of the "wanton, reckless, malicious or oppressive character of the acts complained of."

Oestreicher v. American National Stores, Inc., 290 N.C. 118, 134, 225 S.E.2d 797, 807 (1976). Thus in North Carolina, punitive damages may be awarded in negligence cases for wanton or gross acts.

Since punitive damages are recoverable in North Carolina in cases where intentional injury is not involved, there is a compelling reason that this Court should not create a new public policy prohibiting insurance coverage for punitive damages. The interests of doctors and patients alike can best be served by medical malpractice insurance that protects the doctor and patient, even when the doctor's negligence is wanton or gross. The insurance company in this case would not contend that doctors would be more reckless or would more frequently commit gross negligence simply because they are insured under a professional liability insurance policy that covers punitive damages.

Medical Mutual, in advancing its "public policy" argument, seems to ignore the proposition that the concept of "public policy" involves not one simplistic rule, but various competing doctrines. In this case, the law of contracts and the "public policy" doctrines encompassing that body of law, compete with the defendant's tort related "public policy" argument.

This declaratory judgment action arose out of a contract controversy between Dr. Huffaker and Medical Mutual. The issues before this Court are based on contract, thus, we must consider applicable public policy concerning contract rights. The competing public interests must be carefully balanced. A significant public policy consideration focuses on insurance companies' obligations to honor their...