Northwestern National Casualty Company v. McNulty

Decision Date21 August 1962
Docket NumberNo. 19013.,19013.
Citation307 F.2d 432
PartiesNORTHWESTERN NATIONAL CASUALTY COMPANY of Milwaukee, Wisconsin, Appellant, v. Edward A. McNULTY and Walter Scott Smith, Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

Anthony Reinert, James A. Smith, Wicker, Smith, Blomqvist, Hinckley & Davant, Miami, Fla., for appellant.

Jackson L. Peters, John D. Marsh, Robert King High, Edward A. McNulty, Knight, Smith, Underwood & Peters, Miami, Fla., of counsel, for appellees.

Before JONES, WISDOM and GEWIN, Circuit Judges.

WISDOM, Circuit Judge.

This case presents the question of the liability of an insurance company, under an automobile accident liability policy, for punitive damages in a judgment against the insured. We hold that under Florida law public policy prohibits insurance against liability for punitive damages.

The Northwestern National Casualty Company issued a family combination automobile policy for $50,000 to the defendant, Walter S. Smith, in Virginia where Smith resides. The accident giving rise to the suit occurred in Florida. Smith, a drunken driver, traveling at eighty miles an hour or faster, weaving from side to side of the road, tried to pass the automobile the plaintiff, Edward McNulty, was driving. He made the attempt where it was impossible to pass or he completely lost control of his car. Smith's car smashed into the rear of McNulty's car. Without stopping to render aid, Smith fled the scene of the accident. He was arrested twelve miles down the highway when his car ran out of gas. McNulty suffered severe injuries including permanent damage to his brain.

McNulty sued Smith in a Florida state court. The complaint prayed for compensatory and punitive damages. The insurer's attorneys undertook the defense of the suit. They notified Smith that "there is always a possibility that the amount recovered, if any, could be in excess of the insurance coverage" and informed him that he had "the right * * to employ an attorney to represent him for this possible excess", but added, "please understand that you are not required to go to this expense as we will defend this case under the provisions of your insurance policy". After investigating the facts, they concluded, as they later wrote Smith after the trial, the "facts in this case were very bad and about the worst case we have ever had on the question of liability." The attorneys advised the insured that they planned to admit liability for compensatory damages but not for punitive damages. They did not inform the insured at any time before the trial that the insurance company disclaimed liability for the payment of punitive damages, if any should be included in the judgment.

The jury returned a verdict in favor of the plaintiff in the amount of $57,500, representing $37,500 in compensatory damages and $20,000 in punitive damages. McNulty, joined by Smith, then brought this ancillary garnishment action in the District Court for the Southern District of Florida to recover on the liability policy up to $50,000. The district court granted summary judgment for the plaintiff. The insurer appeals from that part of the judgment holding punitive damages recoverable.


Under the terms of the policy, the insured agreed:

"To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of:
"A. bodily injury, sickness or disease, including death resulting therefrom, hereinafter called `bodily injury\' sustained by any person;
"B. injury to or destruction of property, including loss of use thereof, thereinafter called `property damage\' * * *;"

The policy excludes claims for "bodily injury or property damage caused intentionally by or at the direction of the insured."

The insurance company's first defense is that the language of the contract does not cover punitive damages. The appellant argues that a claim for punitive damages is not one for "bodily injury"; by definition punitive damages go beyond compensation for bodily injury. The appellant argues also that the "wilful, reckless, or wantonly negligent conduct" of the defendant, necessary under Florida law as a predicate for the award of punitive damages, is equivalent to intentional wrong; the insurance contract expressly excludes "damage caused intentionally".1 We find it unnecessary to construe the contract; we hold that should a policy provide specifically for such coverage, it would contravene public policy.


The force of public policy on insurance covering punitive damages depends on the nature or character of punitive damages.2 The character of punitive damages — as compensation for the plaintiff or as punishment of the defendant and deterrence to others3 — depends on the function such damages serves.

A. In this case the law of Florida and the law of Virginia are interrelated. The legal relations, rights, and liabilities between McNulty and Smith arising out of the automobile accident are governed by the law of Florida, where the accident occurred. The rights and obligations under the insurance contract between Smith and the appellant are governed by the law of Virginia, where the contract was made and issued, where Smith resides, and where, at the time it was made the contract might be expected to have its more important effects. McNulty, after obtaining his judgment against Smith, succeeded to Smith's rights against the appellant on the insurance contract. Since this is a suit on the contract, Virginia law governs the question whether an insurance policy against punitive damages contravenes public policy.4 Virginia cases reflect the same view of punitive damages as Florida cases,5 but no Virginia court has passed on whether an insurer may be liable for such damages. In seeking to ascertain what the Virginia policy would be, however, we must look to the law imposing the punitive damages to determine their character. This brings us back to Florida, where the accident occurred, where the action was brought and the damages awarded, and where the punitory and deterrent effects of the punitive damages awarded in this case would have their greatest impact.

Florida cases follow the orthodox theory that punitive damages are punitory and a deterrent.6 The first case in Florida to discuss this subject was Smith v. Bagwell, 19 Fla. 117, 121 (1882). In that decision the court's description of punitive damages might be interpreted as indicating that in Florida such damages are partly compensatory. The court said: "Compensatory damages are such as arise from actual and indirect pecuniary loss, mental suffering, value of time, actual expenses, and to these may be added bodily pain and suffering. Exemplary, vindictive or punitory damages are such as blend together the interests of society and of the aggrieved individual, and are not only a recompense to the sufferer but a punishment to the offender and an example to the community." The support this decision gives to a compensatory theory of punitive damages is undercut by two other factors. First, in spite of the quoted statement, throughout its opinion the court emphasized that punitive damages are assessed against the defendant to punish the offender and act as an example and warning to the community. Second, the question before the court in Smith v. Bagwell was whether the allowance of punitive damages in a case where the defendant was subject to criminal sanctions contravened the constitutional protection against double jeopardy. When this point has been raised some courts have avoided the difficult constitutional question whether the civil penalty violates prohibition against double jeopardy by treating punitive damages as compensatory or retributive;7 the payment is to the injured person, not to the state.

Later Florida cases base punitive damages on punishment rather than compensation. Thus, in Winn & Lovett Grocery Co. v. Archer, 126 Fla. 308, 171 So. 214, 221 (1936) the court limited the statement in Smith v. Bagwell, which the court said authorized "vindictive damages" for an assault and battery committed under aggravating circumstances "because the circumstances of aggravation attending the injury have increased the injury." The court said: "Damages known as exemplary or punitive damages (smart money) are altogether of a different character than vindictive damages. * * * Exemplary or punitive damages are therefore damages ultra compensation, and are authorized to be inflicted when the wrong done partakes of a criminal character, though not punishable as an offense against the state, or consists of aggravated misconduct or a lawless act * * *." Similarly, in Dr. P. Phillips & Sons, Inc. v. Kilgore, 152 Fla. 578, 582, 12 So.2d 465, 467 (1943) the court again said: "Punitive or exemplary damages is an amount allowed over and above actual or compensatory damages. Its allowance depends on malice, moral turpitude, wantonness, or the outrageousness of the tort and is awarded as a deterrent to others inclined to commit a like offense." See also Sauer v. Sauer, Fla.App.1961, 128 So.2d 761; Carraway v. Revell, Fla.1959, 116 So.2d 16; Ross v. Gore, Fla., 48 So.2d 412 (1950); Kress & Co. v. Powell, 132 Fla. 471, 180 So. 757 (1938).

In Florida East Coast Ry. Co. v. McRoberts, 111 Fla. 278, 149 So. 631, 94 A.L.R. 376 (1933) the question was whether punitive damages could be recovered under the Florida Death by Wrongful Act statute (F.S.A. §§ 768.01, 768.02), which authorized the jury to award to the statutory representative of the deceased such damages as the party entitled to sue "may have sustained by reason of the death of the party killed." The court construed the statute as creating in the statutory representative a new right of action rather than transferring to the representative the deceased's right of action, and as authorizing only an award of damages to compensate for the injury sustained. The court held that since punitive damages "are damages over and above such sum as will...

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