Royal Indem. Co. v. City of Philadelphia

• Decision Date: 21 October 1977
• Docket Number: 9222
• Citation: 1 Phila. 110
• Parties: Royal Indemnity Company v. City of Philadelphia
• Court: Pennsylvania Commonwealth Court

1 Phila. 110

Royal Indemnity Company v. City of Philadelphia

No. 9222

Common Pleas Court of Philadelphia County, Pennsylvania

October 21, 1977

SYLLABUS

(1) Liability Policy Coverage for Punitive Damage Award -- Liability policies exclusion of coverage for intentional misconduct does not exclude coverage for punitive damages imposed for reckless misconduct

(2) Liability insurer is responsible for punitive damage award for reckless misconduct

(3) Public policy does not preclude holding insurer liable for punitive damages imposed upon insured by reason of vicarious liability

(4) Esmond v. Liscio, 209 Pa.Super 200, 224 A.2d 793 (1966) followed.

Robert Murphy, Esquire, for Plaintiff

Louis F. Hinman, III, Esquire, for Defendant

TAKIFF J.

OPINION

FACTS

This dispute between Royal Indemnity Company (hereinafter referred to as " Royal" ) and the City of Philadelphia (hereinafter referred to as " City" ) concerns responsibility for payment of punitive damages awarded to the plaintiffs by a jury in the U.S. District Court for the Eastern District of Pennsylvania in cases of Hennigan v. Atlantic Refining Company and the City of Philadelphia, Riddick v. Atlantic Refining Co., et al., and Johnson v. Atlantic Refining Co., et al., 282 F.Supp. 667 (E.D. Pa. 1967), aff'd, 400 F.2d 857 (3d Cir. 1968), cert. den. 395 U.S. 904 (1968). These were wrongful death actions brought against the City and Atlantic Refining on behalf of three decedents who were killed by a fire and explosion on August 22, 1962 while working for the Driscoll Construction Co. on a sewer construction project under 26th Street between Penrose and Passyunk Avenues.

Royal defended the City in the wrongful death actions pursuant to an insurance policy issued by Royal to the contractor, Driscoll, in which the City was named as an additional insured.

The jury awarded compensatory damages and punitive damages in accord with answers to interrogatories wherein they found the City negligent and in " reckless disregard of the safety of others" in permitting the accumulation of gaseous vapors which proximately caused the fire and explosion. Royal thereafter demanded that the City pay that portion of the verdict awarded for punitive damages. The City having refused, Royal paid the entire judgment under protest and brought the present action to recover the sum of $75,000.00 paid. The foregoing account is an abbreviated version of an agreed-upon statement of facts pursuant to which the matter was submitted to the court.

ISSUES

The basic issues presented under the stipulated facts are: First, whether the express language of the policy of insurance, excluding coverage for liability resulting from " intentional" acts of the insured, denies coverage for the acts of the insured committed in " reckless disregard" of the safety of others; and second, if not excluded under the insurance contract, whether the public policy of the Commonwealth of Pennsylvania forbids insurance coverage for punitive damages under the circumstances of this case. We answer both questions in the negative holding that reckless misconduct is not equivalent to intentional misconduct for purposes of an insurance policy exclusionary clause and, further, that there is no public policy in Pennsylvania precluding indemnification for punitive damages that arise from vicarious liability of the type presented herein.

DISCUSSION

(1) The Exclusionary Clause

In November, 1961, Royal Indemnity Co. issued a policy of insurance, No. RL6036421, for The Driscoll Construction Co. naming the City of Philadelphia as an additional insured. The policy provided general liability coverage. Liability for the compensatory damages awarded in the initial cases has never been challenged. Plaintiff contends, however, that the part of the jury awards which represent punitive damages are excluded from coverage by the following language in the policy of insurance:

No insurance is afforded by the policy for bodily injury sickness or disease, including death at any time resulting therefrom, or for injury to or destruction of property including loss of use thereof, caused intentionally by or at the direction of the insured. (Emphasis supplied.)

The issue presented is whether the jury's finding that the City's liability-creating conduct was " in reckless disregard of the safety of others" upon which the punitive damage award was founded is equivalent to saying that the City's tort was " intentional."

Virtually all liability policies contain a like provision, excluding liability for damages resulting from injury intentionally inflicted by the insured. One of the significant reasons for inclusion of such clauses, from the insurer's point of view, is to avoid collusivity in insurance claims. Extending this laudatory objective, carriers sometimes contend that such provisions preclude holding the insurer responsible where the insured's liability results from wilful, wanton or reckless misconduct, or even gross negligence, on the theory that such misconduct amounts to or is tantamount to intentional conduct. See Annotation, Liability Insurance: Specific Exclusion of Liability for Injury Intentionally Caused by Insured, 2 A.L.R. 3d 1238 (1965); Annotation, Liability Insurance as Covering Accident, Damage, or Injury Due To Wanton or Wilful Misconduct or Gross Negligence, 20 A.L.R. 3d 320 (1968). The great majority of courts, however, have rejected this contention. See Annotation, supra, 20 A.L.R. 3d at 329; See, e.g., American Ins. Co. v. Saulnier, 242 F.Supp. 257 (D.C. Conn. 1965); Crull v. Gleb, 382 S.W.2d 17 (Mo. App. 1964); Peterson v. Western Cas. & Sur. Co., 5 Wis.2d 535, 93 N.W.2d 433 (1958); Kraus v. Allstate Ins. Co., 258 F.Supp. 407 (E.D. Pa. 1966), aff'd, 379 F.2d 443 (3d Cir. 1967).

Plaintiff premises its argument on the fact that punitive damages may be awarded by a jury not only for wilful misconduct but also for " wanton" or " reckless" misconduct. Plaintiff places much reliance on the frequent use of " wilful" and " wanton" in either the alternative or as synonymous, as:

In those [torts] that are committed through mistake, ignorance, or mere negligence, the ordinary rule is mere compensation; but in such as are committed wilfully, maliciously, or so negligently as to indicate a wanton disregard of the rights of others, the jury are not restricted to compensation merely. They may, if the evidence justifies it, give vindictive or exemplary damages, such as will not only compensate the injured party, but at the same time tend to prevent a repetition of the wrong, either by the defendant or others. Pitts. C. & St. L. Ry. Co. v. Lyon, 123 Pa. 140, 150 (1888). See also, Lakeshore and M.S. Ry. Co. v. Rosenzweig, 113 Pa. 519, 544, 6 A. 545 (1886).

However, the equation of intentional torts and reckless or wanton torts for purposes of the policy of the law for imposing punitive damages has never meant that " intentional" means the same thing as " reckless" or " wanton" for all purposes. In an oftencited opinion from the Missouri Court of Appeals, the respective denotations of these terms have been clearly expressed:

There is subtle difference between the terms 'intentional' and 'wanton and reckless', when those terms are used in connection with the acts of drivers of motor vehicles, and the accidents and injuries that occur as a result thereof. A wanton act, under such circumstances, has been defined as a wrongful act done on purpose, or in malicious disregard of the rights of others, . . . and reckless as an indifference to the rights of others, and an indifference as to whether injury is done or not as the result of such act. . . . Where used together, wanton and reckless mean that the act was intentionally done, without regard for the consequences. In other words, there was a conscious intent to do the act, knowing it was wrong, but no conscious intent to inflict or cause the harm that followed. Wanton and reckless conduct may, and often does, include negligence. . . . Intentional conduct does not. Therefore, wanton and reckless acts of the insured do not amount, in law, to intentional acts so as to permit an insurer to deny coverage under the provision of a clause, in a liability insurance policy, which provides that it does not provide coverage for injury intentionally caused by insured. . . . (Cites Omitted.) Crull v. Gleb, supra, 382 S.W.2d at 21-22.

Pennsylvania has adopted a substantially similar dichotomy:

It is true that in several instances this Court has described wilful misconduct as a reckless disregard for the trespasser's safety after actual knowledge of his peril. See, e.g., Davies v. Delaware, L. & W. R.R. Co., 370 Pa. 180, 87 A.2d 183 (1952). However, these decisions have all erroneously equated wilful misconduct with wanton misconduct, used the terms interchangeably and ignored the patent difference. Correctly speaking, wilful misconduct means that the actor desired to bring about the result that followed, or at least that he was aware that it was substantially certain to ensue. This, of course, would necessarily entail actual prior knowledge of the trespasser's peril. Wanton misconduct, on the other hand, 'means that the actor has intentionally done an act of an unreasonable character, in disregard of a risk known to him or so obvious that he must be taken to have been aware of it, and so great as to make it highly probable that harm would follow. It usually is accompanied by a conscious indifference to the consequences . . . .' Prosser, Torts § 33 at 151 (2d ed. 1955) . . . .

[I]f the actor realizes or at least has knowledge of sufficient facts to cause a reasonable man to realize the existing peril for a sufficient period of time beforehand to give him a reasonable opportunity to take...