Skyline Harvestore Systems, Inc. v. Centennial Ins. Co.
| Citation | 331 N.W.2d 106 |
| Decision Date | 16 March 1983 |
| Docket Number | No. 68107,68107 |
| Parties | SKYLINE HARVESTORE SYSTEMS, INC., Appellant, v. CENTENNIAL INSURANCE COMPANY, Appellee. |
| Court | United States State Supreme Court of Iowa |
James F. Smith of Noah & Smith, Charles City, for appellant.
W.C. Hoffmann and Joseph S. Cortese, II of Jones, Hoffmann & Davison, Des Moines, for appellee.
Wayne C. Collins of Shuttleworth & Ingersoll, Cedar Rapids, for amicus curiae State Farm Mutual Automobile Ins. Co.
Considered by LeGRAND, P.J., * and HARRIS, McCORMICK, McGIVERIN and CARTER, JJ.
Plaintiff insured, Skyline Harvestore Systems, Inc., appeals from trial court's declaratory judgment that the insurance policy issued by defendant Centennial Insurance Company does not cover possible awards of punitive damages in personal injury lawsuits against plaintiff. We conclude that Centennial's liability insurance policy does include coverage of punitive damage awards; accordingly, we reverse the ruling of the trial court.
Skyline notified its insurer, Centennial, that Skyline had been sued in two personal injury actions which involved claims for punitive damages. These actions resulted from equipment sold by Skyline and used and operated by the claimants. Centennial advised Skyline by letter that coverage for the punitive damages claims would not be provided by the insurance company under the terms of the policy.
Plaintiff then filed a petition for declaratory judgment against Centennial to determine its rights under the policy. Centennial's answer admitted the factual context of the case.
The district court's ruling was made on an application, filed by Skyline, to adjudicate points of law. Iowa R.Civ.P. 105. The court addressed two issues: (1) Whether the insurance policy would cover an award of punitive damages against Skyline; and (2) whether insurance coverage of punitive damages frustrated the public policy purposes of punitive damages. Both issues were resolved in favor of the defendant Centennial and plaintiff appealed.
I. Whether the insurance policy covers an award of punitive damages. The policy issued to Skyline by defendant Centennial was a comprehensive general liability insurance policy, which provided that:
The company will pay on behalf of the insured all sums that the insured shall become legally obligated to pay as damages because of
A. bodily injury or
B. property damage
to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements.
Plaintiff and defendant both interpret City of Cedar Rapids v. Northwestern National Insurance Company of Milwaukee, Wisconsin, 304 N.W.2d 228 (Iowa 1981) (), in a manner supporting their construction of the policy at issue here. The policy in City of Cedar Rapids had very similar coverage language to the one in the present case. Plaintiff claims that the broad language of its insurance policy with defendant must be construed as covering a punitive damages award. Defendant, on the other hand, asserts that the insurance policy in City of Cedar Rapids was construed to require coverage of punitive damages only because municipalities had a statutory right to insure against punitive damages. Iowa Code § 613A.7 (1979). 1 Consequently, defendant continues, because there is no statutory provision allowing individuals to insure against punitive damages, the insurance policy issued to Skyline cannot be construed as covering punitive damages.
We believe that our holding in City of Cedar Rapids supports plaintiff's contention.
In City of Cedar Rapids, we adopted the approach of construing coverage of "all sums" in the language of that insurance policy to include not only actual or compensatory damages, but punitive damages as well. City of Cedar Rapids, 304 N.W.2d at 231; see also Abbie Uriguen Oldsmobile Buick, Inc. v. United States Fire Insurance Co., 95 Idaho 501, 507, 511 P.2d 783, 789 (1973); State v. Glens Falls Insurance Co., 137 Vt. 313, 319, 404 A.2d 101, 105 (1979); Hensley v. Erie Insurance Co., W.Va., 283 S.E.2d 227, 229 (1982). This construction comports with the rule that insurance contracts should be construed "from the standpoint of what an ordinary man would believe the contract to mean." Aeroline Flight Service, Inc. v. Insurance Company of North America, 257 Iowa 409, 417, 133 N.W.2d 80, 85 (1965). The insurer assumes a duty to define, in clear and explicit terms, any limitations or exclusions to coverage expressed by broad promises. Zenti v. Home Insurance Co., 262 N.W.2d 588, 590 (Iowa 1978).
We know of no reason why an individual must have statutory authority to obtain similar insurance coverage similar to that of a municipality. The policy issued to Skyline makes no distinction between compensatory and punitive damages. Additionally, we discern no express limitations of coverage of punitive damages; thus we afford to the "all sums" clause its plain, ordinary and popular meaning. The policy issued to Skyline covers liability for both compensatory and punitive damages.
II. Whether public policy precludes a payment of punitive damages under an insurance policy. Defendant contends that insurance coverage of punitive damages would contravene the public policy purposes underlying punitive damages. Those purposes are punishment and deterrence. Berenger v. Frink, 314 N.W.2d 388, 391 (Iowa 1982); Syester v. Banta, 257 Iowa 613, 627, 133 N.W.2d 666, 675 (1965). While we do not repudiate those purposes here, we do not believe that the public policy reasons for punitive damages can override other considerations favoring coverage of punitive damages under this insurance policy.
Debate on this issue has not subsided since City of Cedar Rapids was decided. See Ellis, Punitive Damages in Iowa Law: A Critical Assessment, 66 Iowa L.Rev. 1005, 1065-69 (1981); Hensley v. Erie Insurance Co., W.Va., 283 S.E.2d at 229-231 nn. 4-8; Annot. 16 A.L.R.4th 11 (1982). The divergent views were initially typified by Northwestern National Casualty Co. v. McNulty, 307 F.2d 432 (5th Cir.1962) and Lazenby v. Universal Underwriters Insurance Co., 214 Tenn. 639, 383 S.W.2d 1 (1964).
In McNulty, the court stated:
[I]t appears to us that there are especially strong public policy reasons for not allowing socially irresponsible automobile drivers to escape the element of personal punishment in punitive damages when they are guilty of reckless slaughter or maiming on the highway. It is no answer to say, society imposes criminal sanctions to deter wrongdoers; that it is enough when a civil offender, through insurance, pays what he is adjudged to owe. A criminal conviction and payment of a fine to the state may be atonement to society for the offender. But it may not have a sufficient effect on the conduct of others to make the public policy in favor of punitive damages useful and effective.... We are sympathetic with the innocent victim here; perhaps there is no such thing as money damages making him whole. But his interest in receiving non-compensatory damages is small compared with the public interest in lessening the toll of injury and death on the highways; and there is such a thing as a state policy to punish...
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