A decision by a Pennsylvania appellate court is a roadmap for plaintiffs' lawyers to use in an effort to force a defendant's insurer to pay for a punitive damages award.
The case
The widow of a jockey who allegedly had sustained fatal injuries while working at Parx Racetrack filed a wrongful death and survival action (Calderon Action) against Bensalem Racing Association, Inc., and Keystone Turf Club, Inc. (together, Parx). The Calderon Action included a negligence claim against Parx based on theories of direct liability and vicarious liability, and sought punitive damages.
The plaintiff did not name any Parx employees individually as defendants in that action.
ACE Property and Casualty Insurance Company insured Parx under a commercial umbrella liability insurance policy with a limit of $25 million for each occurrence and in the aggregate. The policy did not contain a written exclusion for punitive damages.
ACE, therefore, provided counsel to represent Parx.
At trial, counsel for the parties informed the court that they agreed that a finding against Parx on the verdict sheet was a finding as to all defendants in that action and that the "actions and conduct or failures to act on behalf of any of the defendants' agents or employees" would be attributed to Parx.
Direct and vicarious liability
The plaintiff in the Calderon Action presented evidence that Parx was both directly liable as owner of the property and vicariously liable for the acts or omissions of its employees, and the trial court instructed the jury accordingly.
The jury returned a verdict in favor of the plaintiff, awarding her compensatory and delay damages of $7,764,429 and $5 million in punitive damages.
Parx subsequently entered into a settlement agreement with the plaintiff in the Calderon Action. Parx agreed to pay the compensatory and delay damages award immediately, and the parties agreed to reduce the punitive damages award to $2,647,490.
ACE, on behalf of Parx, paid the compensatory and delay damages portion of the settlement. ACE, however, declined to pay the plaintiff in the Calderon Action for the punitive damages award, so Parx paid the punitive damages award directly to her.
Parx sued ACE, asserting breach of contract and bad faith for failing to indemnify Parx for the punitive damages component of the settlement it had paid.
The trial court granted summary judgment in favor of ACE. It concluded that, as a matter of public policy, ACE was not responsible for indemnifying Parx for its payment of the punitive damages award.
Parx appealed.
The appellate court's decision
The appellate court vacated the trial court's decision.
The appellate court explained that, in Pennsylvania, a claim for punitive damages against a wrongdoer who was directly liable for outrageous and wanton misconduct was excluded from insurance coverage as a matter of law.
However, the appellate court continued, it was not against public policy to allow one who was only "vicariously liable" for punitive damages to shift the burden of satisfying the judgment to an insurer.
The appellate court explained that:
Pennsylvania public policy, therefore, distinguishes between outrageous acts committed by corporate management directly and those committed by a corporate agent or employee and for which the corporate entity is vicariously liable.
The appellate court then stated that because the ACE policy did not exclude coverage for punitive damages, the burden was on ACE to prove as a matter of law that public policy barred coverage for the punitive damages. To meet this burden, the appellate court continued, ACE had to prove that the jury in the Calderon Action had awarded punitive damages based "solely" on Parx's direct liability.
ACE had not met that burden, the appellate court ruled. It pointed out that the trial court had expressly found that the plaintiff in the Calderon Action sought recovery based on Parx's direct and vicarious liability. Given that the trial court in the Calderon Action had instructed the jury on vicarious liability concepts, and in light of the nature of the plaintiff's cause of action against Parx in the Calderon Action, the stipulation of the parties in the Calderon Action agreeing that Parx assumed liability for the actions or failures to act of its employees or agents, and the absence of specific interrogatories, the appellate court concluded that ACE had not met its burden to demonstrate that the jury in the Calderon Action had based its punitive damages award solely on Parx's direct negligence.
Accordingly, the appellate court ruled that the trial court had erred as a matter of law in granting summary judgment in favor of ACE. The appellate court also decided that ACE could not sustain its burden of proving that the jury in the Calderon Action had awarded punitive damages solely on the basis of direct liability. It concluded, therefore, that summary judgment had to be entered in favor of Parx on its breach of contract claim and that its bad faith claim should be reinstated.
The case is Bensalem Racing Ass'n v. Ace Property and Casualty Ins. Co.
Steven A. Meyerowitz, Esq., is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. Email him at smeyerowitz@meyerowitzcommunications.com.
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