The U.S. District Court for the Western District of Texas has ruled that an insurer did not have to indemnify an intoxicated driver for a punitive damages award entered against him.
The Case
Richard Brett Frederking was injured in a motor vehicle collision caused by Carlos Xavier Sanchez while Sanchez was operating a motor vehicle owned by his employer, Advantage Plumbing Services.
Sanchez was arrested after the collision and taken to jail. He later pled guilty to criminal charges of driving while intoxicated, and admitted that his actions or inactions had caused the collision.
Mr. Frederking sued Sanchez and Advantage. Cincinnati Insurance Company, which had issued a business auto insurance policy to Advantage, provided a defense under a reservation of rights.
The jury found that Sanchez was negligent and that Advantage was negligent under the theory of negligent entrustment. The jury also found that Sanchez was grossly negligent.
The jury awarded Mr. Frederking $137,025 in compensatory damages and interest, jointly and severally, against Sanchez and Advantage. The jury also awarded Mr. Frederking $207,550 in punitive damages with interest against Sanchez.
Cincinnati paid Mr. Frederking $153,086.94 in satisfaction of the full amount of the compensatory damages awarded against Advantage and Sanchez jointly and severally. He then fully released Advantage from the judgment against it.
Mr. Frederking also partially released Sanchez from the compensatory portion of the judgment, but not from the punitive damages portion resulting from the finding of gross negligence.
In an attempt to collect the award for punitive damages, Mr. Frederking sued Cincinnati.
The insurer moved for summary judgment, arguing that it had no duty to indemnify Sanchez for the punitive damages award.
The District Court's Decision
The court granted the motion.
In its decision, the court explained that it had to determine if Sanchez's actions that were the basis of the gross negligence finding in Mr. Frederking's lawsuit were an "accident" or "occurrence" (defined, in part, as an accident) under the auto policy Cincinnati had issued to Advantage.
The court pointed out that an accident generally is understood to be a "fortuitous, unexpected, and unintended event." It added that a claim does not involve an accident or occurrence when the resulting damage was the "natural and expected result" of the insured's actions – that is, that the damage was "highly probable," whether the insured was negligent or not.
The court then found that Sanchez's collision with Mr. Frederking and Mr. Frederking's resulting injuries were the "natural and expected result from a driver operating a vehicle while intoxicated."
According to the court, Sanchez intentionally became intoxicated and operated a vehicle, and although he may not have intended to get in an automobile collision or cause injuries to Mr. Frederking, a car collision and injuries to another driver "ordinarily follow from someone driving while intoxicated."
In other words, the court found, the collision and injuries were "highly probable."
Therefore, it concluded, even if the collision and injury were unexpected and unintended, the results of Sanchez driving while intoxicated were not caused by an "accident," and Cincinnati had no duty to indemnify Sanchez for the punitive damages awarded from the jury finding of gross negligence.
FC&S Legal Comment
A number of Texas courts have considered whether automobile insurance policies covered punitive damages, with somewhat divergent results.
In Fairfield Ins. Co. v. Stephens Martin Paving, LP, 246 S.W.3d 653, 683 (Tex. 2008) (Hecht, J., concurring), Chief Justice Hecht stated that "[s]tandard form personal automobile policies do not state specifically whether punitive damages are covered, and while two courts have concluded that punitive damages are damages for bodily injury covered by automobile policies, that position has been uniformly rejected in the context of uninsured and underinsured motorist coverage and is therefore dubious at best."
In Westchester Fire Ins. Co. v. Admiral Ins. Co., 152 S.W.3d 172, 181 (Tex. Ct.App. 2004, pet. denied), the court allowed coverage for punitive damages because, although one applicable portion of the relevant policy "limit[ed] coverage to bodily injury arising out of an occurrence" similar to Cincinnati's policy, a second applicable portion of the policy did not limit coverage to only an "occurrence." Thus, the court held the punitive damage award for gross negligence triggered coverage under the insurance policy.
More recently, three of seven justices of the Court of Appeals of Texas, Fourth District, contended that an automobile insurance policy covered exemplary damages – including punitive damages. Farmers Texas County Mutual Ins. Co. v. Zuniga, No. 04-16-00773-CV (Tex. Ct.App., 4th Dist., March 14, 2018).
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].