Hill v. Campbell

Citations: 804 So. 2d 1107; 2001 WL 669713Docket: 2980439

Court: Court of Civil Appeals of Alabama; June 15, 2001; Alabama; State Appellate Court

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Pamela Hill appeals a summary judgment favoring American National Property and Casualty Company (ANPAC) and Farmers Insurance Exchange after being injured in a car accident on March 7, 1996. Hill was a passenger in a vehicle driven by Edward McIntyre, whose policy with Farmers included underinsured-motorist coverage but excluded punitive damages. The collision occurred when Randy Joe Campbell, who was intoxicated and driving illegally, struck McIntyre's car and left the scene. Campbell was insured by ANPAC, which also had a punitive damages exclusion in its policy.

After a jury awarded Hill $15,000 in compensatory damages and $10,000 in punitive damages, ANPAC paid the compensatory amount but refused to cover the punitive damages. Hill's motion for a hearing on unpaid damages led to ANPAC and Farmers filing for summary judgment based on their respective policy exclusions. The trial court granted these motions, leading to Hill's appeal.

Key legal questions on appeal involve the validity of the punitive damages exclusions in the insurance policies against Alabama public policy and the Alabama Uninsured Motorist Act. The court recognizes that while insurance companies can limit coverage through exclusions, these cannot violate statutory provisions or public policy. Alabama law allows punitive damages only in wrongful death cases, and although exclusions for punitive damages are permissible in non-wrongful death claims, the court acknowledges a historical distinction in how Alabama law treats wrongful death compared to other personal injury claims.

The document examines the legality of ANPAC's exclusion of coverage for punitive damages in a personal-injury case involving its insured, Campbell. Hill contends that this exclusion violates Alabama public policy, arguing that punitive damages are essential for punishment and deterrence of intentional misconduct. She asserts that if ANPAC covers punitive damages, it may lead to increased premiums or potential loss of insurance for Campbell, indicating a lack of reduction in premiums since the Department of Insurance allowed such exclusions in the 1990s.

ANPAC counters that paying for intentional acts undermines the deterrent effect of punitive damages and allows culpable parties to evade civil consequences through insurance. They reference case law from other jurisdictions supporting the notion that insuring against punitive damages violates public policy. ANPAC also notes that the Department of Insurance permits punitive damages exclusions and that this practice is becoming standard in the industry.

A comparison is made with American Fidelity Casualty Co. v. Werfel, where the court held the insurer liable for punitive damages because the policy did not exclude such coverage. However, this case is deemed distinguishable from the current one due to the explicit exclusion in ANPAC's policy. The document cites Hooper, where the Alabama Supreme Court upheld an exclusion for intentional acts, reinforcing that insurers have the right to limit liability and design narrow coverage. The court emphasized that public policy does not require insurers to indemnify for criminal acts of an insured, thus rejecting claims of public policy violation or unconscionability related to the exclusion.

The exclusion in the insurance policy clearly barred coverage for injuries or damages arising from criminal acts by the insured, regardless of intent. Consequently, Allstate had no obligation to defend the defendant or indemnify the plaintiff for injuries sustained. In the case of Ross Neely Systems, Inc. v. Occidental Fire Casualty Co., a trucking company sought coverage for punitive damages resulting from a personal injury case, but its insurer refused due to a policy exclusion for punitive damages outside wrongful-death cases. The trucking company contended that this exclusion violated Alabama public policy, but the Alabama Supreme Court did not provide guidance on this issue. The federal district court ultimately ruled that the exclusion did not contravene public policy, a decision later affirmed by the Eleventh Circuit, which noted that similar exclusions had been upheld in Georgia and Kentucky and approved by the Alabama Insurance Department.

Moreover, Campbell's policy with ANPAC also excluded punitive damages, and the court found no public policy violation, especially since the claimant had already been compensated for her injuries. Hill's argument regarding the lack of premium reduction after the exclusion was not supported by evidence. The trial court's summary judgment in favor of ANPAC was upheld.

Regarding Farmers' exclusion of punitive damages, it was analyzed in light of the Alabama Underinsured/Uninsured Motorist Statute, which aims to protect insured individuals from damages caused by those lacking adequate insurance. The statute mandates coverage for bodily injury and death resulting from motor vehicle use. Hill referenced the Lavender case, which permitted recovery of punitive damages from an insurance carrier when an insured was entitled to such damages from an underinsured motorist.

The federal court determined that Alabama statute 32-7-23(b)(4) mandates State Farm, the underinsured-motorist insurance provider, to compensate its insured for damages they are legally entitled to recover from the underinsured motorist. The court referenced the Lavender case, which stated that punitive damages are recoverable under underinsured motorist (UM) coverage when the insurance contract allows for them. However, the present contract explicitly excludes punitive damages from UM coverage, except in wrongful death cases. 

Farmers contends that Alabama courts are not obligated to adhere to the Lavender interpretation and argues that the Lavender policy lacked a specific exclusion for punitive damages. Farmers claims it should not be responsible for punitive damages, emphasizing that such damages are meant to penalize wrongdoers, and Farmers has committed no wrongdoing. Furthermore, Farmers points out that the statute mentions recoverable damages related to bodily injury but does not include punitive damages, suggesting legislative intent to exclude them.

The Lavender court had previously countered arguments against liability for punitive damages by asserting that if an insurance contract stipulates punitive damages are to be paid, they must be included. The court noted that other jurisdictions have found that insurers are liable for all legal damages under UM coverage, though some referenced case law has shifted since Lavender's 1987 ruling. For example, the Texas case Home Indemnity Co. v. Tyler allowed punitive damages under UM coverage, but later rulings, including Milligan v. State Farm Mut. Auto. Ins. Co., determined that punitive damages are not recoverable under such coverage, reinforcing that their purpose—to punish and deter—would not apply if the insurer is made to pay.

The appeals court determined that punitive damages are not recoverable under uninsured motorist (UM) coverage, referencing Vanderlinden v. United Servs. Auto. Ass'n Property, Cas. Ins. Co., which emphasized that punitive damages serve to punish rather than compensate, contradicting the purpose of UM coverage. State Farm Mut. Auto. Ins. Co. v. Shaffer reiterated that while policy language might suggest coverage, the legislative intent behind UM statutes is to protect against financial loss from negligent drivers. The Texas Supreme Court did not rule on this matter, as noted in Lichte v. Government Employees Ins. Co.

The Lavender court cited Carroway v. Johnson, where punitive damages were recoverable under a liability policy but not involving an uninsured motorist. The court distinguished between voluntary liability policies and UM coverage, asserting that the liability policy did not limit recovery to compensatory damages. Additional cases referenced included Valley Forge Insurance Co. v. Jefferson, which dealt with liability insurers' responsibility for punitive damages but not UM coverage, and Jones v. State Farm Mutual Automobile Insurance Co., where the Delaware Supreme Court concluded that punitive damages could be claimed under UM coverage, aligning it with liability coverage.

Other jurisdictions were also mentioned: Lipscombe v. Security Insurance Co. of Hartford in Virginia, which allowed for punitive damages against uninsured motorists, and Tennessee's Mullins v. Miller, which initially required but later limited UM coverage to compensatory damages after legislative amendments. Louisiana courts, in Sharp v. Daigre and Bauer v. White, recognized that insurers could provide UM coverage for punitive damages under specific circumstances.

In Fontana v. Louisiana Sheriffs' Automobile Risk Program, the court determined that the language of a liability policy dictates the inclusion of exemplary damages in UM coverage, ruling that the policy in question explicitly excluded punitive damages. Similarly, in Aetna Casualty v. Craig, the Oklahoma court found that paying punitive damages under UM coverage violated state public policy. California law also prohibits the recovery of punitive damages in UM coverage, as stated in Cal. Ins.Code. 11580.2(a)(1). Rhode Island's uninsured-motorist statute does not require coverage for punitive damages, and a driver is not considered "uninsured" due to the inability to recover such damages. The Georgia Court of Appeals ruled against punitive damage recovery from uninsured-motorist carriers, although the Georgia Supreme Court has not definitively addressed this matter. In Greenwood Cemetery, the court indicated that punitive damages do not inherently violate public policy in liability coverage contexts. In Adams v. Brannan, the Florida court upheld that North Carolina law, which permits punitive damages under UM coverage, applies even in Florida, emphasizing that UM coverage serves to protect injured plaintiffs rather than the negligent party. This court reasoned that allowing recovery for punitive damages does not undermine Florida's interests in punishment and deterrence. Additionally, Alabama allows insurers that pay UM benefits to seek subrogation from the responsible party. In Stinbrink v. Farmers Ins. Co. of Arizona, the plaintiff was denied punitive damages under his insurance contract with an exclusion for such coverage against uninsured motorists.

The New Mexico UM statute mandates that insurance policies provide UM coverage to protect insured individuals legally entitled to recover damages from uninsured motorists due to bodily injury, death, or property damage. The New Mexico Supreme Court recognized two competing interests: protecting victims of uninsured motorists and preserving the freedom to contract within insurance policies. The court ruled that punitive damages are included under the UM statute and cannot be excluded in contracts. 

Similarly, Alabama's UM statute requires all automobile insurance contracts to offer coverage for damages from uninsured motorists, including bodily injury and wrongful death. Notably, Alabama's Wrongful Death Act uniquely allows only punitive damages, yet the statute does not differentiate between personal injury and wrongful death damages, preventing the court from assuming legislative intent without clear statutory language. 

Exclusions in policies that are more restrictive than the UM statute are void. While many jurisdictions maintain that insurers are not liable for punitive damages under UM coverage, the Alabama statute does not make such a distinction. The court emphasized a commitment to the statutory language rather than judicial activism, affirming that an insurer's exclusion of punitive damages in liability policies violates the UM Act. The judgment favoring ANPAC was affirmed, while the judgment for Farmers was reversed, with the case remanded for further proceedings. Additionally, one judge noted a prior dissent regarding punitive damages exclusions but aligned with the current opinion due to a subsequent precedent set by the Alabama Supreme Court.

Judge Murdock concurs with the majority's decision to affirm the summary judgment in favor of ANPAC and concurs only in the result regarding Farmers. The majority’s reversal of Farmers' summary judgment is partly based on the case Lavender v. State Farm Mutual Automobile Insurance Co., where Farmers argues that its uninsured-motorists policy includes a specific exclusion for punitive damages, unlike the policy in Lavender. Farmers contends that punitive damages serve to deter and punish, which would not apply in this case. Furthermore, Farmers asserts that Ala. Code 1975, 32-7-23(a) mandates uninsured/underinsured-motorists coverage for "protection" of the insured, suggesting a compensatory intent with an exception for wrongful-death cases. They argue that the ruling could lead to broader coverage under uninsured/underinsured-motorists policies compared to liability policies.

Judge Murdock references the recent Supreme Court decision in Omni Insurance Co. v. Foreman, which permits the recovery of punitive damages under Alabama's uninsured/underinsured-motorists statute, binding this court’s decision. He concludes that the summary judgment in favor of Farmers should be reversed, in line with the majority. Additionally, references to legislative changes requiring minimum liability coverage and discussions on public policy regarding punitive damages insurance are noted, as well as Farmers' argument that consistency in rulings on punitive damages exclusions is necessary under Ala. Code 32-7-22.

Section 32-7-22 does not apply to ANPAC's insurance policy as it pertains specifically to policies certified by the Department of Public Safety for financial responsibility, relevant only after a driver has been convicted of an offense requiring license revocation. Farmers' argument for reversing the exclusion based on 32-7A-4, the Mandatory Insurance Act, is flawed since that Act was not in effect at the time of the accident. Additionally, the Alabama Supreme Court in Omni Insurance Co. v. Foreman ruled that the state's UM statute allows for the recovery of punitive damages, with only the legislature able to amend this provision. Farmers claims the uninsured/underinsured-motorists statute is unambiguous; however, their arguments suggest it may contain ambiguities related to its focus on "protection" and the types of injuries covered rather than the damages themselves.