Insurance Coverage for Punitive Damages – The Discussion Continues
The Court of Appeals of Texas, Fourth District, sitting en banc, has denied a motion for en banc reconsideration. The case, Farmers Texas County Mutual Insurance Company v. Zuniga, 2018 WL 1310157, involved the question of whether or not a form automobile insurance policy covered exemplary damages. In November 2017, the San Antonio Court of Appeals held that the policy, under which the insurer agreed to “pay damages for bodily injury,” did not provide coverage for a claim for punitive damage because the policy language was unambiguous. While at first blush, the denial of reconsideration seemed like a mundane reaffirmation of established Texas law, the separate concurring and dissenting opinions indicate that three appellate justices do not think the issue is firmly established at all.
The underlying case resulted in a verdict in favor of Zuniga, who was struck by Medina while walking on a sidewalk. The jury awarded actual and punitive damages. The parties disputed whether Medina’s auto insurance policy covered exemplary damages. The policy provided:
- We will pay damages for bodily injury or property damage for which any covered person becomes legally responsible because of an auto accident.
The appellees argued that that the phrase “We will pay for damages for bodily injury” could reasonably include exemplary damages – a common type of damage awarded in cases involving bodily injury. The appellate court interpreted the policy language under the well-established rules of contract construction and found that the policy had one reasonable interpretation: “a promise to pay a sum of money as compensation for the bodily injuries sustained by an injured person.” Id. at *5. Since there were not two reasonable interpretations of the policy, the court was not required to resolve the uncertainty in favor of the insured.
Although the reconsideration was denied, the court was divided on policy interpretation, with the Chief Justice writing a concurring opinion in addition to the dissenting opinion. The dissent disagreed with the earlier holding and stated that the only inquiry is “whether the [insureds] interpretation is reasonable. If it is, then the [insureds] interpretation must be adopted….even if the insurer’s interpretation is also or more, reasonable.” The dissent argued that the phrase “we will pay damages” was not limited or qualified and that the only language in the policy that may work to limit damages covered was the phrase “for bodily injury or property damage.” Because the court found that a broader definition of “for” could be reasonably construed as limiting the types of claims that trigger coverage, rather than the types of damages covered, the dissent found that that the term “for bodily injury” must be construed strictly against the insurer.
The dissenting opinion also concluded that three “extraordinary circumstances” justified reconsideration. First, since many Texas residents had purchased this form automobile policy, the court’s interpretation of the policy language affected the contractual rights of policyholders who reasonably construed the policy language as covering exemplary damages. The opinion even went so far as to state that it will also affect the construction of other types of insurance policies, such as homeowners and commercial general liability policy. Second, the dissent also noted that rejecting appellee’s construction would be not only contrary to the vast majority of decision of courts throughout the country, but also in contrast to another Texas court, Manriquez v. Mid-Century Ins. Co. of Tex., 779 S.W.2d 482, 484 (Tex.App. – El Paso 1989, writ denied), disapproved of on other grounds by Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819 (Tex. 1997). Lastly, the court argued that construing “for bodily injury” as limiting damages to those that redress only physical damage to the body creates further uncertainty about this form auto policy, as well the scope of coverage in other homeowners and commercial general liability policies.