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Texas Court of Appeals Affirms Public Policy Against Insurance Coverage for Punitive Damages
Insurance Law Update
March 2010
Texas Court of Appeals, Houston Division
In Laine v. Farmers Ins. Exchange, ___ S.W.3d __ , 2010 WL 375937 (Tex. Ct. App. Feb. 4, 2010), the Texas Court of Appeals – Houston (1st Dist.) held that the public policy against insurance recovery for punitive damages assessed against an uninsured motorist also applied to an umbrella policy with coverage identical to the underlying policy.
Plaintiff Sandra Gervis Laine was driving with her mother when a drunk driver struck their vehicle, killing her mother. Laine filed a claim with Farmers Insurance Exchange, her uninsured/underinsured motorist insurer. Farmers paid the $250,000 policy limits. Laine also requested payment from Farmers under an umbrella policy with $1 million limits but Farmers denied the request, leading Laine to sue Farmers for breach of contract and failure to provide prompt payment. Laine also sued the drunk driver. The jury found for Laine and against the drunk driver, awarding her $175,000 in compensatory damages and $1.5 million in punitive damages. Farmers moved for judgment non obstante veredicto because the amount of compensatory damages was less than the policy limits already paid to Laine. The trial court agreed and signed a take-nothing judgment.
On appeal, Laine contended that she was entitled to a payment from Farmers under the umbrella policy for the $1.5 million punitive damages award. The Court of Appeals examined the coverage extensions under the umbrella policy but determined that the policy language was not dispositive of whether punitive damages were recoverable from an insurance company. Looking to the Texas Insurance Code, the Texas Motor Vehicle Safety-Responsibility Act and Chapter 41 of the Texas Civil Practice and Remedies Code, the court held that public policy militated against insurance for punitive damages.
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