Award of Punitive Damages Not Covered by Insurance Policy according to the Federal Fifth Circuit Court of Appeals: Late last week the Fifth Circuit Court of Appeals held that an award of punitive damages in a nursing home case was not covered by the nursing home.s liability insurance policy.
Faithful readers of Tx/Up! will certainly recall that the Texas Supreme Court ruled last February that public policy does not prohibit insurance coverage of punitive damages in workers. compensation death cases, but it left the door open for a different analysis in “extreme circumstances.” Last week, the federal fifth circuit, applying Texas law, concluded that such circumstances existed when staff at a group home for the mentally disabled failed to prevent a woman’s injuries and death from chemical burns. While taking a much needed pizza break, a staff member left the female resident on the floor in a puddle of bleach and feces. A jury awarded punitive damages, and the nursing home claimed they were covered under its policy. The insurer disagreed.
“This case demonstrates the kind of ‘avoidable conduct that causes injury’ where public policy is best served by requiring the insured to bear the costs of punitive damages,” Senior Judge Thomas Reavley wrote for the fifth circuit panel in American International Specialty Lines Insurance Co. v. Res-Care Inc., et al (5th Cir. 2008).
In deciding the case, the fifth circuit followed the guidance that the Texas Supreme Court provided in Feb. 15’s Fairfield Insurance Co. v. Stephens Martin Paving, et al. Justice Dale Wainwright wrote for the Supreme Court majority in Fairfield that the state Legislature authorized the Texas Department of Insurance to create a policy that provides insurance coverage for exemplary damages in workers’ compensation death cases. But Wainwright also wrote that “strong public policies may compel a serious analysis into whether a court may legitimately bar contracts of insurance for extreme and avoidable conduct that causes injury.”
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We will cover this and other notable cases at our full day, fully accredited Ultimate Claims Handling Seminar on October 10, 2008 at CityPlace Conference Center, in Dallas Texas. Registration applications will be sent in August. Mark your calendar now.