Price v. Hartford Accident and Indemnity Co

Brief Fact Summary. The Plaintiff, Charles Price (Plaintiff), was sued for punitive damages resulting from an accident caused by a drag race. The Defendant, Plaintiff’s insurance company, Hartford Accident and Indemnity Co. (Defendant), claimed that it was not responsible for the punitive damage claim based on public policy considerations.

Synopsis of Rule of Law. In Arizona, public policy does not make insurance policies void that promise to pay all sums, including punitive damages.

Facts. Gary Gardner was injured as a result of a drag race between the Plaintiff and another individual. Gardner brought suit against Plaintiff for $100,000 in compensatory and $25,000 in punitive damages. The Defendant, Plaintiff’s liability insurance company, claimed that it had no duty to defend or indemnify him for the punitive damage claim. Plaintiff’s policy with Defendant had a $1,000,000 limit and promised to pay for all sums he might become liable to pay. Plaintiff and his mother sought a declaratory judgment that the policy included punitive damages coverage. The trial court found against the Plaintiff, and Plaintiff appeals.

Issue. Was the trial court correct in determining that the public policy of the state makes the insurance contract illegal as it relates to punitive damages?
* The clear language of the contract requires the insurance company to defend the action and pay the judgment. The argument favoring the view that it is against public policy to allow a defendant to insure against liability for punitive damages is expressed in Northwestern, [Northwestern National Casualty Co. v. McNulty, 307 F.2d 432] where the court pointed out that punitive damages are punitory as well as deterrent and allowing a delinquent driver to transfer his responsibility to the general public through insurance would undermine the purpose of the damages.
* The Court finds weaknesses in the Northwestern argument. An insured driver cannot engage in wanton conduct with impunity. He would be subject to criminal penalties, high insurance rates and loss of driver’s license. Additionally, holding the Defendant liable for what it already promised to pay should not result in additional burdens on the public. These punitive damages still serve as a deterrent to others and there is no evidence that those states that deny coverage have accomplished any effect on traffic collisions. Finally, public policy also requires an insurance company to honor its obligation.

Discussion. Modern American jurisdictions are split on the issue discussed in this