The Occidental Fire and Casualty Company of North Carolina (Occidental) had a dispute concerning the coverage of punitive damages that a third party sought against its insured, Ross Neely Systems Inc. (Neely), a trucking firm. Occidental insured Neely under a Business Auto Policy (BAP).
Ross Neely was sued because of an accident caused by one of its truckers violently rear-ending an automobile that was stopped at a traffic light. That auto's driver and two passengers were injured. Occidental settled with the injured passengers, but the driver sought both compensatory and punitive damages.
Occidental's BAP contained two items of particular interest with the driver's claim for damages. The policy's basic (unendorsed) wording included an exclusion regarding punitive damages. It also was modified by a Form F. This item is mandated by the state of Alabama and it requires an insurer to respond to punitive damages.
Occidental and Neely discussed the issue of punitive damages before the BAP was issued. Neely requested punitive damage coverage. The carrier told Neely that it WOULD NOT issue BAP coverage that included protection against punitive damages. The carrier recognized the conflicted wording of its modified BAP, but it handled this by having Neely agree to reimburse it in case the policy was called upon to pay punitive damages.
When the suit against Neely was filed, the lawyer assigned by Occidental noticed that the injured driver sought both punitive and compensatory damage. Occidental advised Neely of this and it also stated that the policy would not respond to the portion of the suit seeking a punitive award. The carrier said that Neely could arrange for separate legal representation that could handle the entire suit since it (Occidental) would not even defend against the punitive request. Neely decided to have Occidental's assigned attorney handle the case, since, at the time, both the carrier and the trucking firm felt that the injured driver presented a weak case.
The lower court decided in favor of the plaintiff. In the course of the trial, the following pertinent items arose:
The plaintiff's compensatory award was accompanied by a $250,000 punitive award. Occidental paid the compensatory amount, but refused to pay the punitive portion. Both parties filed for summary judgment. The trial court, due to the part of Neely's complaint regarding Alabama's requirement to pay punitive awards, submitted a question to the State’s Supreme Court. The high court chose not to entertain the question. The trial court then granted Occidental's motion, while denying Neely's. Neely appealed.
A higher court reviewed the matter, paying particular attention to Neely's allegations of ambiguity of contradictory policy wording and dealing in bad faith. The court saw things in the same light as the insurer. It had filed the form with the Alabama insurance authorities and, in order to comply with state rules, had to attach Form F to every BAP it issued. The court also acknowledged the carrier's communications with Neely that it would not respond to punitive damages and that this was done prior to the policy being issued and again when the driver's claim was filed. The higher court also reviewed the claim of bad faith and noted that the carrier handled the claim in accordance with the manner it stated that coverage would be provided…ignoring any punitive damages. A further point of review was another policy provision. The BAP wording also required Neely to reimburse Occidental if, for some reason, the latter did have to pay punitive damages. Because of this contract requirement, Neely's financial position was unaffected by Occidental's refusal to pay punitive damage. The court ruled in favor of Occidental, affirming the lower court decision.
Ross Neely Systems, Inc., Plaintiff-Appellant, v. Occidental Fire & Casualty Company Of North Carolina, Defendant-Appellee. No. 98-6817. United States Court of Appeals, Eleventh Circuit. Filed Dec. 3, 1999.
http://www.law.emory.edu/11circuit/dec99/98-6817.man.html [downloaded 06/23/04]