Title: Sinclair Oil Corp. v. Columbia Cas. Co.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Sinclair Oil Corp. v. Columbia Cas. Co.1984 WY 50682 P.2d 975Case Number: 83-177Decided: 05/18/1984SINCLAIR OIL CORPORATION, A WYOMING CORPORATION, PLAINTIFF,

v.

COLUMBIA CASUALTY COMPANY, AN ILLINOIS CORPORATION, DEFENDANT.

Supreme Court of Wyoming
SINCLAIR OIL CORPORATION, 
A WYOMING CORPORATION, PLAINTIFF,

v.

COLUMBIA CASUALTY 
COMPANY, AN ILLINOIS CORPORATION, DEFENDANT.

John E. 
Stanfield of Smith, Stanfield & Scott, Laramie, and Jack B. Speight of 
Hathaway, Speight & Kunz, Cheyenne, for plaintiff.

Paul B. Godfrey 
of Godfrey & Sundahl, and George E. Powers, Jr., Cheyenne, and Thomas B. 
Kelley of Cooper & Kelley, P.C., Denver, Colo., for defendant.

Before ROONEY, C.J., and THOMAS, ROSE, BROWN and 
CARDINE, JJ.

BROWN, 
Justice.

[¶1.]     The United States 
District Court for the District of Wyoming, pursuant to the Federal Court State 
Law Certificate Procedure Act, §§ 1-13-104 through 1-13-107, W.S. 1977, and 
Rules 11.01 through 11.07, Wyoming Rules of Appellate Procedure, certified to 
this court the following questions:

"1. Where a general 
liability policy is broad enough to cover punitive damages and makes no 
distinction between compensatory or punitive damages, and there is no exclusion 
in the policy against coverage for punitive damages, does Wyoming public policy 
prohibit the enforcement of punitive damage coverage in the following 
circumstances:

"a) For vicarious 
liability of the insured as to punitive damages under applicable Wyoming law and the 
instructions given in the Bohenna case on the basis of willful and wanton 
conduct?

"b) For personal 
liability of the insured as to punitive damages under applicable Wyoming law and the 
instructions given in the Bohenna case on the basis of willful and wanton 
conduct?

"2. Where an insurance 
carrier sells a general liability policy which makes no distinction between 
compensatory or punitive damages and does not exclude coverage for punitive 
damages despite the undisclosed intention to refuse to cover such damages, is 
the carrier estopped under Wyoming law to later deny coverage for punitive 
damages on the basis of undisclosed principles of public policy or has it waived 
any such right?

"3. Where an insurance 
carrier fails to reveal its intention to deny coverage for punitive damages 
until after the insured is already liable for such damages on the basis of a 
jury verdict, is the carrier estopped under Wyoming law from denying coverage 
for punitive damages on the basis of undisclosed principles of public policy or 
has it waived any such right?"

[¶2.]     We will only address 
questions 1(a) and (b). Our answers in the negative will effectively answer the 
other questions. Facts we deem applicable, recited below, are extracted from the 
certification order of the United States District Court for the District of 
Wyoming.

[¶3.]     In 1976, Columbia 
Casualty Company (hereinafter Columbia) issued to Sinclair Oil Corporation 
(hereinafter Sinclair) its excess insurance policy. The coverage was for 
$300,000, in excess of a self-insured retention (SIR) in the sum of $100,000, 
and a first level excess liability policy covering the next $300,000 issued by 
Admiral Insurance Company (not a party in this case). In other words, the 
Columbia policy 
covered any loss in an amount in excess of $400,000 to limits of $700,000. Under 
its self-insured retention, Sinclair had some responsibility for investigation 
and defense of the claim.

[¶4.]     In May 1977, during the 
period of coverage provided by the Columbia policy, one Robert Bohenna was 
seriously injured while unloading an acid tanker at the Sinclair refinery. In 
May 1981, Bohenna and his wife brought suit against Sinclair in which they 
sought compensatory and punitive damages against Sinclair and other defendants. 
Upon service of the suit, Sinclair forwarded the Summons and Complaint to 
Columbia. Before 
the trial, Mr. and Mrs. Bohenna offered to settle all of the claims for the sum 
of $175,000. Sinclair demanded the case be settled and tendered its full 
$100,000 to settle. However, Admiral refused to pay the remaining $75,000, and 
thus, the offer was refused. Columbia was aware of the settlement offer and 
the fact that it was refused by Admiral, but did not disclose its later 
contention that its policy did not cover any punitive damages which might be 
assessed in the Bohenna case.

[¶5.]     The Bohenna case went 
to trial August 25, 1982, and a verdict was returned September 8, 1982. The jury 
attributed 55 percent negligence against Sinclair, 10 percent negligence against 
Mr. Bohenna, and the remainder was divided among other defendants. The jury 
returned a verdict for $325,000 in favor of Mr. Bohenna, and $50,000 in favor of 
Mrs. Bohenna for a total of $375,000. In addition, the jury found Sinclair was 
liable for punitive damages on the basis of willful and wanton misconduct. Upon 
receipt of the verdict, the court set a trial for September 15, 1982, before the 
same jury to determine the amount of punitive damages, pursuant to the 
bifurcated procedure as prescribed in Campen v. Stone, Wyo., 635 P.2d 1121 
(1981).

[¶6.]     After being advised of 
the finding of liability for punitive damages, Columbia advised Sinclair on September 14, 1982, that it 
would not pay punitive damages under its policy on the grounds that the State of 
Wyoming 
permitted punitive damages solely as punishment and deterrence, and not as 
compensation, and hence coverage would be contrary to public policy. This was 
the first communication between Sinclair and Columbia on the subject of coverage for 
punitive damages under the policy.

[¶7.]     Sinclair then settled 
the punitive damages claim for the sum of $350,000. Columbia does not contend 
that this settlement was excessive or unjustified. The net result after 
offsetting a prior settlement with a co-defendant, was a payment to Mr. Bohenna 
in the sum of $680,000. This meant a payment of $280,000 within the coverage 
layer of the Columbia policy, which Sinclair 
paid.

[¶8.]     Sinclair brought an 
action in the United States District Court for Wyoming against Columbia in November, 1982. Sinclair seeks to 
recover on the insurance contract, alleging that punitive damages are covered on 
the basis of the reasonable expectations of the insured under the policy and by 
reason of the policy provisions and the absence of any exclusion as to punitive 
damages. Columbia takes the position that 
insurance coverage for punitive damages is contrary to the public policy of the 
State of Wyoming. Sinclair also contends that the 
Columbia policy 
is enforceable under the doctrine of estoppel, or alternatively, the doctrine of 
waiver. It is Columbia's position that the doctrines of 
public policy which preclude coverage of punitive damages also preclude 
enforcement of such a contract by way of the doctrines of waiver or 
estoppel.

[¶9.]     Columbia filed a Motion 
for Partial Summary Judgment which is addressed to the claims of Sinclair which 
seek to enforce the contract of insurance for punitive damage coverage. 
Columbia's 
motion raises the legal questions submitted by this Certification 
Order.

[¶10.]  For purposes of its Motion for Summary 
Judgment, and for no other purpose, Columbia admits that the terms of its policy 
are broad enough to cover punitive damages, and that the same are payable under 
its policy unless payment is contrary to public policy. Columbia also admits that absent considerations of public 
policy the facts and circumstances of this case would estop Columbia from denying 
coverage under its policy and constitute a waiver of any exclusions from 
coverage or policy defenses.

[¶11.]  Upon motion from Sinclair, the United 
States District Court certified these legal issues to the Supreme Court for the 
State of Wyoming because, in the court's view, 
they involve important and undetermined questions of Wyoming law which will be 
determinative of the pending partial summary judgment motion and may be 
determinative of all issues in this case. For purposes of this certification 
order the applicable facts are as stated and as reflected in the record 
certified herewith.

[¶12.]  Sinclair contends under Wyoming law that 
1) Wyoming public policy does not prohibit the enforcement of insurance 
coverage, at least in regard to vicarious liability, for willful and wanton 
misconduct as defined by Wyoming law; 2) the policy must be construed against 
Columbia and in favor of coverage; 3) the absence of any exclusion against 
coverage for punitive damages in the policy sold by Columbia is fatal to 
Columbia's claims based upon unwritten precepts of public policy; 4) Columbia 
was required to specifically exclude punitive damages in the policy it sold to 
Sinclair if it did not intend to cover such damage; and 5) Columbia is estopped 
from denying coverage for punitive damages because of its failure to reveal its 
intentions and its undisclosed "Corporate Claim Policy" at the time of purchase 
or prior to the time the verdict was returned and while Sinclair still had an 
opportunity to protect itself.

[¶13.]  With respect to questions 1(a) and (b), 
Columbia 
contends that:

"1) In Wyoming, punitive 
damages are imposed upon persons guilty of willful and wanton misconduct solely 
for purposes of punishment and deterrence, and not for purposes of compensation. 
These goals of punishment and deterrence are frustrated if the wrongdoer has the 
right to contract with an insurance company for payment of amounts imposed as 
punitive damages.

"2) The trend and weight 
of authority among courts confronted with the factual and legal circumstances of 
this case is to hold that insurance coverage for punitive damages is contrary to 
public policy.

"3) The interest of the 
people of the State of Wyoming in preventing frustration of the 
salutary goals of punishment and deterrence in punitive damages cases overrides 
the wrongdoers interest in freedom of contract.

"4) When punitive damages 
are imposed against an employer under Wyoming law, there is no basis for applying 
the `vicarious liability' exception to the public policy rule. To the contrary, 
when a corporate employer is found liable for punitive damages the reasons for 
invalidating punitive damage insurance coverage on public policy grounds are 
even more compelling."

[¶14.]  Succinctly, Columbia contends that 
there can be no punishment or deterrence if Sinclair is permitted to shift the 
financial burden of punitive damages to its insurance carrier. We are confronted 
here with competing policies, and we must therefore determine which is dominant. 
On the one hand, we have a policy regarding the purposes of punitive damages, 
and on the other hand, we have a policy with respect to freedom to contract for 
insurance coverage.

[¶15.]  We have said that the purposes and 
justification for punitive damages is to publicly condemn some notorious action 
or inaction, to punish a defendant, and to serve as a warning and deterrent to 
others. Punitive damages are not allowed to compensate plaintiffs nor are they 
designed to be a windfall. Campen v. 
Stone, supra; Danculovich v. 
Brown, Wyo., 593 P.2d 187 (1979); Town of Jackson v. Shaw, Wyo., 
569 P.2d 1246 (1977).

[¶16.]  Courts unanimously recognize the basic 
right of persons, real and artificial, to freely enter into contracts. It was 
said in Baltimore & Ohio Southwestern 
Railway Company v. Voigt, 176 U.S. 498, 505, 20 S. Ct. 385, 387, 44 L. Ed. 560, 565 (1900):

"* * * [T]he right of 
private contract is no small part of the liberty of the citizen, and that the 
usual and most important function of courts of justice is rather to maintain and 
enforce contracts, than to enable parties thereto to escape from their 
obligation on the pretext of public policy, unless it clearly appear that they 
contravene public right or the public welfare. It was well said by Sir George 
Jessel, M.R., in Printing & Co. v. Sampson, L.R. 19 Eq. 465: `It must not be 
forgotten that you are not to extend arbitrarily those rules which say that a 
given contract is void as being against public policy, because if there is one 
thing which more than another public policy requires it is that men of full age 
and competent understanding shall have the utmost liberty of contracting, and 
that their contracts, when entered into freely and voluntarily, shall be held 
sacred, and shall be enforced by courts of justice. Therefore, you have this 
paramount public policy to consider - that you are not lightly to interfere with 
this freedom of contract.'"

[¶17.]  "Public policy" like "legislative intent" 
is a vague and nebulous concept, oft used to cover or ignore a "multitude of 
sins." One court was provoked to say:

"* * * Public policy is a 
very unruly horse and once you get astride it you never know where it will carry 
you. * *" Tracey v. Franklin, 31 
Del.Ch. 477, 67 A.2d 56, 11 A.L.R.2d 990 
(1949), quoting from Richardson v. 
Mellish, 2 Bing. (Eng) 229, and referred to in 14 Williston on Contracts § 
1629 (3rd ed. 1972).

[¶18.]  We will not invalidate a contract entered 
into freely by competent parties on the basis of public policy unless that 
policy is well settled, unambiguous and not in conflict with another public 
policy equally or more compelling.

[¶19.]  Courts are not uniform in their 
determination of whether or not public policy precludes insuring against 
punitive damages. Northwestern National 
Casualty Company v. McNulty, 307 F.2d 432 (5th Cir. 1962) and its progeny 
are a line of cases holding that public policy precludes insuring against 
punitive damages. Skyline Harvestore 
Systems, Inc. v. Centennial Insurance Company, Iowa, 331 N.W.2d 106 
(1983); Harrell v. Travelers Indemnity 
Company, 279 Or. 199, 567 P.2d 1013 (1977); Lazenby v. Universal Underwriters Insurance 
Company, 214 Tenn. 639, 383 S.W.2d 1 
(1964); and Hensley v. Erie Insurance 
Co., W. Va., 283 S.E.2d 227 (1981), are a line of 
cases representative of the contrary view.

[¶20.]  It is not necessary to determine which is 
the majority view nor are we concerned with the trend. We have never adopted a 
majority view solely to be aligned with a plurality nor have we detected a trend 
and jumped on the "band wagon." We adopt the position that most nearly comports 
with the jurisprudence of the State of Wyoming and appears to be the more 
rational.

[¶21.]  Northwestern National Casualty Company v. 
McNulty, supra, is quoted often for setting out the argument against 
insurance coverage for punitive damages:

"* * * [P]ublic policy 
against coverage is not so much to prevent encouragement of wrong-doing by 
obstructing the hopes of profit; it is rather to make effective the 
discouragement of wrong-doing by the imposition of punishment. Where a person is 
able to insure himself against punishment he gains a freedom of misconduct 
inconsistent with the establishment of sanctions against such misconduct. It is 
not disputed that insurance against criminal fines or penalties would be void as 
violative of public policy. The same public policy should invalidate any 
contract of insurance against the civil punishment that punitive damages 
represent.

"The policy 
considerations in a state where, as in Florida 
and Virginia, 
punitive damages are awarded for punishment and deterrence, would seem to 
require that the damages rest ultimately as well nominally on the party actually 
responsible for the wrong. If that person were permitted to shift the burden to 
an insurance company, punitive damages would serve no useful purpose. Such 
damages do not compensate the plaintiff for his injury, since compensatory 
damages already have made the plaintiff whole. And there is no point in 
punishing the insurance company; it has done no wrong. In actual fact, of 
course, and considering the extent to which the public is insured, the burden 
would ultimately come to rest not on the insurance companies but on the public, 
since the added liability to the insurance companies would be passed along to 
the premium payers. Society would then be punishing itself for the wrong 
committed by the insured." Id., at 440.

[¶22.]  Cases we have cited representing a 
contrary view criticize the McNulty rationale. We will not repeat this criticism 
nor will we attempt to reconcile or distinguish McNulty. Suffice it to say we 
choose to adopt a different philosophy.

[¶23.]  The court in Lazenby v. Universal Underwriters Insurance 
Company, supra, 383 S.W.2d at p. 5, reasoned:

"* * * We, however, are 
not able to agree the closing of the insurance market, on the payment of 
punitive damages, to such drivers would necessarily accomplish the result of 
deterring them in their wrongful conduct. * * *

"* * * Then, to say the 
closing of the insurance market, in the payment of punitive damages, would act 
to deter guilty drivers would in our opinion contain some element of 
speculation.

"* * * [W]e think the 
average policy holder reading this language would expect to be protected against 
all claims, not intentionally inflicted.

"There is often a fine 
line between simple negligence and negligence upon which an award for punitive 
damages can be made.

"Public policy is the 
present concept of public welfare or general good. [Citations.] Public policy is 
practically synonymous with public good and unless the private contract is in 
terms of such a character as to tend to harm or injure the public good, public 
interest on public welfare or to violate the Constitution, laws, common or 
statutory, or judicial decisions of the State, it is not violative of public 
policy nor void on that account. [Citation.]

"The insurance contract 
in the case at bar is a private contract between defendant and their assured, 
Norman Frank Crutchfield, which when construed as written would be held to 
protect him against claims for both compensatory and punitive damages. Then to 
hold assured, as a matter of public policy, is not protected by the policy on a 
claim for punitive damages would have the effect to partially void the contract. 
We do not think such should be done except in a clear case, and the reasons 
advanced do not make such a clear case.

"We recognize there are 
many factors, pro and con, involved in this matter that have not been discussed 
in this opinion; such as the possible affect on insurance rates paid by the 
public and the possible conflict of interest between the insurance company and 
their assured at the trial. We have weighed a great many such factors and 
suffice to say we do not think they are determinative of the 
matter."

[¶24.]  In Lazenby v. Universal Underwriters Insurance 
Company, supra, the Tennessee Supreme Court considered similar insurance 
policy provisions, the law relating to punitive damages and common law precedent 
and reached a result different from McNulty. In Lazenby the court stated several 
reasons for its conclusions. It did not agree with the assumption in McNulty 
that punitive damages act as a deterrent to wrongful conduct and that such 
sanctions were effective. The court also observed that a policyholder's 
reasonable expectations would be that he would be protected against "all claims" 
including punitive damages claims. The court reasoned that there was not a clear 
dividing line between ordinary negligence and negligence of the type justifying 
an award of punitive damages, so that any denial on the basis of public policy 
would have to be necessarily arbitrary. The court questioned the wisdom of 
deciding a case on the basis of public policy unless the public policy was clear 
and unequivocal. The court concluded that the language of the insurance policy 
ought to be construed according to the ordinary rules of construction and 
interpretation without reference to public policy.

[¶25.]  To say, as we have said, that punitive 
damages is to punish a wrongdoer and serve as a warning and deterrent to others 
falls short of establishing a clear and unequivocal public policy which 
precludes insuring against punitive damages. Often there is a fine line between 
conduct justifying punitive damages and conduct not justifying such 
damages.

[¶26.]  In Danculovich v. Brown, supra, we 
carefully considered the relationship of "willful and wanton" misconduct to 
negligence in its varied degrees.

"The intent in willful 
and wanton misconduct is not an intent to cause the injury, but it is an intent 
to do an act, or an intent to not do an act, in reckless disregard of the 
consequences, and under such circumstances and conditions that a reasonable man 
would know, or have reason to know, that such conduct would, in a high degree of 
probability, result in substantial harm to another. [Citation.]" Id., at p. 
193.

The holding in 
Danculovich recognized the existence of a "claim" for punitive damages for 
willful and wanton misconduct in addition to a claim for compensatory damages 
for negligence. Consequently, where, as here, the insurance carrier has broadly 
defined coverage through its "all claims" clause, the insured has a reasonable 
expectation of coverage for its negligence and for its willful and wanton 
actions unless they are expressly excluded.

[¶27.]  An insurance policy to indemnify an 
insured for damages he is required to pay as a result of willful and wanton 
misconduct should not be regarded as contrary to public policy unless the fact 
of insurance coverage can be related in some substantial way to the commission 
of such wrongful acts. Isenhart v. 
General Casualty Company of America, 233 Or. 49, 377 P.2d 26 (1962). We know 
of no studies, statistics or proofs which indicate that contracts of insurance 
to protect against liability for punitive damages have a tendency to make 
willful or wanton misconduct more probable, nor do we know of any substantial 
relationship between the insurance coverage and such misconduct. Neither is 
there any indication that to invalidate insurance contracts that protect against 
liability for punitive damages on grounds of public policy would have any 
tendency to deter willful and wanton misconduct.

[¶28.]  The notion that the specter of punitive 
damages serves as a warning and deterrent is pure speculation. It has never been 
demonstrated, so far as we know, that a person has been deterred from willful 
and wanton misconduct because of the potential for punitive damages. Punishment 
is perhaps the only actual goal realized in a punitive damage award. First Bank (N.A.) - Billings v. Transamerica 
Insurance Co., 679 P.2d 1217 (Mont. 1984).

[¶29.]  Certified question 1(a) asks, "* * * Does 
Wyoming public policy prohibit the enforcement of punitive damages coverage * * 
* for vicarious liability of the insured as to punitive damages * * * on the 
basis of willful and wanton conduct?"

"In almost all 
jurisdictions which disallow insurance coverage for punitive damages, an 
exception is recognized for those torts in which liability is vicariously 
imposed on the employer for a wrong of his servant." Dayton Hudson Corporation v. American Mutual 
Liability Insurance Company, Okla., 621 P.2d 1155, 1160 
(1980).

[¶30.]  While the public policy arguments that 
exemplary damages serve to punish and deter are not so strong with respect to 
vicarious liability, we do not believe a limited holding is warranted in this 
situation. The basis for the imposition of vicarious liability for punitive 
damages upon a corporation or other employer is substantially the same for 
imposing liability on any wrongdoer, that is punishment, deterrent and warning. 
The presumptive deterrent is that an award of punitive damages will encourage 
the employer to exercise closer control over his employees or facilities. Campen v. Stone, Wyo., supra; and Harrell v. Travelers Indemnity Company, 
supra.

[¶31.]  We hold that it is not against the public 
policy of the State of Wyoming to insure against either liability for punitive 
damages imposed vicariously based on willful and wanton misconduct or personal 
liability for punitive damages imposed on the basis of willful and wanton 
misconduct. We answer certified questions 1(a) and (b) in the negative. The 
answer to these questions effectively answers the other questions 
certified.