Court Opinion

ID: 9711207
Source: CourtListenerOpinion
Date Created: 2023-08-26 04:26:23.093777+00
Date Added: 2024-06-11T18:23:02.816489
License: Public Domain

Levine, J.,

dissenting:
Swayed by what it terms “practical” considerations, the majority today holds that the public policy of this state does not bar enforcement of insurance contracts which permit defendants to obtain reimbursement for sums awarded as punitive damages in actions to redress intentional and quasi-intentional torts. In so doing, the Court has sub silentio dealt a death blow to the theory of exemplary damages *244applied in Maryland for well over a century.1 Because I believe such a radical transformation of the law of punitive damages to be both unsound and unwise, I respectfully dissent.
Whenever a contractual provision is asserted to be void as against public policy, it is the responsibility of the court to balance carefully the public and private interests in having the disputed promise implemented against those policies which would be advanced were the term held invalid. As we stated just this term in Maryland-National Capital Park and Planning Commission v. Washington National Arena, 282 Md. 588, 607, 386 A. 2d 1216 (1978):
“Enforcement will be denied only where the factors that argue against implementing the particular provision clearly and unequivocally outweigh the law’s traditional interest in protecting the expectations of the parties, its abhorrence of any unjust enrichment, and any public interest in the enforcement of the term.”
Among those factors militating against enforcement of a particular contract provision for reasons of public policy are: 1) the strength of the public policy as manifested by either legislation or judicial decisions; and 2) the likelihood that a refusal to enforce the disputed term will further the policy. Maryland-National Capital Park and Planning Commission v. Washington National Arena, 282 Md. at 607 n.8.2
*245The policies weighing against implementation of the insurance contract provision in the case at hand are those which underlie the doctrine of punitive damages, namely deterrence and punishment. In my opinion, these policies can only be promoted by denying enforcement of those insurance agreements which indemnify adjudicated intentional tortfeasors against liability for exemplary damages. A contrary result, such as that reached by the majority today, would in practical effect be tantamount to abolishing punitive damages altogether. Under these circumstances the countervailing dictates of public policy “clearly and unequivocally outweigh” the public and private interests in protecting the expectations of the contracting parties.
Punitive damages, as distinguished from compensatory or nominal damages, are sums awarded for reasons of public policy against a person to punish him for his outrageous behavior. Superior Construction Co. v. Elmo, 204 Md. 1, 14, 102 A. 2d 739, 104 A. 2d 581, 48 A.L.R.2d 932 (1954). Recently, this Court reiterated what has long been recognized as the two-fold purpose of awarding punitive damages in civil actions:
“The prinicpal historical justification for awards of punitive or exemplary damages in pure tort cases is that they operate to punish reprehensible and outrageous conduct and to set an example which will serve to deter the wrongdoer and others from engaging in such conduct in the future.” General Motors Corp. v. Piskor (II), 281 Md. 627, 638, 381 A. 2d 16 (1977) (emphasis added).
Accord, Wedeman v. City Chevrolet Co., 278 Md. 524, 531, 366 A. 2d 7 (1976); see generally!). Dobbs, Handbook on the Law of Remedies § 3.9, at 205 (1973). 3
*246If we assume, as our prior case law says we must, that the goals of punishing and deterring extreme and outrageous behavior are subserved by allowing punitive damages in appropriate cases, it follows inexorably that the burden of the penalty so assessed must be borne exclusively by the culpable party. The risk of such a loss thus cannot, consistent with the theory behind exemplary damage awards, be shifted to a third party, be it a surety, an insurance company or the public at large. See Butler v. United Pacific Ins. Co., 265 Or. 473, 509 P. 2d 1184, 1186 (1973) (holding on policy grounds that surety was not liable for punitive damages assessed against obligor). Were it otherwise, the admonitory function of punitive damages, see Morris, Punitive Damages in Tort Cases, 44 Harv. L. Rev. 1173, 1205 (1931), would be totally neutralized. Logic therefore demands. that individuals or enterprises directly responsible for the commission of outrageous injurious acts be prohibited from escaping the impact of an award of exemplary damages through the simple expedient of purchasing liability insurance.
“[T]he public policy against coverage is ... 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 civil punishment that punitive damages represent.” Northwestern National Casualty Co. v. McNulty, 307 F. 2d 432, 440 (5th Cir. 1962) (per Wisdom, J.).
Accord, American Surety Company of New York v. Gold, 375 F. 2d 523, 526 (10th Cir. 1966); Norfolk & W. Ry. Co. v. Hartford Acc. & Indem. Co., 420 F. Supp. 92, 95 (N.D. Ind. *2471976); American Insurance Co. v. Sauinier, 242 F. Supp. 257 (D. Conn. 1965); Crull v. Gleb, 382 S.W.2d 17, 23 (Mo. App. 1964); Esmond v. Liscio, 209 Pa. Super. 200, 224 A. 2d 793, 799 (1966) (allocatur denied).
Reduced to its essentials, the majority’s argument in favor of permitting insurance for punitive damage liability is founded on a noble but rather misplaced solicitude for the economic well-being of small businessmen.4 Focusing its attention on the tort of malicious prosecution, the majority, warns that a local proprietor could be “virtually wiped out by an assessment of exemplary damages,” even though he might have in good faith sworn out a criminal complaint against a suspected shoplifter, only to be confronted after trial with a jury finding that he lacked probable cause for the accusation. 283 Md. at 241.
In response to this contention, I must first point out that under the prevailing view punitive damages may only be awarded when the tortious conduct can be described as extreme or outrageous, similar to that usually found in crime. Restatement (Second) of Torts § 908, Comment b (Tent. Draft No. 19, 1973). Whenever a person comports himself in an outrageous manner and thereby causes injury to another, he exposes himself to the risk of liability for damages in excess of those necessary to compensate his victim. This holds true even for small businessmen whose conduct crosses the line into the realm of the reprehensible; they are entitled to no more or less protection than others who commit acts of a kind meriting the imposition of exemplary damages. Even though financial disaster may be the immediate consequence of a punitive damage award, there is no injustice in the eyes of the law, provided the punishment exacted reasonably corresponds to the gravity of the tortious conduct involved.
What troubles the majority is the fact that in malicious prosecution actions (and in those cases alone), it is possible under existing Maryland law for a plaintiff to recover *248punitive damages even though the defendant’s conduct, objectively viewed, is not truly extreme or outrageous. Our cases hold that punitive damages may always be awarded whenever the defendant is adjudged guilty of malicious prosecution, e.g., Safeway Stores, Inc. v. Barrack, 210 Md. 168, 176, 122 A. 2d 457 (1956), on the theory that the malice necessary to support an exemplary damage award is an element of the tort itself. See Siegman v. Equitable Trust Co., 267 Md. 309, 317, 297 A. 2d 758 (1972). While it is certainly true that malice must be shown in order to support an action for malicious prosecution, Cecil v. Clarke, 17 Md. 508, 524 (1861), such malice need not be separately proved, but may be inferred from a want of probable cause on the part of the defendant. Exxon Corp. v. Kelly, 281 Md. 689, 699-701, 381 A. 2d 1146 (1978). And where malice is inferred from a lack of probable cause, punitive damages may be recovered. Montgomery Ward & Co. v. Keulemans, 275 Md. 441, 448, 340 A. 2d 705 (1975). Clearly, a finding that a defendant instituted criminal proceedings against a plaintiff based on something less than probable cause does not necessarily mean that the defendant’s conduct in this regard was either extreme or outrageous.
As we have noted, the rule which permits recovery of exemplary damages without a showing of extreme reprehensible behavior is unique to the tort of malicious prosecution. Indeed, it would be accurate to describe it as an anomaly in the law of damages. Nevertheless, the majority would build upon this aberration to justify a broad-sweeping rule allowing persons to insure themselves against punitive damage awards in all tort cases where such damages are otherwise available. I find such a result utterly untenable.
If punitive damages are presently collectible in malicious prosecution cases for conduct that is substantially less than outrageous, the answer would be either to modify the present law by requiring a higher degree of offensiveness as a precondition to punitive damage recovery in such cases or to permit parties to insure against exemplary damages only in malicious prosecution actions, and then only where tort liability is predicated upon implied malice. Of these two *249alternatives, the former is to be preferred, since such an approach would insure that punitive damages would be assessed in all tort actions according to a uniform standard of culpability. Furthermore, limiting the recovery of exemplary damages to cases involving extreme or outrageous behavior would be most in keeping with the twin functions of punitive damage awards: punishment and deterrence.
The majority opinion also suggests that the deterrent effect of punitive damages will be preserved even though tortfeasors, under its holding, may now be indemnified for adverse punitive damage judgments. “This is so,” says the majority, “because those who are demonstrated by experience to be poor risks encounter substantial difficulty in obtaining insurance.” 283 Md. at 242. It is probably true that poor risks will be required to pay higher premiums to acquire the desired coverage and that this ostensibly will have a slight deterrent effect. But the impact of a hike in insurance premiums payable over the course of several months and probably deductible for income tax purposes, plainly will be far less than that caused by a lump sum judgment for which the defendant is solely responsible. It is precisely the threat of sudden and severe economic loss which lends credibility to the deterrence theory of punitive damages.5
Finally, the majority makes much of the fact that the General Assembly has n.ever acted to prohibit insurers from providing liability coverage against punitive damage awards. It would appear to be the majority’s position that in order for a court to strike down punitive damage insurance as void against public policy, the Legislature must have first voiced its objection to such coverage expressly or by clear implication.
*250To my knowledge, no such limitation on the public policy doctrine has ever been adopted by this Court. Rather, our cases teach that in seeking to define the scope of a particular public policy, courts may refer to various diverse sources, including, in particular, judicial opinions. Maryland-National Capital Park and Planning Commission v. Washington National Arena, supra, 282 Md. at 605-06. Public policy is not derived exclusively from constitutional provisions and legislative enactments. Reference to judicial opinions is especially appropriate, even necessary, where the controversy centers around the proper application of a doctrine like punitive damages, which is first and foremost a common law rule based on policies identified and explicated by the judiciary.
The decisions of this Court have consistently and wholeheartedly affirmed and reaffirmed the doctrine of punitive damages and the policies of deterrence and punishment upon which it is founded. That the Legislature has not sought to intervene in this area of the common law indicates to me its willingness to allow the courts to continue to control the evolution of the law of punitive damages. Thus, whether or not to allow private persons to insure themselves against punitive damages, involving, as it does, the proper application of judicially defined policies, is a question squarely within the competence of the courts to resolve.
For these reasons, I would hold that the expectation interests of the parties to the insurance contract in dispute here are clearly and unequivocally outweighed by the important public policies underlying the law of punitive damages in tort cases. The trial judge, in my opinion, acted correctly in denying appellant’s claim for indemnification on the grounds that the agreement, to the extent that it insured against liability for punitive damages, offended the public policy of this state.

. Although punitive damages have been recognized by the common law since the mid-eighteenth century, Huckle v. Money, 2 Wils. 205, 207 (K.B. 1763), the first Maryland decision expressly recognizing the doctrine was handed down in 1857. Gaither v. Blowers, 11 Md. 536, 552-53 (1857).

. Adopting in major part the recent proposal of the American Law Institute, Restatement (Second) of Contracts § 320 (Tent. Draft No. 12, 1977), this Court in Maryland-National Capital Park and Planning Commission v. Washington National Arena, 282 Md. 588, 386 A. 2d 1216 (1978), endeavored to reduce the vagaries of the common law approach to illegality by applying a more structured analytical framework to the resolution of public folicy challenges. In the present appeal, the major-its has, for some reason, completely ignored the principles laid down in the Arena decision, resurrecting instead an ill-defined century-old standard articulated in Estate of Woods, Weeks & Co., 52 Md. 520, 536 (1879) (an agreement violates public policy only when “the common sense of the entire community would ... pronounce it” invalid). Why *245the majority deems it necessary to abandon controlling authority barely two months old in favor of such outmoded and patently inadequate precedent defies explanation and, furthermore, contravenes the principle of stare decisis.

. Aside from punishment, and deterrence, exemplary damages may also serve to channel a plaintiff's anger from retaliating against a defendant when the tortious act injures his dignity more than his pocketbook, or they may simply reflect social outrage apart from any remedial purpose. Harrell *246v. Travelers Indemnity Co., 279 Or. 199, 567 P. 2d 1013, 1029 (1977) (Linde, J., dissenting). See Morris, Punitive Damages in Tort Law, 44 Harv. L. Rev. 1173, 1198 (1931).

. The majority’s preoccupation with the plight of the small business community is somewhat surprising considering the fact that the tortfeasor in this case is one of southern Maryland’s leading banking institutions and thus hardly qualifies as a small business.

. The deterrent function of punitive damage awards should not be overestimated. One who acts out of anger or hate in committing an assault, for example, is' not apt to be deterred by a fear of exemplary damages. Wedeman v. City Chevrolet Co., 278 Md. 524, 532, 366 A. 2d 7 (1976). On the other hand, where, as here, a tortfeasor engages in intentional misconduct pursuant to a well-defined corporate policy, such a defendant is more likely to pause and consider the consequences if made aware that it may be liable to pay more than the actual loss sustained by potential victims. See id.