Court Opinion

ID: 9534905
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:43:29.034295+00
Date Added: 2024-06-11T13:33:07.185685
License: Public Domain

MONTGOMERY, Justice (concurring in part, dissenting in part). I concur with that portion of the Court’s opinion invalidating the clause in the insurance policy that requires costs of arbitration to be borne by the party incurring them; the clause conflicts with the statutory provision authorizing the arbitrator to award costs to the prevailing party. I dissent from the ruling that the policy exclusion for punitive damages violates the statute; the ruling effectuates neither the purpose of the uninsured motorist act nor the policy underlying an award of punitive damages, and it subverts the principle that insurance contracts, no less than other contracts, should be enforced according to their terms unless they contravene the law or public policy. As the majority says, the question is whether the legislature intended that punitive damages be recoverable from the insurer when it required in Section 66-5-301 that uninsured motorist coverage be afforded to insureds who are “legally entitled” to recover damages from uninsured motorists. This question ought not be answered by looking mechanically at whether or not the insured victim might be legally entitled to recover punitive damages from the tortfeasor; it ought rather to be answered by looking at the purpose of the statute’s requirement that uninsured motorist coverage be provided. It has been said that the purpose of the statute is to place the insured in the same position he would have been in had the tortfeasor had liability insurance. See, e.g., State Farm Mut. Auto. Ins. Co. v. Maidment, 107 N.M. 568, 572, 761 P.2d 446, 450 (Ct.App.1988). If Mr. Fullbright had had insurance and if his insurance had excluded liability for punitive damages, Mr. Stinbrink would not have been able to recover punitive damages from the insurer, even though he might have been awarded such damages against the tortfeasor.1 Under the majority’s ruling, Mr. Stinbrink can recover punitive damages from his insurer even though the tortfeasor had no insurance at all. This result seems unnecessary and inequitable. Of even greater significance is the inconsistency between the majority’s ruling and the purpose of awarding punitive damages in the first place. In both Stewart v. State Farm Mutual Automobile Insurance Co., cited in the majority opinion, and Baker v. Armstrong, supra note 1, the purpose of punitive-damage recovery was recognized as being punishment of the tortfeasor, not compensation of the victim. Stewart, 104 N.M. at 746, 726 P.2d at 1376; see Baker, 106 N.M. at 397-98, 744 P.2d at 172-73. In my view, we should not construe the statute to make coverage for punitive damages compulsory, because doing so dilutes the purpose of a punitive-damage award.2 Imposing punitive damages on the insurer shifts the deterrent effect from the culpable tortfeasor to the innocent insurer and provides a windfall to the insured in the face of the principle that punitive damages are not intended to compensate the plaintiff. See Baker, 106 N.M. at 397-98, 744 P.2d at 170-73 (quoting Northwestern Nat’l Casualty Co. v. McNulty, 307 F.2d 432, 440 (5th Cir.1962): “[T]here is no point in punishing the insurance company; it has done no wrong.”). It is no answer to this argument to say that the insurance company is only being required to provide the uninsured motorist coverage it contracted to pay — that a separate premium charge was assessed for this coverage and that the insurer agreed to pay “all sums” to which the insured might be legally entitled. In this case the insured and the insurer contracted to exclude punitive damages; their contract did not contemplate that such damages would be awarded. As for the premium, it compensated the insurer for the risk that an insured would be injured in an accident with an uninsured motorist; that risk was actuarily determined based on factors such as the frequency and amounts of claims. Under the majority’s decision the insurer’s risk is increased by adding exposure to claims that the parties did not contemplate. The effect presumably will be to cause premiums to rise, since now insurance companies cannot exclude these types of damages even if their policyholders agree. This has the effect, indirectly, of shifting the punitive-damage burden not only from the culpable tortfeasor to the innocent insurer but also from the latter to the premium-paying public, which ultimately must bear the costs of the gross negligence or wilful behavior of tortfeasors like Mr. Full-bright. I would confine an award of damages intended as punishment to the person who merits the punishment. While it is true that in Stewart this Court held that uninsured motorist coverage includes coverage for punitive damages, this holding was issued in a case in which the policy did not expressly exclude coverage for punitive damages, as does the policy in this case. The Court made it clear that it was construing the terms of the insurance policy in holding that there was no implied exclusion for punitive damages. See 104 N.M. at 747, 726 P.2d at 1377. Just as the Court did later in Baker, it ruled that the policy language covered liability for punitive damages and that such coverage was not only not prohibited by public policy, it was consistent with the uninsured motorist statute by responding to the insured’s reasonable expectations of coverage and affording coverage for all sums which the insured might be legally entitled to recover. In the present case, however, the policy expressly excludes such coverage, so there is no argument that the insured’s reasonable expectations are being frustrated. Unlike both Stewart and Baker, the issue in this case does not involve construing the insurance policy; it involves construing the statute to determine whether it requires coverage for punitive damages. To hold that the statute does so not only dilutes the purpose of awarding punitive damages; it does violence to what was referred to in Baker as a “weighty policy consideration”: “the right of a person and his or her insurer to freely contract for [and, I submit, against] insurance against an adjudication of [punitive-damage] liability * * 106 N.M. at 398, 744 P.2d at 173. Since the majority gives only lip-service to this right and ignores other pertinent policy considerations, I respectfully dissent.  . No decision of which I am aware holds that an insurer cannot exclude liability for punitive damages under a liability insurance policy. Until Baker v. Armstrong, 106 N.M. 395, 744 P.2d 170 (1987), the issue was just the opposite: whether public policy would even permit coverage for punitive damages; no one argued that the law or public policy required such coverage. Baker held that public policy did not prohibit an insurer from insuring against punitive-damage liability and that, when an insurance policy was silent on the subject, it would be construed to afford coverage. In dictum, the Baker plurality said: "While [the insurer] could have contracted to exclude punitive damages, it did not do so by the language it chose to use.” 106 N.M. at 396, 744 P.2d at 171 (emphasis added).   . I realize that Stewart and Baker say that this dilutive effect may not exist because the insurer can always sue the tortfeasor for recovery of the punitive damages and thereby implement the policy of visiting punishment on the party guilty of culpable behavior. However, I believe this notion — that the insurance company will carry out the law’s purpose in seeking redress for the tortfeasor’s wrongful conduct by suing him or her in subrogation — is largely fictional. Such a suit will occur only in the rare instance when the tortfeasor has sufficient assets to satisfy a punitive-damage award, which the tortfeasor almost never will if he or she lacks insurance coverage.