Southern Farm Bureau Casualty Insurance v. Daniel

440 S.W.2d 582, 246 Ark. 849, 1969 Ark. LEXIS 1318

• Court: Supreme Court of Arkansas
• Decided: May 5, 1969
• Docket: 5-4903
• Status: Published

Opinions

Conley Byrd, Justice.

The issues here are (1) whether punitive damages arising out of an accident are recoverable within the terms of appellant Southern Farm Bureau Casualty Insurance Company’s automobile liability policy, and (2) whether such recovery is contrary to the public policy of the state of Arkansas. It is stipulated that as a result of an automobile accident between Larry White and appellee Bichard A. Daniel, the jury returned a verdict for Daniel in the amount of $7,000 compensatory damages and $5,000 punitive damages. The policy in question, a comprehensive automobile policy, provides as follows :

"To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages:

“Coverage A. Because of bodily injuries sustained by any person, and

“Coverage B. Because of injury to or destruction of property, caused by accident and arising out of ilie ownership, maintenance, or use of any automobile, including loading- and unloading thereof.”

So far as our research reveals, this is the first time this issue has come before this court. Cases from other jurisdictions can be found holding both ways, see American Surety Co. of N. Y. v. Gold, (10th Cir. 1966), 375 F. 2d 528, 20 A.L.R. 3rd 335. Those courts which accentuate heavily the punishment aspect of punitive damages hold that it is against public policy to permit them to be recovered, Northwestern National Casualty Company v. McNulty, (5th Cir. 1962), 307 F. 2d 432. Other courts point out that the line of demarcation between a jury’s allowance of punitive damages and compensatory damages is too thin and exacting to apply coverage in the one case and deny coverage in the other. Such courts, Lasenby v. Universal Underwriters Ins. Co., 214 Tenn. 639, 383 S.W. 2d 1 (1964), place much less emphasis on the punishment aspect of punitive damages and permit a recovery under language similar to that involved here. They point out that there is nothing to prevent the insurer from ¡excluding the payment of punitive damages by appropriate policy provisions.

Our cases, Kroger Grocery & Baking Co. v. Reeves, 210 Ark. 178, 194 S.W. 2d 876 (1946), hold that there can be no recovery for punitive damages unless actual damages are suffered and assessed. Such damages have been defined as damages imposed by way of punishment and as those given or awarded in view of the supposed aggravation of the injury to the feelings of the plaintiff by the wanton or reckless conduct of the defendant, Erwin v. Milligan, 188 Ark. 658, 67 S.W. 2d 592 (1934). Punitive damages are awarded upon a showing of gross and wanton negligence, Holmes v. Hollingsworth, 224 Ark. 347, 352 S.W. 2d 96 (1961), and recovery thereof has been permitted against an employer for acts or admissions of an employee even though such acts were done without the employer’s knowledge or authorization and were not subsequently ratified by him, Miller v. Blanton, 213 Ark. 246, 210 S.W. 2d 293 (1948).

As we read the policy herein it agrees to pay oil behalf of the insurer all sums which the insured shall become LEGALLY OBLIGATED TO PAY AS DAMAGES, because of bodily injuries sustained. When we consider that under our law, one cannot become legally obligated to pay punitive damages unless actual damages have been sustained and assessed, we find that punitive damages constitute a sum which the insured becomes legally obligated to pay as damages because of bodily injuries sustained, see Carroway v. Johnson, 245 S.C. 200, 139 S.E. 2d 908 (1965).

Neither can we find anything in the state’s public policy that prevents an insurer from indemnifying its insured against punitive damages arising out of an accident, as distinguished from intentional torts. Since we have permitted punitive damages to be assessed against an employer under the doctrine of respondeat superior even in the absence of the employer’s knowledge or authorization of the employee’s acts, we can perceive of no good reason why an employer should be prohibited from insuring himself against such losses, since the losses are in effect a business loss — i.e., a calculated risk of doing business.

Ft lias been suggested that our decision herein should be controlled by Arnold v. State, 220 Ark. 25, 245 S.W. 2d 818 (1952), wherein we held that a surety on a sheriff’s bond was not liable for punitive damages. We find that this ease is not controlling because such bonds are executed pursuant to statute and cover only the damages set forth in the statute. See Maryland Casualty Co. v. Baker, 304 Ky. 296, 200 S.W. 2d 757 (1947).

Affirmed.

Foulkman and Jones, JJ., dissent.