Facts
- John T. Harrell was injured in an automobile collision caused by Mrs. Linnie Ames, whose conduct supported an award of punitive damages.
- In the underlying tort action, a jury awarded Harrell $70,000 compensatory damages and $25,000 punitive damages against Mrs. Ames.
- Travelers Indemnity Company insured the liability risk under an automobile policy covering “all sums” the insured becomes legally obligated to pay “as damages because of bodily injury” arising from use of an automobile.
- The policy contained multiple exclusions but none expressly excluded punitive damages.
- Travelers paid the compensatory judgment but refused to pay the punitive judgment.
- Mrs. Ames assigned to Harrell her rights against Travelers, and Harrell sued Travelers to collect the unpaid punitive damages on stipulated facts.
Issues
- Whether policy language promising to pay “all sums” the insured is legally obligated to pay “as damages because of bodily injury” includes punitive damages awarded in a bodily injury action when no exclusion expressly bars such damages.
- Whether, even if covered by the policy’s terms, insurance coverage for punitive damages is unenforceable as contrary to Oregon public policy.
Decision
- The Oregon Supreme Court reversed the trial court.
- The court held the policy’s broad “all sums … as damages because of bodily injury” language covered punitive damages in the absence of an express exclusion.
- The court held enforcement of punitive-damages coverage was not barred by Oregon public policy absent a clear legislative or judicial prohibition.
- Travelers was obligated to pay the $25,000 punitive damages judgment.
Legal Principles
- Broad liability-insurance language covering “all sums” the insured is legally obligated to pay “as damages because of bodily injury” may include punitive damages when the award arises from the bodily injury claim and the policy does not expressly exclude punitive damages.
- Courts will not imply an exclusion for punitive damages where the insurer drafted specific exclusions but omitted any punitive-damages exclusion.
- Public policy invalidates contractual coverage only when there is a clear, established prohibition; absent such authority, courts generally enforce the policy as written, even where damages serve punitive and deterrent purposes.
Conclusion
The court held that an automobile liability policy covering “all sums” payable as damages because of bodily injury, with no express punitive-damages exclusion, required the insurer to indemnify the insured for punitive damages, and that such coverage was not void on public policy grounds in Oregon.