Recently, the United States District Court for the Western District of Texas granted summary judgment in an indemnification matter addressing insurance coverage for an insured against whom punitive damages were assessed in a personal injury suit. In Richard Brett Frederking v. Cincinnati Ins. Co., No. SA-17-CV-651-XR, 2108 WL 1514095 (W.D. Tex. Mar. 27, 2018), Frederking filed suit when Cincinnati denied payment as a third party beneficiary after he prevailed in a suit against Cincinnati’s insured, Sanchez. The court found that Sanchez’s gross negligence in driving while intoxicated and causing the underlying collision did not constitute a covered “accident” or “occurrence” as defined in the underlying policies and granted Cincinnati’s summary judgment.

In September 2014, Frederking suffered serious injuries in an auto collision with Sanchez while Sanchez operated his employer’s vehicle. Sanchez was arrested following the accident and eventually pled guilty to driving while intoxicated. Frederking sued Sanchez and Sanchez’s employer, Advantage Plumbing, for negligence, gross negligence, respondeat superior and negligent entrustment. Cincinnati Insurance defended Sanchez and Advantage Plumbing under a reservation of rights and the trial court eventually granted Advantage Plumbing summary judgment on the claims of respondeat superior as Sanchez was not acting in the course and scope of his employment at the time of the accident. The jury ultimately found Sanchez negligent and grossly negligent for his actions and Advantage Plumbing negligent under the theory of negligent entrustment. The jury awarded Frederking both compensatory and punitive damages.

After unsuccessfully attempting to collect the punitive damages from Cincinnati, Frederking filed this action for breach of contract on the underlying policy. Cincinnati denied Sanchez was operating the vehicle with Advantage Plumbing’s permission at the time of the accident and denied its obligation to pay the punitive damages under the policy. Cincinnati filed summary judgment asserting it had no duty to indemnify Sanchez for the remaining punitive damages.

The court noted an insurer’s duty to indemnify is triggered by the underlying facts of a loss event and in determining whether the damages established at trial are covered by the policy terms, the court considers: (1) whether the language of the policy covered the exemplary damages; and (2) if coverage is established, whether public policy allows or prohibits coverage based on the underlying facts, including legislative provisions.

Reviewing the policy language, the court found Sanchez’s collision was the natural and expected result from a driver operating a vehicle while intoxicated and therefore did not constitute a covered “accident” or “occurrence” under the policies. The policies at issue did not define accident specifically (other than as a continuous or repeated exposure to conditions resulting in bodily injury or property damage) therefore the court applied the term’s plain meaning. Accordingly, the court followed established jurisprudence finding a deliberate act or an act where the resulting damage is the natural and expected result from an insured’s actions does not constitute an “accident.” The court concluded that Sanchez intentionally became intoxicated and operated a vehicle and therefore the ordinary events stemming from those actions did not constitute an “accident” or “occurrence” under the policies. Ultimately, the court held, because Cincinnati was only required to indemnify for an “accident” or “occurrence,” Cincinnati had no duty to indemnify for the punitive damage awards and granted Cincinnati’s summary judgment.

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