Panel to Decide If Car Insurer Can Dodge Punitive Damages

HOUSTON (CN) – “Is the term drunk-driving accident an oxymoron?” one judge asked Tuesday as a Fifth Circuit panel considered when a car wreck is intentional or accidental in a case that could transform insurance coverage in Texas.

A crashed car

At issue is $207,000 in punitive damages a Bexar County jury ordered Carlos Sanchez to pay Richard Frederking for a September 2014 accident in which Sanchez failed to yield at a San Antonio intersection and crashed his company vehicle into Frederking’s car.

Sanchez, who had just left a bar, fled the scene. But police found him shortly thereafter and arrested him for driving under the influence. He pleaded guilty.

Frederking sued Sanchez and his employer Advantage Plumbing Services. A jury ordered them to pay him $137,000 in compensatory damages, and for Sanchez to pay an additional $207,000 in punitive damages because it determined he had acted with gross negligence.

Cincinnati Insurance Company covered the compensatory damages for Advantage, but refused to pay the punitive damages and it defended that position with a novel argument.

There is no coverage, the insurer claimed, because Sanchez’s actions were not accidental, they were a “natural and expected result” of him driving while intoxicated.

Furthermore, Cincinnati Insurance said the fact that Sanchez was found liable for gross negligence backs its claim his actions were intentional.

Sanchez had “actual, subjective awareness of the risk involved, but nevertheless proceeded with conscious indifference to the rights, safety, or welfare of others,” the insurer states in court documents, citing the Texas statutory definition of gross negligence.

U.S. District Judge Xavier Rodriguez agreed. In March 2018, the San Antonio federal judge dismissed with prejudice Frederick’s breach of contract claim against Cincinnati for failure to pay the punitive damages.

“Even if the collision and injury were unexpected and unintended, the results of Sanchez driving while intoxicated are not caused by an ‘accident,’” wrote Rodriguez.

Frederking appealed to the Fifth Circuit. A three-judge panel heard arguments Tuesday at the Houston federal courthouse.

Seated between her two colleagues on the bench in the wood-paneled courtroom, tilting her head and frowning as she took in the arguments, U.S. Circuit Judge Edith Jones led the hearing.

“I always assumed that if a drunk driver hits you it’s an accident, but you’re saying if you can get to trial and prove there’s gross negligence, there’s no accident?” she asked Cincinnati Insurance’s attorney George Lankford, with the Dallas firm Fanning Harper Martinson Brandt & Kutchin.

Jones, a Ronald Reagan appointee, posed a hypothetical: Suppose a person with bad eyesight gets a family-emergency phone call and has to venture out on the road without glasses?

U.S. Circuit Judge Andrew Oldham jumped in. “Is it an accident if someone is texting and causes a wreck?”

“No,” Lankford said.

“Is it an accident if they are driving tired after a long day at work, or putting on makeup?” Oldham asked.

“So now you’re getting into a gray area,” Lankford replied.

Oldham shot back, “So there’s a gray area between putting on makeup and driving tired?”

What about a pregnant woman driving to the hospital and she gets in a wreck, Oldham asked.

“Well hopefully it’s the husband,” Jones said, drawing laughs from the sparse crowd in the gallery.

Lankford dug in. He said all the scenarios Oldham posed would be sufficient reasons to define a wreck as intentional, not an accident.

U.S. Circuit Judge James Ho – like Oldham, a Donald Trump appointee – cut to the thick: “Is the term drunk-driving accident an oxymoron?” he asked.

“Potentially yes,” Lankford said.

Jones asked Lankford if he could name any case similar case from around the nation, not just within the Fifth Circuit’s jurisdiction.

“No,” he said.

“Don’t you think that demonstrates that this is a novel approach by an insurer to deny coverage for punitive damages caused by a drunk driver?” Jones said.

She added, “It amazes me that there’s no precedent.”

Frederking’s attorney Kyle Schnitzer, with the Houston firm Jim Adler & Associates, echoed Jones’ concerns. 

He said if the “conscious indifference” requirement for gross negligence always precluded a wreck from being an accident under Texas law, every insurance policy that used the term would be offering “illusory coverage.”

Jones asked if the Fifth Circuit should certify the question for the Texas Supreme Court. “Because you’re asking us to make a decision that is extremely consequential to insurance in Texas,” she said.

The judges did not say when they would issue a ruling.

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