A Mississippi Supreme Court ruling that reversed a lower court ruling on mandating punitive damage coverage is finding favor with the insurance industry. A national trade association, the Property Casualty Insurers Association of America (PCI), praised the state’s high court for reversing the ruling that required automobile liability policies to cover punitive damages.
Flowood insurance agent Chris Hidalgo, who’s a member of PCI, said, “We like the decision because it upholds contracts and that’s an essential part of the insurance industry. This decision keeps the integrity of contract law. A lot of people in the industry felt it was an attack on contract law.”
Hidalgo, who’s been in the business 21 years, said the focus of the case was on a punitive damage exclusion. If the lower court’s ruling mandating punitive damage coverage had been allowed to stand, it would have had a widespread effect.
“Who’s to say it wouldn’t carry over into other things?” he asked. “It would make it difficult to write policies and difficult to assess risks and cover these damages.”
Richard Davis of Quitman, president of the Association of Independent Agents of Mississippi, says the ruling is favorable for the insurance industry. “I think everyone is pleased to hear it and a lot of companies are glad to see it,” he said. “This ruling returns this issue to the insurance commissioner where it belongs.”
He said punitive damages coverage was not often a part of personal automobile policies but was a problem for companies with fleets of vehicles. “A punitive damages mandate would have made it difficult for large fleets, sometimes making it almost impossible to get insurance,” the president of the 240-member association said. “But, it can affect everyone.”
Davis added that anyone purchasing automobile insurance can purchase add-on coverage for punitive damages as they can for other coverage not mandated. Punitive means to punish. Hidalgo said punitive damage usually involves driving under the influence and puts the insurance industry in the business of punishing these breaches of law.
“I think most carriers were watching this case with interest,” he said. “It keeps Mississippi in line with other states on this issue and gives consumers a choice. Consumers have the right to choose whether or not they want this coverage.”
William Stander, a regional manager with PCI, says the reversal has been a long time coming. “If the insurance industry punishes punitive damages, it shields reckless drivers,” he said. “It’s hard to put a price on punitive damages because you don’t know what juries will award. It would have increased the cost of auto insurance policies.”
He added that he gets the feeling from member companies that the ruling is a genuine victory for common sense.
Robert Hurns, counsel for PCI, said, “The Supreme Court correctly ruled that coverage for punitive damages should be based on the specific terms of the insurance policy. This is an essential legal principle for the insurance industry. However, ignoring the terms of a contract not only sets a very dangerous precedent for insurance policies, but also for all contracts used by every business.”
This case, Shelter Insurance Cos. v. George Dale, commissioner of the Mississippi Department of Insurance, stems from a 2002 Department of Insurance ruling that Shelter could not exclude coverage for punitive damages in the liability portion of its automobile policies. Dale based his decision on an opinion issued by the state Attorney General’s Office. Shelter challenged the department’s action and then appealed the ruling made by the Chancery Court of Hinds County to the state Supreme Court.
The Supreme Court determined that the Department of Insurance and the lower court misinterpreted Mississippi case law. It ruled six to two that state law does not prevent Shelter from excluding coverage for punitive damages. The court clarified its earlier decisions on this issue by saying that state law does not require coverage nor does it prohibit insurers from excluding coverage for punitive damages.
“The court has brought Mississippi back into the mainstream regarding this issue,” Hurns said. “If the ruling had been allowed to stand, Mississippi would have been the only state in the nation to mandate automobile insurance to cover punitive damage awards.”
He added that this case is an issue that should be determined by the insurance company and the consumer.
“Allowing insurers to offer or exclude punitive damage coverage gives the consumer options regarding the coverage they want to purchase and how much they want to pay for insurance,” he said.
PCI is composed of more than 1,000 member companies, representing the broadest cross section of insurers of any national trade association. Its members write over $184 billion in annual premiums, 40.7% of the nation’s property/casualty insurance.
Contact MBJ contributing Lynn Lofton at email@example.com.