Uninsured Coverage And Exemplary Damages

If a drunk driver hits someone from Bedford, Hurst, Euless, Granbury, Colleyville, Kellar, Fort Worth, Arlington, Grand Prairie, Dallas, or anywhere else in Texas, and the drunk driver does not have insurance, does the uninsured portion of an auto policy pay for the harm the drunk driver has caused? The answer is yes, and no.
Yes, the policy pays for some of the damages incurred because of the drunk driver. No, it does not pay for all the damages incurred by the drunk driver. Specifically, uninsured motorist coverage does not pay for exemplary damages.
The main Texas case on this issue is, Lolitha J. Milligan v. State Farm Mutual Automobile Insurance Company. This is a 1997, Houston Court of Appeals, 14th District, case.
The result of the case was the court’s determination that uninsured motorist coverage does not cover exemplary damages.
The facts in this case were not in dispute. Ms. Milligan was injured in an accident caused by an uninsured drunk driver. Both Ms. Milligan and State Farm Mutual agreed that the drunk driver’s conduct constituted gross negligence. The State Farm policy provided in relevant part as follows:
“We will pay damages which a covered person is legally entitled to recover from the owner or operator of an uninsured motor vehicle because of bodily injury sustained by a covered person, or property damage caused by an accident.”
The claim for actual damages was settled, but State Farm denied coverage for exemplary damages.
Milligan’s attorneys argued that, Texas Insurance Code, Section 1952.106, provides that uninsured motorist coverage includes “payment of all sums … as damages … because of bodily injury.” Therefore, Milligan is entitled to recover exemplary damages as a matter of law.
In discussing the law, the court recognized that uninsured motorist coverage is mandated by Texas Insurance Code, Section 1952.101. Specifically, the code provides that no auto liability policy can be issued without providing this coverage “in at least the limits described in the Motor Vehicle Safety-Responsibility Act …”
The Texas Transportation Code, Section 601.076, states that an insurer must pay to the insured “all sums which the insured shall become legally obligated to pay as damages … subject to limits … ” as set out in the law.
The court pointed out that the statutory definition of exemplary damages, found in Texas Civil Practices & Remedies Code, Section 41.001(5), as “any damages awarded as an example to others, as a penalty, or by way of punishment.” That exemplary damages are assessed both to punish a wrongdoer and to serve as a deterrent to future wrongdoers. Neither deterrence of wrongful conduct or punishment of the wrongdoer is achieved by imposing exemplary damages against an insurance company in this situation.
In this court’s decision, there was much discussion about how other courts have handled this matter and the reasoning behind the other courts decisions.
As the result of the decision reached in this case in 1997, there has not been a successful court ruling allowing recovery of exemplary damages in an uninsured mototist case. This is one of the few areas where it has been hard if not impossible, up to this point, to find an exception to the ruling handed down in this case.