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Do Insurance Policies Cover Gross Negligence?

The simple answer is "maybe." To determine whether a particular insurance policy covers exemplary damages for gross negligence, the Texas Supreme Court has adopted a two-step process encompassing (1) the plain language of the policy and (2) public policy concerns.

In Texas, the analysis begins with the language of the specific policy at issue. Although the Texas Supreme Court has not yet issued guidance on what particular language must be present in a policy in order to incorporate or exclude coverage for exemplary damages, several appellate courts have.

For example, insuring agreements that, "provide for the payment of ... all sums which the insured shall become legally obligated to pay as damages because of ... bodily injury will include payment of punitive damages for gross negligence." The logic supporting this determination is that, in the absence of an express exclusion, the average person would assume the phrase "all sums which the insured shall become legally obligated to pay as damages" includes punitive damages.

In contrast, the 4th Court of Appeals of San Antonio delivered an opinion on November 15, 2017, explaining that policy language limiting coverage to "damages for bodily injury" does not cover punitive damages. According to the 4th Court of Appeals, "The plain meaning of 'bodily injury' is physical damage to a human being's body ... [and t]he plain meaning of 'damages' is a sum of money to compensate for an injury;" therefore, 'damages for bodily injury' is a "commitment to pay a sum of money as compensation in exchange as the equivalent of the physical damages to the injured person's body," not a commitment to make payments aimed at deterrence and retribution (i.e., exemplary damages).

If the plain language of the policy does not cover punitive damages, then the analysis ends there; however, if the court concludes that the policy at issue does provide coverage, the court must next evaluate "whether the public policy of Texas allows or prohibits coverage in the circumstances of the underlying suit."

As the Texas Supreme Court has noted, the Texas Legislature "is aware of and sensitive to issues of insurance coverage of exemplary damages" and has, in fact, specifically prohibited coverage of such damages in certain circumstances. For example, under Section 463.204(9) of the Texas Insurance Code, prohibits the Life, Accident, Health, and Hospital Service Insurance Guaranty Association from paying exemplary damages regardless of whether the parties have agreed to do so.

In contrast, the Texas Supreme Court has determined that "Texas public policy does not prohibit insurance coverage for claims of gross negligence" in the context of workers' compensation claims.

In the absence of clear direction from the Texas Legislature, courts will have to weigh various policy concerns in order to evaluate whether enforcement of a particular policy, which by its plain language provides coverage of exemplary damages, would violate Texas public policy. Such concerns include both (1) the strong policy favoring freedom of contract in Texas and (2) whether enforcement of coverage would frustrate the purpose of exemplary damages by allowing the burden of punitive damages to fall on the insurer rather than the tortfeasor.

Take- Aways:

Do not just assume that exemplary damages are covered by a particular insurance policy.

Determination of potential coverage requires careful analysis of the specific policy language at issue in the context of the policy as a whole.

Don't forget to evaluate the potential public policy concerns weighing for and against coverage.


Fairfield Ins. Co. v. Stephens Martin Paving, LP., 246 S.W.3d 653, 655 (Tex. 2008).

American Home Assurance Company v. Safeway Steel Products Company, Inc., A Division of Figgie International, Inc., 743 S.W.2d 693 (Tex.App. -- Austin 1987, writ denied); Home Indemnity Company v. Tyler, 522 S.W.2d 594 (Tex.App. -- Houston [14th Dist.] 1975, writ ref'd n.r.e.) and Dairyland County Mutual Insurance Company v. Wallgren, 477 S.W.2d 341 (Tex.Civ.App. -- Fort Worth 1972, writ ref'd n.r.e.) (emphasis added)

Farmers Texas County Mut. Ins. Co. v. Zuniga, 04-16-00773-CV, 2017 Tex. App. Lexis 10725, at *15 (Tex. App. - San Antonio Nov. 15, 2017).

Fairfield, 246 S.W. 3d at 655.

Id. at 658.

Id. at 660.

Id. at 663-70.

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