In a significant but not entirely novel ruling, the South Carolina Supreme Court recently held that South Carolina law does not require the pro rata apportionment of punitive damages between damages sustained for bodily injury and those sustained for property damage, under an auto policy. GEICO v. Poole, Opinion No. 27821 (July 5, 2018).
The Pooles, riding in a car owned by Jennifer Poole’s mother, were seriously injured when a drunk driver crossed the centerline and struck their vehicle. Jack Poole survived, but Jennifer Poole died days later as a result of her injuries. The Pooles sustained only $1250 in property damage.
The carrier for the at-fault driver tendered its limits, following which the carrier for the vehicle in which the Pooles were riding tendered its underinsured motorist (UIM) limits for bodily injury. Recovery was then sought from the Poole’s carrier, GEICO, which provided a split limits UIM policy – bodily injury coverage up to $100,000 per person and $50,000 property damage. GEICO tendered its maximum UIM coverage for bodily injury. Anticipating a significant punitive damages recovery, the Pooles made a demand for payment of property damage limits. GEICO refused and filed a declaratory judgment action in the United States District Court, seeking a determination it was not liable to pay any punitive damages pursuant to its UIM property damage coverage, reasoning the Pooles’ UIM damages resulted only from bodily injury.
Upon the filing of cross motions for summary judgment, the District Court certified the following question to the SC Supreme Court:
Under SC law, when an insured seeks coverage under an auto policy, must punitive damages be apportioned pro rata between damages sustained for bodily injury and those sustained for property damage under a split limits policy.
Significantly, the court’s answer to this question was no.
In support of its position, GEICO argued that because the insurance code allows for split limits policies, punitive damages must be allocated between damages for bodily injury and those for property damage; otherwise, failure to allocate punitive damages would effectively transform the split limits policy into a combined single limit policy. The Court rejected GEICO’s argument. Looking squarely to the statutory language addressing UIM coverage, the court emphasized the trigger for UIM coverage is an event that results in “damages,” which by definition includes both actual and punitive, that exceed the limits of coverage for the at-fault driver. The statutes do not further address the apportionment of punitive damages.
GEICO also argued the failure to allocate punitive damages is a violation of constitutional due process. The court likewise rejected this position. GEICO entered into a contract to provide UIM coverage, pursuant to which it was aware of its exposure to pay actual and punitive damages up to the contractual limit. Thus, there can be no argument relative to the propriety or foreseeability of punitive damages.
GEICO next argued the insurance contract required pro rata apportionment of punitive damages. The court chose not to address that argument, deferring to the district court and its ability to fully review the insurance contract as well as any testimony or documents relevant to any necessary interpretation thereof.
Finally, GEICO relied on a public policy argument, asserting it supports allocation. The court once again deferred, this time to the General Assembly.
Although the court was careful to note its mindfulness of the reasons for and enforceability of split limits policies, this opinion seems to call into question the application and perhaps even the viability of such policies. The court took the time to articulate a well-reasoned analysis of the underlying principles of punitive damages, upon which it relied in reaching its conclusion. Specifically, they are designed to punish a wrongdoer and to deter him and others from similar behavior. However, the court notes, they are also intended to provide a level of compensation to plaintiffs for the intentional violation of their private rights, separate and apart from compensatory damages. While actual damages can easily be determined to result from either bodily injury or property damages, punitive damages are not likewise distinguishable. Therefore, if punitive damages are not subject to apportionment based upon the limits of coverage for bodily injury and property damage, is the policy effectively converted to a single limit policy, as least as to the insurer’s exposure for punitive damages?
This author anticipates the effects of Poole will be varied and far-reaching, particularly where, as here, there is obviously reckless conduct by a defendant and some degree of property damage, albeit minimal. Insurers can likely expect more demands for payment of combined policy limits, and threats of bad faith actions in response to any rejection of those demands. Insurers - beware.