In a ruling dated July 2, 2019, a panel of the New Orleans-based U.S. Court of Appeals for the Fifth Circuit rejected Cincinnati Insurance Company’s position that it did not owe coverage for exemplary damages in a drunk driving case because drunk driving is an intentional act and not an accident.  The first sentence of the Fifth Circuit’s opinion states: “Only an insurance company could come up with the policy interpretation advanced here.”

An injured plaintiff filed suit in Texas state court against the intoxicated defendant driver, Carlos Sanchez, and his employer. The Texas jury found the defendant driver and his employer jointly and severally liable for $137,025 in compensatory damages. It further assessed $207,550 in exemplary damages against the drunk driver for his gross negligence.

After the trial, Cincinnati agreed to pay the compensatory damages but not the exemplary damages. The insurer alleged: (1) Sanchez was not a covered “insured” at the time of the collision; (2) Sanchez’s grossly negligent conduct could not result in a covered “accident”; (3) the exemplary damages award is uninsurable as a matter of contract and public policy; and (4) Cincinnati has no duty to indemnify Sanchez.

Plaintiff filed a separate suit against Cincinnati in state court and Cincinnati removed to federal court on the basis of diversity jurisdiction. (A separate suite was presumably required because unlike Louisiana, Texas does not allow direct actions against insurers in accident cases). Applying Texas law, the federal district court granted summary judgment on the basis that grossly negligent drunk driving is not an “accident” but an intentional act.

In a survey of the law, the Fifth Circuit found that no court in Texas – or anywhere else – had accepted such a coverage position from an insurer. The Fifth Circuit sent the case back to the district court for further consideration. It expressed no opinion on whether there is some other reason why the Cincinnati insurance policy might not provide coverage for the exemplary damage award. It remains to be seen whether Cincinnati will be on the hook for the exemplary damage award, but it will not escape payment on the basis that a drunk driving accident is not really an “accident.” As the Fifth Circuit held, to apply that interpretation of an insurance policy would betray the common meaning of the term “accident,” and it would subvert the reasonable expectations of policyholders and other drivers using Texas’s roadways. The case is Frederking v. Cincinnati Insurance Company, Docket No. 18-50536 in the U.S. Court of Appeals for the Fifth Circuit.