State Farm Mutual Insurance v. Blevins

H. Brown, J. This case presents two issues. First, what is the scope of the arbitrators’ power to award damages under the insurance contract? Second, did the arbitrators exceed their power by awarding punitive damages? I The power of Ohio courts to review an arbitration is defined by R.C. 2711.10, which states: “In any of the following cases, the court of common pleas shall make an order vacating the award upon the application of any party to the arbitration if: a * * * “(D) The arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” (Emphasis added.) We have held that “R.C. 2711.10 limits judicial review of arbitration to claims of fraud, corruption, misconduct, an imperfect award, or that the arbitrator exceeded his authority.” Goodyear Tire & Rubber Co. v. Rubber Workers Local 200 (1975), 42 Ohio St. [167] 2d 516, 71 O.O. 2d 509, 330 N.E. 2d 703, paragraph two of the syllabus. In the case before us, appellee claims that the arbitrators exceeded their powers by awarding punitive damages. An arbitrator’s powers are “limited by the bounds of the agreement from which he draws his authority.” Internatl. Bhd. of Electrical Workers, Local 1400 v. Citizen’s Gas & Coke Utility (Ind. App. 1981), 428 N.E. 2d 1320, 1326. The arbitrator has no authority to decide issues which, under their agreement, the parties did not submit to review. Our task is to determine whether the insurance policy, which is the contract between the parties, grants the power to award punitive damages. II The issue of whether uninsured motorist coverage (required by R.C. 3937.18) extends to punitive damages was considered in Hutchinson v. J.C. Penney Cas. Ins. Co. (1985), 17 Ohio St. 3d 195, 17 OBR 432, 478 N.E. 2d 1000. We begin our discussion with a review of that case. In Hutchinson the insurance policy covered “damages which a covered person is legally entitled to recover from the owner or operator of an uninsured motor vehicle because of bodily injury * * (Emphasis added.) Id. at 197, 17 OBR at 434, 478 N.E. 2d at 1002. An arbitration panel awarded the plaintiff compensatory and punitive damages for injuries caused by an uninsured motorist, and the defendant insurer applied for an order vacating the award on the ground that the arbitrators exceeded their powers. Id. at 196, 17 OBR at 433, 478 N.E. 2d at 1001-1002. This court found that the uninsured motorist provision at issue was ambiguous, and should be construed liberally in favor of the plaintiff. Id. at 198, 17 OBR at 434, 478 N.E. 2d at 1003. Applying principles of liberal construction, we found “that punitive damages are the type of damages which a party would be legally entitled to recover from an uninsured motorist where the facts and circumstances of the particular case warrant such an award. By structuring the language of the uninsured motorist provision as it did, the defendant insurance company has agreed * * * to stand in the shoes of the tortfeasor and pay those damages which the insured would have been able to recover * * * if she had sued the uninsured motorist herself.” Id. at 198, 17 OBR at 435, 478 N.E. 2d at 1003. Accordingly, we held that “[a]s a matter of public policy, and in the absence of specific contractual language to the contrary, punitive or exemplary damages may be awarded to an insured under an uninsured motorist provision, where the issuer of the policy agrees to 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 and caused by an accident.” Id. at paragraph two of the syllabus. The policy interpretation made in Hutchinson was controversial.3 The dissent argued that our holding “ignored the well-founded rationale underlying punitive damages and instead [168] * * * provided an enhanced reward to an adequately compensated party solely for reward’s sake.” Id. at 201, 17 OBR at 437, 478 N.E. 2d at 1005. The purpose of punitive damages is to punish the offending party and make the offender an example to others so that they might be deterred from similar conduct. Detling v. Chockley (1982), 70 Ohio St. 2d 134, 24 O.O. 3d 239, 436 N.E. 2d 208. In accord with this purpose, Ohio law has long disfavored insurance against punitive damages resulting from the insured’s own torts. Casey v. Casey (1987), 40 Ohio App. 3d 83, 531 N.E. 2d 1348; Willowick Towers Investment Co. v. General Ins. Co. of America (Sept. 22, 1980), Lake App. No. 7-239, unreported; Troyer v. Horvath (1983), 13 Ohio App. 3d 155, 13 OBR 189, 468 N.E. 2d 351; see, also, Prosser & Keeton, Law of Torts (5 Ed. 1984) 13, Section 2 (purpose of punitive damages would be frustrated by permitting insurance to indemnify the wrongdoer). However, uninsured motorist coverage insures against the tortious acts and financial irresponsibility of persons other than the insured. See, generally, Woodroof, Fonseca & Squillante, Automobile Insurance and No-Fault Law (1974) 186-187, Section 7.1-7.3. Thus, the policy against insulating the tortfeasor from the consequences of his wrongful acts is not violated by our holding in Hutchinson. The Hutchinson court reasoned that the deterrent effect of punitive damages was preserved because “the defendant insurance company may subrogate and bring an action against the tortfeasor for the full measure of damages that it agreed to indemnify plaintiff, its insured.” Hutchinson, supra, at 198, 17 OBR at 435, 478 N.E. 2d at 1003. While this is true in theory, the economic reality is that many uninsured motorists are judgment-proof. Thus the insurer will often not recover punitive damages from the tortfeasor. More likely, the insurer will raise premiums and pass the loss on to financially responsible consumers. Comment, Ohio’s Uninsured Motorist Coverage — Should the Legislature Re-examine the Statute? (1986), 15 Cap. U. L. Rev. 325, 340-341; Note, Uninsured Motorist Insurance Now Covers Punitive Award — Hutchinson v. J.C. Penney Casualty Insurance Company (1985), 19 Akron U. L. Rev. 325, 332. The practical effect is to “punish” the wrong party. We find no reason to conscript insurers into an unwitting commitment to provide coverage for punitive damages. Yet that is what the Hutchinson holding does. Accordingly, we overrule the second paragraph of the syllabus in Hutchinson and hold that in the absence of specific contractual language, coverage for punitive or exemplary damages will not be presumed under a provision for uninsured motorist coverage. Because of this holding, we need not consider whether the retroactive application of the post-Hutchinson amendments to R.C. 3937.18 is unconstitutional.4 [169] Ill Our final task is to examine the policy at issue to determine whether the arbitrators had the power to award punitive damages. The uninsured motorist provision of the policy promises to pay damages “for bodily injury.” This provision clearly limits the insurer’s liability to compensatory damages for personal injury. It is not a contractual undertaking to insure against punitive damages. Further, the phrase “for bodily injury” is narrower than the language “because of bodily injury” at issue in Hutchinson. Under no construction can the language “for bodily injury” be read to include punitive damages. Punitive damages are not awarded for bodily injury. Hence, even under the Hutchinson rule, punitive damages would not be covered. The only damages which the arbitrators had the power to award were those covered by the insurance policy. The policy coverage is limited to compensatory damages “for bodily injury.” Accordingly, we hold that the arbitrators exceeded their power when they made an award for punitive damages. The judgment of the court below is affirmed. Judgment affirmed. Moyer, C.J., Holmes, Wright and Resnick, JJ., concur. Sweeney, J., dissents. Douglas, J., dissents without opinion. Footnotes [3] The law review commentaries sharply criticized the decision. See Recent Case, Uninsured Motorist Insurance Now Covers Punitive Award (1985), 19 Akron L. Rev. 325, 336 (Hutchinson “reached a bizarre result”); Comment, Ohio’s Uninsured Motorist Coverage — Should the Legislature Re-Examine the Statute? (1986), 15 Cap. U. L. Rev. 325 (advocating legislative action to reverse Hutchinson). [4] In response to Hutchinson, see Comment, supra, at 325, the General Assembly passed Am. S.B. No. 249 (141 Ohio Laws, Part I, 249), effective October 14, 1986. The Act added a new division (I) to R.C. 3937.18, the uninsured motorist statute, which read: “Coverages written under division (A) of this section do not include the payment of punitive damages.” Section 3 of the Act made the amendment expressly retroactive: “The General Assembly hereby declares that in * * * [the most recent amendment of R.C. 3937.18 prior to Hutchinson] it was assumed that the legal principles op [169] posed to authorization for insurance that would indemnify a person for conduct leading to the award of punitive damages were so well established that it was unnecessary to negate such an intention. Such being the case, no. claim for punitive damages under coverage written pursuant to section 3937.18 of the Revised Code shall be paid after the effective date of this act unless a judgment to that effect had been rendered prior to such effective date and is no longer subject to the determination of an appeal after such date.” The General Assembly amended the statute again, after the arbitral award was rendered in the instant case, but while it was still pending in the court of appeals. H.B. No. 1, effective January 5, 1988, replaced R.C. 3937.18(1) with R.C. 3937.182 (B), which provides: “No policy of automobile or motor vehicle insurance that is covered by sections 3937.01 to 3937.17 of the Revised Code, including, but not limited to, the uninsured and underinsured motorists coverage in such a policy as required by section 3937.18 of the Revised Code, * * * shall provide coverage for judgments or claims against an insured for punitive or exemplary damages.”