Austin, Texas (February 20, 2008) - On February 15, 2008, the Texas Supreme Court ruled that Texas public policy does not bar insurance coverage for punitive damages under some types of workers' compensation and employer's liability insurance.

Fairfield Ins. Co. v. Stephens Martin Paving, LP, No. 04-0728., 2008 WL 400397 (Feb. 15, 2008).At issue in this case was whether Fairfield Insurance Company has a duty to defend and indemnify Stephens Martin Paving in a suit seeking exemplary damages in connection with the death of a Stephens Martin Paving employee.  A federal district court had concluded that the insurance policy at issue covered exemplary damages and that Texas public policy did not prohibit insurance coverage of those damages.  When the insurance company appealed, the United States Court of Appeals certified the following question to the Texas Supreme Court:  "Does Texas public policy prohibit a liability insurance provider from indemnifying an award for punitive damages imposed on its insured because of gross negligence?"  In an unanimous ruling, supported by two concurring decisions, Justice J. Dale Wainwright, delivering the opinion of the Court, wrote:  "Texas public policy does not prohibit coverage under the type of workers' compensation and employer's liability insurance policy at issue in this case."The Court began its analysis with a discussion of whether the Texas Legislature had offered any guidance on the issue.  While the Texas Legislature had made the policy decision to prohibit insurance coverage of exemplary damages in certain limited circumstances (e.g., exemplary damages assessed against certain health care providers), it made no such policy decision in the context of workers" compensation.  Indeed, the Texas Supreme Court found that the Legislature's expressed intent is that insurance coverage would exist for exemplary damages in the workers' compensation context.  Here, the Court relied on the fact that the standard-form policy language at issue, which had been approved by the Texas Department of Insurance under authority from the Texas Legislature, provided coverage for exemplary claims based on gross negligence.While that determination could have ended the Court's inquiry, the Court recognized that the question certified to it by the Fifth Circuit was much broader than the instant case.  Accordingly, the Court turned its attention to a discussion of Texas public policy on the issue of insurability of punitive damages generally and offered some considerations applicable to the analysis in other contexts.  Chief among those consideration is the right of parties to contract for such insurance coverage and the purpose behind awarding punitive damages.  Significantly, the Court cited the example of an insured business or corporation saddled with a punitive damages as a result of the conduct of one or more employees.  In such a circumstance, the Texas Supreme Court said courts should consider "valid arguments that businesses be permitted to insure against them."Anderson Kill & Olick, P.C., a law firm that regularly represents policyholders in insurance coverage disputes, filed an amicus brief in the case in conjunction with United Policyholders, a nonprofit organization dedicated to educating the public on insurance issues and consumer rights. About Anderson Kill & Olick, P.C.Anderson Kill & Olick, P.C. was founded in 1969 on the principles of  integrity, excellence in the practice of law, and straightforward solutions  to complex legal issues. Anderson Kill practices in the areas of Bankruptcy  & Restructuring, Corporate & Commercial Litigation, Corporate & Securities, Employment & Labor Law, Insurance Recovery, Intellectual Property, Real Estate & Construction, Tax, and Trusts & Estates. The firm has offices in New York, Greenwich, Newark, Philadelphia and Washington, D.C.For more information or for a copy of the decision, please contact:Michele Gallaghermgallagher@andersonkill.com(202) 416-6500