South Carolina Supreme Court Rules on Automobile Insurance Policy Question
South Carolina law does not require punitive damages be apportioned pro rata between bodily injury and property damage in a split limits automobile insurance policy.
In Government Employees Insurance Company v. Poole, 2018 WL 3300235, (S.C., 2018), the South Carolina Supreme Court answered “No” to the following question certified to it by the United States District Court for the District of South Carolina: “[W]hen an insured seeks coverage under an automobile insurance policy, must punitive damages be apportioned pro rata between those sustained for bodily injury and those sustained for property damage where the insurance policy is a split limits policy?”
The case arose from a fatal motor vehicle accident. Jack and Jennifer Poole were riding in a vehicle owned by Jennifer’s mother when a drunk driver struck them. Jennifer’s injuries resulted in her death; Jack was seriously injured. As they did not own the car, the total value of the Pooles’ property damaged was about $1,250.
The at-fault driver’s carrier tendered its limits. The mother’s insurer tendered its UIM limits. Jack then sought recovery from the Pooles’ insurer, GEICO, which provided a split limits UIM policy with BI coverage of up to $100,000 per person and PD coverage of $50,000. GEICO tendered the UIM BI coverage limits of $100,000 each for Jack and Jennifer’s estate. The Pooles requested another $50,000 from policy’s property damage coverage in anticipation of a large punitive damages award. GEICO declined, and filed a declaratory judgment action to establish that it was not liable to pay any amounts for punitive damages under the property damage provision of the UIM policy because the source of the Pooles’ UIM damages was traceable only to bodily injury.
GEICO argued allocation is required by the state’s statutory scheme because the insurance code allows for split limits policies, and that failure to allocate punitive damages would transform the split limits policy into a combined single limit policy. GEICO acknowledged the statutory definition of “damages” includes punitive damages, contending this requirement must be applied in the split limits context. GEICO argued that if an insurer must pay for punitive damages, those punitive damages are “because of” bodily injury or property damages, respectively.
The Supreme Court rejected the argument. South Carolina law requires that carriers offer UIM coverage “up to the limits of the insured liability coverage to provide coverage in the event that damages are sustained in excess of the liability limits carried by an at-fault insured or underinsured motorist….” S.C. Code § 38-77-160. “Damages” are defined by statute to include both actual and punitive damages. The statutes are otherwise silent with regard to the apportionment of punitive damages. The court held that the trigger for UIM coverage is an event that causes damages—actual and punitive—which exceed the liability limits of the at-fault motorist. The UIM statute makes no mention of allocation nor does it indicate that bodily injury and property damage must be analyzed separately before determining whether UIM coverage is triggered.
The rationale behind punitive damages is not to compensate an aggrieved party for injuries to body and property, but to punish the defendant, deter similar conduct, vindicate the private rights of the plaintiff, and provide compensation for the intentional violation of those rights that is separate and distinct from the usual measure of compensatory damage. The court concluded that while actual damages may be traceable directly to bodily injury and property damage, punitive damages are not so easily divisible, and reading the statutes to require allocation of punitive damages would result in adding language to the statutes, rather than merely interpreting them.
The court rejected GEICO’s argument that a constitutional ratio of punitive damages required an allocation of punitive damages on several grounds, including that the issue was not the amount of punitive damages which should be awarded, but GEICO’s contractual responsibility to pay them.
GEICO also argued the contract required pro rata apportionment of punitive damages. The court abstained from ruling, leaving it to the district court. Lastly, the court declined to find that public policy requires the pro rata apportionment of punitive damages, leaving that to the legislature.