The court determined the insurer did not act in bad faith when it failed to indemnify the insured for an award of punitive damages. Bensalem Racing Ass/n v. Ace Prop. & Cas. Ins. Co., 2017 Phila. Ct. Com. Pl. LEXIS 11 (Pa. D. Jan. 20, 2017).
The insured, Parx Racing, operated a racetrack. Mario Ramiro Calderon was injured in an accident while he was exercising a horse at the track. The accident was allegedly caused when a chicken on the racetrack spooked the horse on which Calderon was riding, causing Calderon to fall, suffer injury and die. A wrongful death suit was filed against Parx and its related entities, alleging negligence in allowing chickens to roam freely on the racetrack. No Parx employees were identified as defendants. An amended complaint was filed to add a claim for punitive damages, alleging that Parx knew that the presence of chickens posed a serious damage to horse riders, yet Parx took no action to ban the chickens from the racetrack.
Parx had a commercial umbrella liability policy with Ace. The policy did not contain an exclusion for punitive damages. Ace associated with the insured in the defense of the Calderon action, as permitted by the policy, but issued a reservation of rights letter disclaiming coverage for any punitive damages.
The jury returned a verdict against Parx and awarded $7,764,429 in damages. Of this amount, $5,000,000 was attributable to punitive damages. The underlying case eventually settled for $5.5 million, with $2,647,374 attributable to punitive damages. Ace paid the judgment with the exception of the punitive damages.
Parx sued Ace for breach of contract and bad faith for failing to pay the punitive damages portion of the judgment. Ace argued it was a violation of Pennsylvania law and its public policy to allow coverage for punitive damages. An exception existed, however, where the insured's liability stemmed solely from vicarious liability. Allowing one who is only vicariously liable for punitive damages to shift the burden of satisfying the judgment to his insurer did not conflict with the rule that otherwise disallowed coverage for punitive damages.
The court found that the limited exception for vicarious liability did not apply to Parx. The record was filled with evidence of Parx's own direct negligence based on its knowledge of the chickens' presence and the company's failure to address the problem. For example, Parx's chief of security was informed about the chickens spooking horses and responded there was nothing they could do to solve the problem. Therefore, the evidence was persuasive that the jury's punitive damages award was against Parx for its own direct negligence The company failed to maintain a safe racetrack even when it was aware of the risks.