Public Policy Challenges the Insurance Policy: McNulty Rejected
![handle is hein.journals/sdlr18 and id is 505 raw text is: PUBLIC POLICY CHALLENGES THE INSURANCE
POLICY: McNULTY REJECTED
This comment presents a critical analysis of the public
policy argument employed to strike down insurance pro-
tection from awards of punitive damages as expressed in
the landmark decision of Northwestern National Casualty
Co. v. McNulty. A reasoned examination of the McNulty
case will demonstrate that the majority of states, includ-
ing South Dakota, should reject its rationale.
INTRODUCTION
The problem discussed by this article is one that has long
plagued judicial bodies and continues to produce a stream of ir-
reconcilable decisions. The dilemma referred to is the confusion
over whether liability insurance policies may be implemented to
cover awards of punitive damages assessed against a defendant
whose conduct is willfully and wantonly negligent. A divergence
in case law arises in this area because unlike the explicit exclu-
sions in insurance policies for damage awards resulting from inten-
tional acts,' no standard policy form used today contains an ex-
press exclusion of judgments for punitive damages.2 The common
automobile liability insurance policy, which is provided for in most
states either by statute or by administrative regulation,3 provides
as follows:
To pay on behalf of the insured all sums which the insured
shall become legally obligated to pay as damages:
Coverage A. Because of bodily injuries sustained by any
person, and
Coverage B. Because of injury to or destruction of prop-
erty, caused by accident and arising out of the ownership,
maintenance, or use of any automobile, including loading
and unloading thereof.4
In construing this language, the courts have sought to resolve twf
major issues: 1) whether the wording of the policy can be con-
strued as covering punitive damage awards, and 2) whether, al-
though the language provides for coverage, public policy prohibits
1. R. KEETON, BASIC TEXT ON INSURANCE LAW, § 5.3(f) (1971); Lentz,
Payment of Punitive Damages by Insurance Companies, 15 CLEV.-MAR.
L. REv. 313, 314 (1966). The KEETON text states that even where such
a provision is not found within the confines of the policy, most courts
will imply such a clause.
2. Haskell, Punitive Damages: The Public Policy and the Insurance
Policy, 58 ILL. B. J. 780, 782 (1970).
3. A typical example would be S.D. CoMPIED LAws ANN. § 58-9-13
(1967); 'Casualty insurance' includes liability insurance, insurance against
legal liability for the death, injury, or disability of any human being, or for
damage to property. .. .
4. Southern Farm Bureau Cas. Ins. Co. v. Daniel, 246 Ark. 849, 440
S.W.2d 582, 583 (1969); see Northwestern Nat'l Cas. Co. v. McNulty, 307
F.2d 432, 433 (5th Cir. 1962); 7 J. APPLEMAN, INSURANCE LAW AND PRAC-
TICE, § 4311 (1962) [hereinafter cited as APPLEMAN].](ViewImageLocal?handle=hein.journals/sdlr18&div=33&collection=&method=preview&ext=.png&size=3)
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Public Policy Challenges the Insurance Policy: McNulty Rejected
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