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Click here for the full text of this decision FACTS:Stephens Martin Paving, a highway paving company, employed Roy Edward Bennett as a brooming machine operator. On Dec. 20, 2002, Bennett died as a result of injuries that occurred when a brooming machine rolled over. Stephens Martin Paving carried a workers’ compensation and employer’s liability insurance policy, issued by Fairfield Insurance Co. Fairfield paid workers’ compensation benefits to Bennett’s wife and children under the policy in accordance with Texas workers’ compensation law. On Jan. 24, 2003, Bennett’s survivors sued Stephens Martin Paving for gross negligence, seeking exemplary damages because Stephens Martin Paving allegedly failed to provide a safe place to work, failed to follow and enforce OSHA safety rules and regulations, and failed to properly train and supervise its employees. Having received workers’ compensation benefits, Bennett’s survivors are barred by statute from recovering actual damages and seek only exemplary damages in the suit. On Feb. 24, 2003, Fairfield sued Stephens Martin Paving and Bennett’s survivors in federal district court, seeking a declaratory judgment that Fairfield owed no duty to defend or indemnify Stephens Martin Paving in the suit for exemplary damages. The federal district court concluded that the language in Fairfield’s policy covers exemplary damages and that Texas public policy does not prohibit insurance coverage of those damages. The district court denied Fairfield’s motion for summary judgment and entered a judgment declaring that Fairfield has a duty to defend Stephens Martin Paving and a duty to indemnify Stephens Martin Paving as provided by the policy if Stephens Martin Paving is adjudicated responsible for the damages sought in the underlying suit brought by Bennett’s survivors. Fairfield appealed. The 5th U.S. Circuit Court of Appeals certified to the Texas Supreme Court the question of the insurability of exemplary damages for gross negligence. HOLDING:The 5th Circuit certified the question: “Does Texas public policy prohibit a liability insurance provider from indemnifying an award for punitive damages imposed on its insured because of gross negligence?” The court answered the certified question in the negative. In response to the certified question, the court answered that the public policy of Texas did not prohibit insurance coverage of exemplary damages for gross negligence in the workers’ compensation context. However, without clear legislative intent to generally prohibit or allow the insurance of exemplary damages arising from gross negligence, the court declined to make a broad proclamation of public policy. OPINION:Wainwright, J., delivered the opinion of the court, joined by Jefferson, C.J., and Hecht, O’Neill, Brister, Medina, Green and Willett, JJ., and by Johnson, J., as to sections I, II and IV only. CONCURRENCE:Hecht, J., filed a concurring opinion, joined by Brister, Medina and Willett, JJ. “Taking into account the policy favoring freedom of contract, I would hold that when Chapter 41′s punitive purpose would be significantly impaired, and a defendant’s net worth could not be meaningfully incorporated in the assessment, as Chapter 41 requires, insurance against punitive damages would violate Texas public policy unless these considerations are outweighed by other factors, such as expressions of legislative will, or regulatory approval of the coverage, or the attenuation of the burden of liability from the misconduct. In these situations, in my view, there is no formulaic answer to the public policy question. Chapter 41 provides for punishment of a person who knows full well that his conduct poses an extreme risk of harm to others and yet does not care. That, in essence, is gross negligence. The public policy analysis must answer why punitive damages for such egregious behavior should be avoided by insurance.” Johnson, J., filed a concurring opinion. “I join the Court’s opinion as to parts I, II and IV. However, I consider part III of the opinion to go further than necessary in responding to the certified question presented even in light of Texas Constitution article V, section 3-c.”

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