### No. 82-219 INTHE SUPREME COURT OF 

### THE STATEOF 

### MONTANA 1982

ALTON 

### P. HARRIS, Plaintiffand Respondent,

AMERICAN GENERALLIFE INSURANCE COMPANYOF DELAWARE, DefendantandAppellant.

Appeal from: District Court of the Eighteenth JudicialDistrict, In and for the County of Gallatin Honorable JosephB. Gary, Judgepresiding. Counsel of Record: ForAppellant: Berg, Coil,Stokes & 

### Tollefsen, Bozeman, Montana Gig

### A. Tollefsenargued,Bozeman,Montana For Respondent: Nash & 

### Nash, Bozeman,Montana Donald Nash andMike Nash argued,Bozeman, Montana

Submitted: November 10,1982 Decided: February 9,

### 1983 

## FEB9

# -1983 Filed.

### Mr. Chief Justice Prank I. 

### Haswell delivered the Opinion of the Court. Defendant insurance company appeals from 

### a judgment entered in the District Court of the Eighteenth Judicial District assessing $30,000 in punitive damages against defendant. We affirm. On September 

### 8, 1970,defendant issued a $10,000 life insurance policy with a $10,000 accidental death benefit rider to plaintiff's son, Tom Harris. Thepolicy number was B 

### 697,465. Plaintiff, Tom's father, was the beneficiary. The accidental death rider provided: "The Accidental Death Benefit provided by this supplementary agreement will not be payable if the Insured's death:

"2. 

### Results directly or indirectly from any of the following causes:

"(c) Suicide or any attempt thereat, while sane or insane;

"(f) 

### Voluntary or involuntary "(i) Asphyxiation from or inhalation of gas except in the course of the Insured's occupation, or "(ii) Taking of any poison, drug, or sedative

# .

# .."

Tom Harris checked into the Rainbow Motel in Bozeman about 11:30 p.m. on October 10, 1979. He appeared dazed and had difficulty writing his name. The next morning (October 11) Harris paid for another day at the check-in desk and appeared normal to the hotelmanager. Harris was found dead, slumped in the shower of his

room with the shower water pouring on him, at about 8:15

### a.m. on Gctober 12, 1979. There was abour: two inches of standing water in the room, and water was running outunder the door tothe outside. On March 24, 1980, plaintiff filed a claim with defendant for benefits under the policy which was received by defendant on April 7, 1980. The death certificateaccompanying the policy listed the cause of death as "pending resultsof studiesof statelab"because an autopsyhad been performed and no conclusive results received. Defendant called a local ex-agent, requesting a certificate showing the causeof death. By this

### timeresultshad been obtained showing the cause of death tobe an overdose of chloroform througn inhalation. On June 11, 1980, defendant sent toplaintiff a check for the benefits due on the basic life insurance policy ($10,775.28, which included a premium refund, post-mortem dividend and paid up additions) with the restrictive endorsement on the back of the check stating, "Accepted in full and final settlement of all claims against American General Life Insurance Company on Policy B 697465." The endorsement appears to be stamped on the back of the check with a blank following the word "Policy" and the policy number was handwritten intheblank. Defendant denied accidental death benefits because of the policy language 

### setoutabove and the fact thatcholoroform is both a gas and a drug and that the fiozeman Police Department concluded that the death was an accidental overdoseor suicide. On August 22plaintiff (throughhisattorney) returned the check and demanded thatdefendant remove the restrictivesndorsement. 'The following paragraph was included in the August 22, 1980, letter: "We hereby demana thatyou return tothis office the face value of proceeds of the policy without restrictions as to right of Harris to seek balance of double indemnity benefits, together with any accumulation of dividend and interest to dateof your payment." On September 5, 1980, plaintiff filedsuitseeking the $10,i)1)0 basic benefits, $10,000 accidental death benefits and $50,000 inpunitivedamages. Ina letterdated September 9, defendant mailed the same check back to plaintiff with the restrictive endorsement crossed out and initialed by a respresentative of defendant. Plaintiff then cashed the check on September 16, 1980. Interrogatories were exchanged and in response to defendant's interrogatory requesting the names of witnesses plaintiff intended to call and what each would testify to, plaintiff listed Kent Lewis (a former agent of defendant)

ana statedthatLewis would testifyregarding thedifficulty experienced in obtaining the initial tender of money from defendant. Lewis latertestifled attrialabout defendant's financial condition. Eight days prior to trial plaintiff furnished defendant with an exhibit showing defendant's assets and liabilitieswhich plaintiff had not listed asan exhibiton the pretrial order. 'The exhibit was later admitted at trial,

over defendant's objection, as plaintiff's exhibitno. 12. After a jury trial and instruction on punitive damages, thejury returned averdict on specialinterrogatories denying the accidental death benefits but finding that defendant had acted in bad faith and awarding $30,000 inpurl1tivedarnayes. Defendant's motions forjudgment notwithstanding the verdict (one of the grounds was plaintiff's failure to prove actual damages) and for a new trial 

### were denied in 

### a memorandum order where the District Court found plaintiff's actual damages to be 

### (1)the interest from the date the claim should have been paid and (2) plaintiff's being forced to pay an attorney to collect the basic benefits. Defendant appeals from the judgment entered and from the denial of hismotions for a new trialand judgment notwithstanding the verdict and presents these issues for our consideration: 1. Was the evidence insufficient to entitle the plaintiff topunitivedamages? 2. Did theDistrictCourt properly instruct the jury

on punitivedamages? 3. Did the

### DistrictCourt improperly allowtheadmissionof evidence not listed inthepretrialorder? Regarding thefirstissuedefendant argues thatplaintiff failea to prove two things which are required for punitive damages: (1)a violation of the Montana Insurance Code for which a penalty 

### is prescribed, and (2) actual damages. Defendant contends that the first element 

### is required by the following lineof cases: Westfall v. Motors Insurance Corporation (1962), 140 Mont. 564, 374 P.2d 96; State ex rel. Larson v. District Court (1967), 149 Mont. 131, 423 P.2d 598; State ex rel. Cashen v. District Court (1971), 157Mont. 40, 482 P.2d 567; and, First SecurityBank

or Bozeman v. Goddard (1979), 181Mont. 407, 593 P.2d 1040. Defendant concludes this aspect of 

### its argument by claimingthattherewere no insurancecode violations. With regard to the second element, actual damages, defendant argues that there must be a finding of actual damages before punitive damages may be awarded. Defendant contends there was no evidence of actual damages here because the jury determined that plaintiff was not entitled tothe accidentaldeathbenefits. Appellant's arguments are not well taken. First of all, plaintiff showed a violation of the Montana Insurance Code for which a penalty 

### isprescribed. It 

### is uncontroverted here that plaintiff was clearly entitled to the basic life benefits of the policy and that defendant contested liabilityunder tne accidental death rider. Plaintiff filed a claim for benefits on March 24, 1980, and it was not until June 11, 1980, that defendant tendered the check with the restrictiveendorsement asnoted. Even though plaintiff was


### a layman, he wisely refused to negotiate the check and it

was not until September 9, 1980, that defendant tendered a check that plaintiff could cash without forfeiting his rights under the accidental death portion of the policy. The check was introduced into evidence as plaintiff's exhibit no. 

### 7. Section 33-18-201(13), MCA, of the Montana Insurance Code provides: "Unfair claim settlement practices prohibited. No person may, with such frequency as to indicate a general business practice, do any of the following:

"(13)fail topromptly settleclaims, if liability has become reasonably clear, under oneportion of theinsurancepolicy coverage in order to influence settlements under other portions of the insur-

### ance policy coverage;

### " As indicated by the facts above, appellant violated this 

### statute. The assistant vice-president and manager of life and disability claims testified regarding defendant's general business practice under questioning by plaintiff's attorney as follows: "Q. When you sentyour check, you indicated that you had stamped on the back a restrictive endorsement that, in effect, says it is payment in full of all claims against the company attributable to the death of Thomas Harris, isn't that correct? A. As is our custom,Mr. Nash.



# . And it is your custom when there's liability under one portion, liability to pay, that is liability, for the company to pay on the one portion and a disputed liability under the other portion, to tender the part you agree you have to pay, in full settlement? A. I'm not sure 

### Iunderstand what you're driving at. 

### "Q. That is your general practice, if there's an agreed portion and a disputed portion to a claim, you tender the agreed portion in full settlement? A. Yes." ,Thatit is the defendant's practice to soendorse settlement checks isunderscored by the fact that an examination of the check itself reveals that the endorsement has been stamped thereon with a blank after the word "Policy" with plaintiff's number inserted inhandwritten form. This leadsone to conclude that other policies are handled in similar fashion. Moreover, there is a general penalty prescribed for a violation of section 33-18-201(13), MCA. 

### Section 33-1-104, MCA, 

### gives a penalty for each violation of "this code," i.e., 

### the Montana Insurance Code, Title 33 (section 33-1-101, MCA) and section 33-18-201(13), MCA, is clearly in Title 33. This general penalty statute was correctlyaddressed and applieaby JusticeSheehy inGoddard, supra. Appellant's next contentionon thefirstissue

### is that theevidence failed to show actual damages. Here again, 

### we disagree. It 

### is undisputed thatthe $10,775.28 check with the restrictive endorsement was dated June 11, 1980 (plaintiff's exhibitno. 7). Dividends, a premium refund and paid up additions were calculated toJune 11, 1980, by defendant and included in the check. Defendant returned the check wlthout the endorsement accompanying a 

### letter dated September 9, 1980, with the stubstapledtothelettershowing the calculations toJune 11, 1980 (plaintiff'sexhibit no. 11). Defendant did not issue a new check or recalculate the amount due plaintiff to September 9, asdemanded by plaintnff and 

### as dictated by sound business practice. Thus, plaintiff lost approximately three months of interest that he would have gained had the insurance company initially tendered the check without the endorsement. It 

### is also uncontroverted that plaintiff hired an attorney to recover benefits under the policy. Plaintiff

### 's counsel on ora1 argument statedthatthepremium refund shownby exhibitno. 11 shortedplaintiff $14.11. We find there was sufficient evidence of actual damages before the Court. To support an award of punitive damages, the actual damages need only be nominal. Butcher



### v. Fetranek (1979)1 181 Mont. 358, 593 P.2d 743 ($925 in actual damages--$20,000 in punitive damages upheld on appeal). InPauver v. Wilkoskie (1949), 123Mont. 228, 211 P.2d 420, thejury gave theplaintiff no actual damages but awarded $2,500 in punitive damages which 

### was affirmed on appeal. 'I'he Cour

### t noted that the plaintiff

## 's out-of-pocketexpenses shown on the record, including attorney fees, were sufficient to uphold the punitive damage award. See also, Lauman v. Lee (1981), Piont

# . 626 P.2d 830, 38 St.Rep. 499 (the failure of the jury to fix the monetary value as damages does not preclude an award of punitive damages) and Miller v. Fox (1977), 174 Mont. 504, 571 P.2d 804 (an award of punitive damages was affirmed where the trialjudge failedtoput avalue on actualdamages). The second issue raised by appellant focuses on the District Court's Instruction 0 14 which addresses the issue of punitive damages. The pertinent part of the instruction asgiven appears below: "Plaintiff has asked for punitive exemplary damages which may be allowed by you. One who has sustaineddamage by the oppression, fraud, or malice of another may recover in addition to his actual damages, damages for the sake of example and by way of punishing such other party." Appellant correctly points out that the above paragraph is nearly identical tothe firstparagraph of Montana Jury Instruction Guide No. 35, with the exception that the phrase "provided you firstfind that theplaintiff has suffered actual damage," which appears atthe end of the first sentenceof 

### MJIG No. 35, was omitted. Appellant arguesthat Instruction No. 14 

### is improper because it does not state that the jury must find thatdefendant violated a provision of the Montana Insurance Code for which a penalty is prescribed before awarding punitive damages and because it fails to require the jury to find actual damages before awarding punitive damages. Appellant's contention regarding the insufficiency of the instruction on actualdamages 

### is disposed of the by theFauver case, supra. In Fauver, the Court noted that the trial court instructions did not define damages or instruct the jury as to the elements of damage to be considered by the jury or explain actual damages or compensatory damages

or inform the jury how such damages differ from exemplary damages or punitive damages. Yet the Court affirmed the award of punitive damages, reasoning that the record showed that theplaintiff had suffered actual damages. Similarly, here 

### we have found that plaintiff has suffered actual damages and accordingly, 

### we will not reverse the judgment for the failure to include the phrase "provided you first find that theplaintiff has suffered actualdamage." Moreover, we note that the given instruction 

### states thatplaintiff may recover punitive damages inadditiontohisactual damages if he can show oppression, fraud or malice. The reasonable conclusion therefrom is that actualdamages must firstbe shown. We reason similarly with regard tothe failure of the DistrictCourt toinstructthejury that plaintiff must show

a violation of the Montana Insurance Code for which a penalty 

### isprescribed before being awarded punitivedamages. In InstructionNo. 13thecourt read tothejury thestatute which defendant violated (section 33-18-201(13), MCA). As dlscusseu earlier, the uncontroverted evidence showed a violation of this statute. We failtoseehow the failure toinstructasplaintiff contendswarrants a reversalof the judgment. The third issue relates to the aumission of evidence not listed in the pretrial order. Appellant here argues that the plaintiff's exhibit no. 12, indicating the

### Jetendant's assets and 

### liabilities, should not have been admitted because it was not listed in the pretrial order. Also, 

### plaintiff did not indicate in answers to interrogatories that Lewis, a former agent of defendant, would tsstify aboutdefendant's financial condition. Appellant was furnished with the exhibit eight days prlor to trial and eight days is a sufficient time to prepare rebuttal evidence for the exhibit. Moreover, from tne 

### time defendant was served witn plaintiff's complaint, defendant was aware of the fact that plaintiff was seeking punitive damages. It requires no recitation of authority that a jury nay take into account a defendant's wealth when punitive damages are sought. Defendant did not request a continuance to prepare for the exhibit, submitted its case to the jury, and after an adverse verdict seeks a retrial on the punitive damages Issue. Defendant has had itsday in court. We fail to see how defendant's rights were prejudiced by the admission of the exhibit or the testimony regarding defendant's financial condition. 

### Affirmed.



# ., -7- 

### Chief Justice

We concur: /1

### Plr. Justice prank 8. 

### Morrison, Jr., specially concurring. I 

### concur in the result but dissent from that portion of the opinion which relies upon a violation of the insurance code as the basis for an award of punitive damages. The jury in this case was permitted to award punitive damages by making a finding that defendant insurance company failed tonegotiate in good faith. It is true that the jury

was 

### instructed regardinq the provisions of section 33-18-201(13), MCA, and that this statute could have formed the basis for their finding in favor of plaintiff and their resulting award of $30,000 inpunitive damages. However, the jury was not instructed that a violation of the statute was required for their verdict and in fact they were given the option of simply returning a verdict in favor of plaintiff based upon the "bad faith" case law which has developed. The majority opinion fails to deal with the question of whether a plaintiff can recover punitive damages in Montana in an action premised upon "bad faith" negotiation without a violation of the insurance code. Instead the majority relies upon the fact that, in this case, there was a violation of the insurance code as a matter of law and, therefore, any
error in allowing the jury to return a verdict forplaintiff absent a finding ofviolation of the insurance code,would be harmless. I 

### do not agree that there was a violation of the insurance code as a matter of law. The question of whether this insurance company failed topromptly settle claims as a general business practice was a 

### question for the jury. Prior to our decision in Lipinski v. Flathead Title Co. 39 

### St.Rep. 2283 a plaintiff's riqht to recover punitive damages for bad faith arising out of an insurance contract

### was not clearly recognized in absence of a 

### statutory violation. However, inLipinskiwe said: "Should there be any doubt, we now expressly hold that insurance companieshave a duty to act in good faith with their insureds, and that this duty exists independent of the insurance contract and independent of statute." An award of punitive damages without a statutory violation

was approved. In this case the plaintiff presented the evidence from which a jury could find that defendant insurance company engaged in bad faith in its negotiation of this claim. The claim is grounded in tort. Therefore, this jurywas entitled tomake an award of punitive damages if it found defendant's conduct was sufficiently culpable to satisfy the statutory requirements of oppression and/or impliedmalice. I 

### concur in the affirmance.

### Mr. JusticeFred J. Weber dissents as follows: I 

### respectfully dissent from the majority opinion. My basic disagreement relates to the majority's interpretation of section 33-18-201(13), MCA. In substance I 

### would hold that section does not give rise to an action in tort in the event of a failure to promptly settle a claim with an insured. Reference is made to my dissent in Klaudt v. Flink, P.2d-I -

### St.Rep. 

## , and which case has Supreme Court

### No. 82-247.

### Mr. JusticeDaniel J. Shea, concurring: I would affirmthejudgment, but I cannot do soon the ground relied on by the majority. Section 33-18-201 (13), MCA, was not intended to create a separate cause of action infavor of the insured where his insurance company has not dealtwith him ingood faith. Justlikeour recent decision inKlaudt v. Flink (1983), Mont

# . 1- P.2d I St.Rep. (No. 82-247, decidedJanuary 28, 1983), the - majorityhas created a statutorycauseof actionoutof thin air. The verdict and judgment can, however, be affirmed in any event because there 

### is ample evidence thatthe insurance company was not acting in good faithwith 

### its insured. As indicated by Justice Morrison, 

### we held inLipinski v. Flathead County Title Co. (1982), Plont. -1 -P.2d



## , 39 St.Rep. 2283, a punitive damage award in favor of the insured against an insurance company "exists independent of the insurance contract and independent of statute." Here the insurance company had a clear duty toimmediately 

### settle with the insured that part of the claim which 

### was undisputed. A jury could, under these facts, conclude that its failuretodo sowas inbad faith.