No. 82-219 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1982 

ALTON P. HARRIS, 

Plaintiff and Respondent, 

AMERICAN GENERAL LIFE INSURANCE 

COMPANY OF DELAWARE, 

Defendant and Appellant. 

Appeal from: District Court of the Eighteenth Judicial District, 

In and for the County of Gallatin 

Honorable Joseph B. Gary, Judge presiding. 

Counsel of Record: 

For Appellant: 

Berg, Coil, Stokes & Tollefsen, Bozeman, Montana 

Gig A. Tollefsen argued, Bozeman, Montana 

For Respondent: 

Nash & Nash, Bozeman, Montana 

Donald Nash and Mike Nash argued, Bozeman, Montana 

Submitted: November 10, 1982 

Decided: February 9, 1983 

FEB 9 - 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. The policy 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 hotel manager. 

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 out under 

the door to the 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 certificate accompanying the policy listed the cause of death as "pending 

results of studies of state lab" because an autopsy had been 

performed and no conclusive results received. Defendant 

called a local ex-agent, requesting a certificate showing 

the cause of death. By this time results had been obtained 

showing the cause of death to be an overdose of chloroform 

througn inhalation. 

On June 11, 1980, defendant sent to plaintiff 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 in the blank. 

Defendant denied accidental death benefits because of 

the policy language set out above and the fact that choloroform is both a gas and a drug and that the fiozeman Police 

Department concluded that the death was an accidental 

overdose or suicide. 

On August 22 plaintiff (through his attorney) returned 

the check and demanded that defendant remove the restrictive 
sndorsement. 'The following paragraph was included in the 

August 22, 1980, letter: 

"We hereby demana that you return to this 

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 

date of your payment." 

On September 5, 1980, plaintiff filed suit seeking the 

$10,i)1)0 basic benefits, $10,000 accidental death benefits 

and $50,000 in punitive damages. In a letter dated 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 stated that Lewis would testify regarding the difficulty 

experienced in obtaining the initial tender of money from 

defendant. Lewis later testifled at trial about defendant's 

financial condition. 

Eight days prior to trial plaintiff furnished defendant with an exhibit showing defendant's assets and liabilities which plaintiff had not listed as an exhibit on the 

pretrial order. 'The exhibit was later admitted at trial, 

over defendant's objection, as plaintiff's exhibit no. 12. 

After a jury trial and instruction on punitive damages, the jury returned a verdict on special interrogatories 

denying the accidental death benefits but finding that 

defendant had acted in bad faith and awarding $30,000 in 
purl1 tive darnayes. Defendant's motions for judgment 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 his motions for a new trial and judgment notwithstanding the verdict and presents these issues for our 

consideration: 

1. Was the evidence insufficient to entitle the 

plaintiff to punitive damages? 

2. Did the District Court properly instruct the jury 

on punitive damages? 

3. Did the District Court improperly allow the admission of evidence not listed in the pretrial order? 

Regarding the first issue defendant argues that plaintiff 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 line of 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), 157 Mont. 40, 482 P.2d 567; and, First Security Bank 

or Bozeman v. Goddard (1979), 181 Mont. 407, 593 P.2d 1040. 

Defendant concludes this aspect of its argument by claiming 
that there were no insurance code 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 

to the accidental death benefits. 

Appellant's arguments are not well taken. First of 

all, plaintiff showed a violation of the Montana Insurance 

Code for which a penalty is prescribed. It is uncontroverted 

here that plaintiff was clearly entitled to the basic life 

benefits of the policy and that defendant contested liability under 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 

restrictive endorsement as noted. 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 to promptly settle claims, if 

liability has become reasonably clear, 

under one portion of the insurance policy 

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 sent your 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 I understand 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." 

,That it is the defendant's practice to so endorse settlement 

checks is underscored 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 in handwritten form. This leads one 

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 correctly 
addressed and appliea by Justice Sheehy in Goddard, supra. 

Appellant's next contention on the first issue is that 

the evidence failed to show actual damages. Here again, we 

disagree. It is undisputed that the $10,775.28 check with 

the restrictive endorsement was dated June 11, 1980 (plaintiff's exhibit no. 7). Dividends, a premium refund and paid 

up additions were calculated to June 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 stub stapled to the letter showing the 

calculations to June 11, 1980 (plaintiff's exhibit no. 11). 

Defendant did not issue a new check or recalculate the 

amount due plaintiff to September 9, as demanded 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 or a1 

argument stated that the premium refund shown by exhibit no. 

11 shorted plaintiff $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). In Pauver v. Wilkoskie (1949), 123 Mont. 228, 211 

P. 2d 420, the jury gave the plaintiff 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 -pocket 
expenses shown on the record, including attorney fees, were 

sufficient to uphold the punitive damage award. See also, 

Lauman v. Lee (1981), Pion t . 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 

trial judge failed to put a value on actual damages). 

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 as given appears below: 

"Plaintiff has asked for punitive exemplary damages which may be allowed by 

you. One who has sustained damage 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 to the first paragraph of Montana 

Jury Instruction Guide No. 35, with the exception that the 

phrase "provided you first find that the plaintiff has suffered actual damage," which appears at the end of the first 

sentence of MJIG No. 35, was omitted. Appellant argues that 

Instruction No. 14 is improper because it does not state 

that the jury must find that defendant 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 actual damages is disposed of the by the 
Fauver 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 the plaintiff 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 the plaintiff has suffered actual damage." Moreover, we note that the given instruction states that plaintiff may recover punitive damages in addition to his actual 

damages if he can show oppression, fraud or malice. The 

reasonable conclusion therefrom is that actual damages must 

first be shown. 

We reason similarly with regard to the failure of the 

District Court to instruct the jury that plaintiff must show 

a violation of the Montana Insurance Code for which a 

penalty is prescribed before being awarded punitive damages. 

In Instruction No. 13 the court read to the jury the statute 

which defendant violated (section 33-18-201(13), MCA). As 

dlscusseu earlier, the uncontroverted evidence showed a 

violation of this statute. We fail to see how the failure 

to instruct as plaintiff contends warrants a reversal of 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 about defendant'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 its day 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 to negotiate 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 in punitive 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 for plaintiff 

absent a finding of violation 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 to promptly 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, in Lipinski we said: 

"Should there be any doubt, we now expressly hold 

that insurance companies have 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 jury was entitled 

to make an award of punitive damages if it found defendant's 

conduct was sufficiently culpable to satisfy the statutory 

requirements of oppression and/or implied malice. 

I concur in the affirmance. 
Mr. Justice Fred 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. Justice Daniel J. Shea, concurring: 

I would affirm the judgment, but I cannot do so on the 

ground relied on by the majority. Section 33-18-201 (13), 

MCA, was not intended to create a separate cause of action 

in favor of the insured where his insurance company has not 

dealt with him in good faith. Just like our recent decision 

in Klaudt v. Flink (1983), Mont . 1- P.2d I 

- St.Rep. (No. 82-247, decided January 28, 1983), the 

majority has created a statutory cause of action out of thin 

air. 

The verdict and judgment can, however, be affirmed in 

any event because there is ample evidence that the insurance 

company was not acting in good faith with its insured. As 

indicated by Justice Morrison, we held in Lipinski 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 to immediately settle 

with the insured that part of the claim which was undisputed. A jury could, under these facts, conclude that its 

failure to do so was in bad faith.