No. 92-105 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

TOM and JODIE STEPHENS, 

plaintiffs and 

-vSAFECO INSURANCE COMPANY 

Appellants, 

OF AMERICA, 

a Washington corporation, 

Defendant and Respondent, 

APPEAL FROM: District Court of the Fourth Judicial District, 

In and for the County of Ravalli, 

The Honorable Douglas G. Harkin, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Richard M. Baskett, Datsapoulos, MacDonald 61 Lind, 

Missoula, Montana 

For Respondent: 

Shelton C. Williams, Williams & Ranney, Missoula, 

Montana 

Filed: 

Submitted on ~riefs: February 11, 1993 

Decided: May 4, 1993 
Justice R. C. McDonough delivered the Opinion of the Court. 

This is an appeal from a Fourth Judicial District Court, 

Ravalli County jury verdict in an insurance bad faith action. We 

reverse. 

The issues include: 

1. Did the District Court properly apply the law of 

Montana in holding that when two parties act in bad 

faith, the party at comparatively greater fault is denied 

recovery? 

2. Did the District Court properly interpret the 

Special Verdict by holding that damages were 53% 

attributable to Appellants' bad faith and 47% 

attributable to Respondent's bad faith? 

3. If the Appellants are entitled to recovery for 

damages, is the amount of their recovery $38,333.33, or 

47% of $38,333.33? 

Appellants Tom and Jodie Stephens (appellants) owned Buster's 

Body Shop in Hamilton, Montana. Respondent Safeco Insurance of 

America (respondent) was the insurer of their automobile body 

repair shop, covering the shop with a policy with limits on the 

structure of $80,000 and limits on the structure's contents of 

An accidental fire occurred in the body shop around May 6, 

1987. Appellants notified the respondent's agent of the fire and 

an investigation by their agents followed. 

Respondent and appellants encounteredproblems in settling the 

claim and this litigation resulted. The complaint in this action 

was filed on May 5, 1989. Trial in this case was held on May 28, 

1991 by jury. 

The scope of review for questions of law is whether the trial 

court's interpretation of the law is correct. Steer Inc. v. 

Department of Revenue (1990), 245 Mont. 470, 474-475, 803 P.2d 601, 
At the close of trial in this action the jury was given a 

special verdict form. The questions on the special verdict form 

were as follows: 

1. Did Safeco violate any duty of good faith and fair 

dealing owed to Plaintiffs? Yes: 8-4 

2. Did the wrongful conduct found in question 1, if any, 

cause any damages to plaintiffs? Yes: 8-4 

3. Did Safeco violate the Montana Unfair Claims 

Settlement Practices Act with such frequency as to 

indicate a general business practice? No: 12-0 

4. Did the wrongful conduct found in Question 3, if any, 

cause any damages to Plaintiffs? 

5. What is the total amount of pecuniary damages for 

emotional distress, if any, caused to Plaintiff Tom 

Stephens by the wrongful conduct found in your answers to 

Questions 1 through 4, if any? $38.333.33 

6. Did plaintiffs violate any duty of good faith and fair 

dealing owed to Safeco? Yes: 11-1 

7. Did the Plaintiffs fail to exercise ordinary care to 

mitigate their damages in this case? No: 11-1 

8. Did Plaintiffs or their attorneys or agents interfere 

with Safeco's performance of its duties under the policy? 

Yes: 11-1 

9. Did the wrongful conduct of Plaintiffs found in answer 

to any of Questions 6-8 cause some of the Plaintiffs' 

damages? Yes: 9-3 

lo. If, in your answers to Questions 1 through 9, you 

have determined that wrongful conduct on behalf of both 

Plaintiffs and Defendant have contributed to Plaintiffs' 

damages, then, using 100% as the total combined wrongful 

conduct which has caused Plaintiffs' damages, what 

proportion of the wronqful conduct do you determine is 

attributable to each of -the parties, if iny? Plaintiffs: 

53% Defendants: 47% 

The answers are as indicated. 

The jury returned with a verdict stating the amount awarded 

for damages for emotional distress to Tom Stephens was $38,333.33. 

The jury also concluded that both parties violated the duty of good 

faith and fair dealing and the appellants interfered with 

respondent's performance of its duties. The jury allocated the 

percentage of wrongful conduct as 53% for the appellants and 47% 

for respondent. It is noted that in answer to Question 9 the jury 

found that appellant's wrongful conduct caused some of appellant's 
damages, but the verdict does not indicate such damages were in any 

way the same as the damages found in answer to Question 5, which 

was caused by wrongful conduct of respondent. 

The trial court subsequently ordered the parties to prepare 

briefs on the issue of the type of judgment which should be entered 

by the court considering the verdict of the jury. The trial court 

reviewed the briefs and upon further study, ordered that the 

appellants were precluded from recovering any award because the 

jury had determined that their fault was proportionally greater 

than the respondent. 

The appellants contend on appeal that they should receive the 

entire jury award of $38,333.33 because their "fault" in this 

matter cannot be compared to the "faultu of the respondent and 

accordingly offset. The respondent, however, states "that the 

insured's own wrongful conduct was the major cause his (sic) own 

damages, and that the insurer's wrongful conduct was a lesser 

factor in causing these damages." Therefore, the insured should 

not recover from the respondent for his damages. 

We conclude that the appellants should receive the $38,333.33 

awarded by the jury. "[I]nsurance companies have a duty to act in 

good faith with their insureds, and this duty exists independent of 

the insurance contract and independent of statute." Lipinski v. 

Title Ins. Co. (1983), 202 Mont. 1, 15, 655 P.2d 970, 977. If this 

duty is breached the cause of action of the insured against the 

insurer sounds in tort. First Sec. Bank of Bozeman v. Goddard 

(1979), 181 Mont. 407, 419, 593 P.2d 1040, 1047. 

However, if the situation is reversed, and the insured 

breaches the covenant of good faith and fair dealing, the result is 
not a tort, but a breach of contract. In Story v. City of Bozeman 

(1990), 242 Mont. 436, 791 P.2d 767, this Court made clear "that 

the bad faith tort should be used only when the parties have a 

special relationship." Story, 791 P.2d at 775. Story adopted five 

elements to be applied in determining whether the parties have a 

special relationship: 

(1) the contract must be such that the parties are in 

inherently unequal bargaining positions; [and] (2) the 

motivation for entering the contract must be a non-profit 

motivation, i.e., to secure peace of mind, security, 

future protection; [and] (3) ordinary contract damages 

are not adequate because (a) they do not require the 

party in the superior position to account for its 

actions, and (b) they do not make the inferior party 

llwhole"; [and] (4) one party is especially vulnerable 

because of the type of harm it may suffer and of 

necessity places trust in the other party to perform: and 

(5) the other party is aware of this vulnerability. 

Story, 791 P.2d at 776. 

When these five elements are applied to this case, the special 

relationship is established. First, in the insurance context, the 

insurer occupies the superior bargaining position and the insured 

in the inferior. This is because "in the insurance field the 

insured usually has no voice in the preparation of the insurance 

policy . . . " Goddard, 593 P.2d at 1047. There is a "great 

disparity between the economic positions of the parties to a 

contract of insurance. . . ." Goddard, 593 P.2d at 1047. 

Second, the insured has a non-profit motive for entering into 

the insurance contract. "The insured seeks to purchase protection 

and security. This expectation is perhaps justified, if not 

entirely motivated, by insurers' advertisements promising security 

and freedom from worry." Graham and Luck, "The Continuing 

Development of the Tort of Bad Faith in Montana," 45 Mont. L. Rev. 
Third, ordinary contract damages would not make appellants 

whole. Appellant Tom Stephens suffered from severe mental distress 

due to the problems with the insurance claim. He incurred certain 

medical expenses in connection with that distress. 

Fourth, "at the time an insured party makes a claim he may be 

in dire financial straits and therefore may be especially 

vulnerable to oppressive tactics by an insurer seeking a settlement 

of a release.'I Goddard, 593 P.2d at 1047. Finally, the fifth 

element applies because the insurer is the author of the insurance 

contract and is aware of the insured's vulnerability. "The special 

considerations existent in a consumer-held insurance contract do 

not apply to an ordinary contract between businessmen." Goddard, 

593 P.2d at 1047. 

The insurer is certainly not in apprehension of the same 

concerns in its relationship with the insured. "The tort of bad 

faith . . . serves to discourage oppression in contracts which 

necessarily give one party a superior position." Storv, 791 P.2d 

at 776. The insurer, in the superior position, is therefore liable 

in tort whereas there is no fear that the insured will harm the 

insurer to such an extent. 

The respondent argues that under Martel v. Montana Power Co. 

(1988), 231Mont. 96, 752 P.2d 140, respondent's bad faith and the 

appellants' bad faith can be compared and the appellants' bad faith 

can be used to offset the respondent's bad faith in determining 

damages to appellant Tom Stephens. We disagree. 

As stated earlier, the two parties occupy two very different 

positions in relation to each other. Because of their varying 

positions, the respondent's conduct rises to the level of a tort 
while the appellants' conduct is a breach of contract. 

Under Martel, conduct rising to the level of a tort is 

compared to other conduct rising to a tort. Martel, 752 P.2d at 

143. However, the appellants conduct here does not involve a tort 

so it cannot be compared to the respondent's tortious conduct. 

Therefore, the respondent's tort cannot be offset comparatively by 

the appellants' contract breach. These are two distinctive legal 

concepts as to liability and damages. They are apples and oranges. 

The jury verdict to award the appellants $38,333.33 is reinstated. 

The District Court was incorrect when it entered judgment 

concluding the appellants were precluded from recovering any 

portion of the jury's award. REVERSED. 

We Concur: 
May 4, 1993 

CERTIFICATE OF SERVICE 

I hereby certify that the following order was sent by United States mail, prepaid, to the following 

named: 

Richard M. Baskett 

DATSOPOUMS, MacDONALD & LIND, P.C. 

201 West Main, Central Square Bldg. 

Missoula, MT 59802 

Shelton C. Williams, Esq. 

WILLIAM & RANNEY, P.C. 

P.O. Box 9440 

Missoula, MT 59807-9440 

ED SMITH 

CLERK OF THE SUPREME COURT 

STATFWF MONTANA